The Latest Kansas City Mortgage News

Here's the latest Kansas City Mortgage News from my friend at First Community Bank

Mortgage Division



From: CAROL POPPE 913-652-7302



WEEKLY NEWS REPORT: 8/6/2007



Well as we say in this business, “the wheels are falling off the bus.” Last week was The Good, The Bad and The Ugly. The good news last week came in the form of friendly inflation and employment news which helped rates on CONFORMING home loans improve over the course of the week. I just locked a $390,000 loan (80% LTV) in at 6.375%. Conforming home loans are those under $417,000 and subject to very standard credit, income and asset qualifying, nothing exotic, outside the box, or fancy.



A little bad news came by way of the Bureau of Economic Analysis, revising previous personal savings rate estimates higher, but showing that Americans still save less than 1% of their income.



The Ugly last week – well, was really ugly. The media screamed all week about issues in the mortgage industry particularly impacting what are called Non Conforming home loans; those that are dollar amounts higher than $417K, or with credit, income or assets not falling under traditional guidelines. Many of those rates got excessively ugly, in many cases, overnight. Why? Over the past several yeas, many loans were made to homeowners with somewhat non-traditional or “non-conforming” situations, be it poor credit, inability to document income, or any number of factors that do not fit within the traditional box for home loans. These loans are often called “Sub-Prime” or “Alt-A”, meaning that they were somewhat riskier in nature than A credit, prime or traditional loans. Another type of “non-conforming” home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). These are known as Jumbo Loans – but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie. Most Non-Conforming loan product rates popped significantly higher in the last week even though Jumbos have not suffered from the increased delinquencies like the Sub-prime and Alt-A. This was due to the fact that these pools of mortgages are being purchased by smaller private entities that can’t afford to take on the margin of risk of foreclosures.



From our pool of investors, Wells Fargo jumped the highest in their Jumbo rates. The 100% financing options are deteriorating very quickly and the rules are changing overnight. Several large companies have shut their doors in the last week including American Home Mortgage (huge in stated and no income programs) and Fieldstone (a Sub-Prime company). US Bank has announced today that they are no longer doing “No Income” and “No Ratio” mortgage loans. BE WARY OF OLDER PRE-APPROVALS whether you are putting a contract on a home or are receiving one. Everything is changing so quickly it is hard to keep up with all the changes. Some investors have raised the credit score minimums for 100% financing. We are seeing that those people who have credit scores under 680 and make more than $82,000 are going to be challenged in 100% financing if they purchase over the FHA limit (approximately $210,000). Their options are dwindling. This is the group buying $225,000-$350,000, and even though some of these are buying their second home, they are not netting enough out of the sale of their first home to have much downpayment after they cover their costs.



Remind your buyers that now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true. A smooth closing and being reassured that it will close on time are just too important, and the times have changed. I am here to help and advise during these volatile times – and would welcome calls from you and your clients.

Kansas City Area Economic News from Carol Poppe

Economic News From Carol Poppe, VP of Residential Lending
Here's the most recent economic news from Carol Poppe.
First Community Bank Mortgage Division Carol L. Poppe, Vice President
(913) 652-7302 ph (913) 707-1153 cell
ECONOMIC NEWS FOR THE WEEK: 02/13/2007
The question is simple enough: What’s going on with mortgage rates? What makes them rise or fall? Is it the Fed? The economy? Inflation? The banks?
The answer is that rates are moved by a number of related factors, and believe it or not, you—Joe/Jane Consumer-- are one of those factors.
Most mortgage money comes from “capital markets” which is where investors interested in purchasing certain kinds of investments come to buy these items. In order to attract investors, sellers of bonds must compete with one another to get investor’s money. They do this by offering a variety of products with differing structures of risk and return over given periods of time.
Who are these investors and why are they so fickle? Mostly, they are people like you, and you want two opposing things, low payment on your mortgage and high return on your investments. You will buy only so many low yielding bonds before you take your money elsewhere for better returns. Investors have 100’s of places to put their money in a crowded marketplace. If the demand falls enough, a change in strategy to attract investors is to raise the rates. Mortgages are priced for sale to attract investors who seek safe, fixed income investments, such as retirement accounts.
Rates have to be high enough to attract investors and low enough to attract mortgage borrowers.
The big unknown in the bond market is “volume.” No one really knows how many mortgages will be originated and then made available for sale (as bonds) in a given period of time. Recently, a quick drop in rates produced a large buildup of loans to be sold to investors as homeowners rushed to refinance. This made way too much bond supply available in too short a time and investors could not absorb it all at once. Too much supply, not enough demand; bond prices had to go down and yields went up. When the yields went up, so did the mortgage rates.
Inflation impacts Treasury, mortgage, and other fixed-income investments. Rising inflation reduces the actual return on a fixed interest rate investment, so with 2% inflation, that 6% mortgage note returns only 4% “real interest.” If inflation is expected to decline for the foreseeable future, you can bet that mortgage rates have some room to fall. Conversely, an outlook which suggests higher inflation ahead will see mortgage rates rise, sometimes very quickly. This is another reason that the Feds watch inflation very carefully. The higher rates can cool demand (slowing economic growth) helping to keep inflationary pressures from forming.
However, contrary to belief, the Fed (The Federal Reserve) doesn’t control mortgage rates. The Federal Funds rate is the overnight interest rate which banks charge each other when a bank needs to borrow money to meet end-of-day reserve requirements. i.e. A bank must have so much cash on hand when the books close at the end of the day and those funds can be borrowed from another bank at this interest rate. It is literally an Overnight Loan. The Fed Funds rate is the shortest of short-term rates and a 30 year fixed-rate is at the opposite end of the scale.
In some ways, expectations of what the Fed might do can be more important than what the Fed actually does.
GOING ONCE…GOING TWICE…SOLD, FOR $36 BILLION! That’s right, if you were in the market to buy new Bonds last week, it was your week! The US Treasury offered $36 Billion in new bonds. The auction was well received during the week. Lackluster buying would have meant that buyers feel that rates will be higher down the road. It was helped along by foreign buyers who love our US Bonds as a safe investment with a high rate of return. Their investment has helped keep bond prices high, and therefore, home loan interest rates low. Bond prices and mortgage rates improved throughout the week, but then lost some ground on Friday, to end the week right back where they started. Some Traders saw prices as topping out and decided to sell and take their profits.
Remember, when the price of Bonds move lower, home loan rates move higher-----------------------------------------------
Thanks Carol for your wisdom and kindness to share this information with my readers!
If you have questions about home loans, please feel free to give Carol a call.
Fran White, Realtor 2007