Living on Euler's Line

60 Minutes program - House of Cards

Steve Croft from 60 minutes reported last night on how the U.S. sub-prime meltdown is affecting worldwide markets.  It is well worth the 15 minutes.

Update - Here is a link to the CBS website with the video.

What a crazy week we had in the Mortgage Industry

I don't even know where to start.

The week started with rates continuing to edge lower.  Mortgage bonds were at two year highs and holding - mortgage bonds go up and rates go down.  Monday was Martin Luther King's Birthday so the US markets were closed.  Overseas markets were open and having a tough time.  Tuesday morning - the fed reduced the prime rate by 3/4% ahead of their scheduled meeting on January 29th.  Then the phones started to ring. 

Typically when the feds lower their rate, mortgage rates go up for a short period of time.  I can tell you that these are not normal times.  Rates continued to drop.  Wednesday and Thursday were tough days for the mortgage industry.  Much of the gains we had in the last three weeks were lost in 48 hours.  We had three unscheduled price worsening notices which is not a good thing.  Friday saw slight improvements - almost wiping out Thursdays losses. 

Then the news came of a one year increase in the conforming loan limits.  Right now the limits are $417,000 for a conforming loan.  Anything over $417,000 will cost you on average an additional 1% in rate.  The estimated numbers were all over the place - $650,000, $725,000 and 125% of the median home price.  Now it looks like they are leaning towards 125% of the median price but not sure if they will look at a county or region.   Regional calculations could hurt the Outer Banks but if they decided to base it by county - it would give some great alternatives for those looking to reduce their interest rate or convert their adjustable rate to a low fixed rate.

Many expect the feds to reduce the rate again on January 29th.  Some are still hoping for another 1/2% reduction.  My gut feeling is that we won't have another reduction in January but they will lower the rate in March.  These reductions primarily affect home equity lines of credit, car loans and some construction loans.   If you have any questions or would like to see if the recent improvements can  save you money, please feel free to contact me at your convenience. 

BIG Mortgage Companies in the news

In case you were on a charter fishing boat all day catching some of those monster Rock Fish on the Outer Banks - a few big news items have happened.  No, I am not talking about OJ being arrested again.  Bank of America purchased Countrywide.  They have dated for some time but a merger has finally come to fruition.  At least it will end the speculation of Countrywide declaring bankruptcy and Bank of America can probably weather the mortgage storm. 

On another note, I have read that J.P. Morgan Chase is considering purchasing Washington Mutual.  My how things have changed in just a few short months.   

Ben Bernanke spoke yesterday and hinted at larger cuts in the Fed Rate - good for those with Home Equity Lines of Credit.  The cuts are expected to be announced at the end of January. 

Mortgage rates are at a two year low - there are plenty of available properties on the Outer Banks and the fishing is pretty good this time of year.  If I can be of any assistance, please feel free to contact me at your convenience.  Mobile: 252-599-0364. 

"Subprime" is the word of the year - YEAH!

Isn't that special...  So we now have a Word of the Year - Subprime.  I wasn't sure where to send the thank you note so I did some research.  There is an organization called The American Dialect Society and they are the group that picks the "Word of the Year".  I bet they are the life of the party...

Founded in 1889, the American Dialect Society is dedicated to the study of the English language in North America, and of other languages, or dialects of other languages, influencing it or influenced by it. Our members include academics and amateurs, professionals and dilettantes, teachers and writers.
 
Now I have nothing against this group of smartypants - I just wished they would have picked one of their other choices such as wrap rage - anger brought on by the frustration of trying to open a factory sealed package.  You know, the clear plastic that WILL NOT TEAR or the 48 twist ties per square inch of toy.

In all fairness, the American Dialect Society can't be that bad - their website is a blog.  Hopefully 2008 will have a word that has nothing to do with recession, housing or mortgage meltdowns.  Maybe it will be Billary or Hill-Bill.

Outer Banks Mortgage Tips

One question many in the mortgage industry hear often is:

What are the rates today?

Sounds like this would be an easy question to answer - but it is not.  There are so many factors affecting the rates.  I read an article on a mortgage website that I thought was confusing:

As of today 30 year rates are pretty low:

• One point will get you 5.5%
• Want no points, you’ll get  5.75%
• Want zero points, you’ll get 6.25%

Of course you’ll need suberb credit, decent income, more equity (80% loan balance to property value ratio) and assets.

If you were presented the above scenario - which option would you choose?  Do you want "no points" and a rate of 5.75% or would you rather have "zero points" for the rate of 6.25%?  I would assume many would pick the lower rate - no points should equal zero points so lets go with the lower rate.

Points are points - whether you call them Origination Fees, Origination Points, Discount Fees or Discount Points.  The above scenario - the No Points, you'll get 5.75% actually has a one point origination fee.  This stuff drives me crazy and it probably does the same for the consumer.

If you are interested in getting a quote on an Outer Banks Mortgage or if you would like a second opinion at no charge - please feel free to contact me at your convenience.

Outer Banks Mortgage Tips - Checklist for items needed when applying for a mortgage

Be Prepared is the Boy Scout Motto.  With today's ever changing mortgage market - it is always good to be prepared when applying for a loan.  Putting this information together and getting pre-approved (not just pre-qualified) before you start looking at Outer Banks property can greatly reduce the stress involved in the buying process. 

Application Information (for all applicants)

• Home address(es) for the previous two years
• Your social security number(s)
• Employment information for the previous two years including employer name, address and phone number
• Income information including salary, overtime, bonuses, commissions, dividends, interest, retirement and any other source of ongoing income
• Liquid assets including bank name, account type, balance, and source of down payment
• Other assets including the value of bonds, stocks, life insurance and retirement funds.
• Liabilities including creditor names and outstanding balances for all debts including notes payable, 401(k) loans, life insurance loans, stock pledges, alimony, child support, co-sign loans, credit union loans, and other liabilities
• Real estate owned including property address, market value, outstanding liens, rental income, mortgage payments, taxes, insurance and maintenance dues

Property Information

• Purchase contract
• If it is a Planned Unit Development (PUD) or condominium

          Name of development or project
          Phone number of the homeowner's association (if available)

• New construction:

          Year land or lot was acquired
          Original cost of land/lot
          Amount of liens
          Estimated cost of construction

• Refinance loans:

          Year property was acquired
          Original cost of the home
          Cost of improvements
          Amount of liens
          Description of improvements

If you have any questions, please feel free to contact me at your convenience. 

Outer Banks Mortgage Tips

Shopping for an Outer Banks Mortgage? If so, you're probably watching mortgage rates daily — wondering just how they may change when you're ready to close on your new loan.

Your monthly mortgage payment depends in part on your interest rate, and the rate on your loan isn't set just by making a mortgage application. Until you explicitly lock your loan pricing, the rate on your pending loan will float with financial market conditions. Your monthly payment may end up being higher or lower than it would have been under the conditions that prevailed when you applied for the loan.

Generally, you can lock your loan pricing any time after application but at least five days before your scheduled closing.

When should I lock?

If you believe that financial market fluctuations will lead to higher rates before you close on your house — or you simply want to avoid that risk — you should consider locking after you've made your application. The downside is that, if financial markets push rates lower, you may miss out on a getting a lower rate and a lower monthly payment.

When you lock:

• You have protection from financial market fluctuations in interest rates for the length of the lock period. You are not guaranteed that a specific rate will apply to your loan.
• Your final rate, which may not be determined until closing, will reflect the pricing that was available at the time you locked for loans with your specific transaction characteristics (points paid, loan-to-value, etc.) and your credit profile. For more information, please refer to the Loan Pricing Disclosure.
• You can select a specific length of time, usually 30 or 60 days — but sometimes as long as a year. 
• You can lock anytime you locate a property, or start your refinancing process, up until five business days before the closing. 
• Breaking a lock to take advantage of lower market rates typically involves an additional fee.

When should I float?

On the other hand, if you believe that financial markets will push rates lower between the time you apply and the time you close, you might consider floating. You may be rewarded with a lower mortgage rate and a lower monthly payment. Of course, you would be risking a higher rate and a higher monthly payment if market rates rise before you lock.

An important criterion when approving a loan application is the borrower's ability to make the mortgage payments. If rates rise, the resulting higher payment could negatively affect loan approval, and you could be asked to consider other financing alternatives to gain approval (a higher down payment, for example, to lower your monthly payment). So, if you're thinking about floating, you also should consider how much rates would have to rise before they affect your ability to qualify under your desired loan terms.

When you float:

• You can take advantage of falling rates before you close on your loan. Lower rates mean lower monthly payments.
• You are not tied to a specific rate.
• You can switch from floating your rate to locking it in anytime after applying and at least five business days before closing.

Only you can decide if locking in a rate is right for you. If you'd like to track rate trends, subscribe to our Wells Fargo Mortgage Rate Monitor^SM for regular mortgage rate updates via email. In addition to tracking trends, we can send an email notification to you when rates fall below a specific number.

Mortgage Bailout Program - The Good, The Bad and The Ugly

Could not resist borrowing this picture from Realonomics - a Real Estate Blog I subscribe to.  They published an article titled Bush throws the baby out with the murky mortgage bathwater.  Read for yourself what others think of the program:

408 Real Estate Blog

Calculated Risk Bailout Program

Michigan Foreclosure Report

The Real Estate Bloggers

As you can see from the articles above - there are not many people happy about the "bailout program".  From the information I have read - it is guaranteed to make almost everyone mad.  Those that took a risk with Adjustable Rate Mortgages and the rate has not adjusted and have not had one late payment and the loan is on your primary residence and you cannot afford the higher payments - you get a break.  If you don't meet all of the criteria above - tough luck.  For most on the Outer Banks with a Second / Vacation or Investment Property - No Deal.  I can only imagine the conversation with the borrower:

You mean to tell me that I decided to pay a higher interest rate 30 year fixed rate vs. the lower ARM rate and I don't get a break?  AAAUUUUGGGGGHHHH!

Feds Drop Rates another 1/4%

The Federal Reserve cut both the Fed Rate and the Discount Rate by 1/4% today - a move that was anticipated by most in the market.  Some even felt a 1/2% cut was possible but not after the strong jobs reports last Friday.  So what does it mean and how will it affect the Outer Banks Real Estate Market?

Discount Rate (currently at 4.75%) is the rate banks borrow funds from the Fed.  It matters but not directly.

Fed Rate (currently at 4.25%) is the overnight rate for lending money.  This one matters to most of us - see Prime Rate.

Prime Rate (should be 7.25% tomorrow) is typically 3% above the Fed Rate.  This rate is what Home Equity Lines of Credit, some Credit Cards and Auto Loans are based on.  This matters to most.  If you have one of the accounts listed above and your rate is based on the prime rate, you should see a small reduction in your January bill.  That means you can buy your loved ones much nicer presents this year...

For those that own property on the Outer Banks that includes a Home Equity Line of Credit - your interest rate has now dropped 1% since September.  Not a huge savings but it sure doesn't hurt having smaller payments during the off season.  The reduction in rates also makes it easier to qualify for a loan. There are plenty of homes to choose from and motivated sellers. 

What it doesn't mean:

Interest Rates for traditional mortgages did not go down by 1/4% today.  In fact, first mortgage rates sometimes  bump up a little after a rate cut.  The bond market seems to like the reduction because bonds and rates are holding steady.

Outer Banks Real Estate Market - Who's to blame?

There seems to be a lot of finger pointing going on in the Real Estate world today.  People want someone to blame for the current market conditions. 

Mary Umberger from the Chicago Tribune covered the National Association of Realtors conference held in Las Vegas in mid November.  I found a couple of interesting quotes from Lawrence Yun - the Chief Economist for National Association of Realtors. 

"Given pent-up demand and historically low mortgage rates, it's a fairly easy call, from my point of view, that we are in a market recovery," he said.

That is an interesting set of data used to determine that we are in a market recovery.  The second quote really caught my eye.

Yun said that the housing meltdown resulted from a "period of greed" and blamed mortgage lenders looking for big commissions, global investors seeking "juicy returns" and bond-ratings agencies turning a blind eye to risk.

Mortgage Lenders are the reason for the housing slump?  Are you kidding me?  There are bad lenders out there but I don't think they can accept the lion's share of blame for the current market.

Another theme I have heard lately is to blame the media.  "The media just won't let this story die" or "The media is hurting our market".  Inman News published an article that I think puts things in proper perspective.  This quote says it all:

Another reader, Michael Blomquist, says there is a difference between negativity and "realistic projections":

"Real estate has been hurt by spin, but irrational exuberance has been much more damaging than negativity could ever be. I for one am tired of the attacks by those who don't know the difference between ignorance and optimism. Too many 'optimists' view 'realistic' projections as negativity and try to discredit those with opposing views," he wrote.

I believe irrational exuberance from all parities involved is to blame for the current market conditions.  Trying to put a positive spin to cover up the facts will not help any market recover.  Consumers want facts - not fluff. 

The Outer Banks Real Estate Market has been hurt by the slowdown more than the surrounding markets.  We rely heavily on the investors and second / vacation home buyers and they stopped the frantic pace of purchasing property in the Fall of 2005. 

That being said, I think a legitimate argument can be made that the Outer Banks Real Estate Market might be one of the quickest to recover.  With above average reduction in pricing, low interest rates and some very motivated sellers - we might be in for an early spring.