A Sacramento mortgage lender's vision

Mortgage interest rates have taken a spike recently as shown in this graph from Bankrate.com;

This behavior can directly be explained by the following factors:

• Skyrocketing of US Treasury yields over the last months with the 10 year bond yield climbing near 150 basis points since March
• A corresponding increase in Mortgage backed securities (for the technical as of today the 5.00 Fannie coupon is dominant)

However, these increases, as always are due to economic conditions and recently we have seen:

• An increased threat of inflation and a lessening of deflation
• Smaller unemployment and deficit numbers than expected
• Better retail and spending data than expected
• Federal reserve actions became less effective
• Other players in mortgage security market(primarily China) back down on purchases

An ugly picture once the puzzle is put together. However, the underlying economic data is still very negative- there is a truly enormous pressure of foreclosures very close to hitting the market, as well as a lot more mortgage resets in the end of 2009 and onwards. The current market sentiment that the economy has 'hit bottom' has been called irrational exuberance by some. It is strange to root for the economy to become weaker, but we are in a catch 22. If the economy is recovering, rates will go up much higher than they are currently. If the economy is weakening, rates will go down and homebuyers will be able to afford to enter the market.

Yesterday, the Securities and Exchange commission (SEC) finally levied formal charges against former CEO Angelo Mozillo, former Chief Operating Officer David Sambol and former Chief Financial Officer Eric Sieracki of Countrywide Financial Corp. The charges stem from actions during 2005-2007 and allege that these officers mislead investors about the credit risks the company took to increase its market share. Gee, really? The real meat of the allegations is a charge of falsely assurance to investors that Countrywide was primarily a prime-quality mortgage lender that had avoided underwriting risky loans.

In reality, during 2004-2007 Countrywide, (or rather it's subprime division's alias, Full Spectrum Lending) was one of the largest players in the market for risky loans. Flush with available credit and eyeing strong demand for any type of mortgage securities, Countrywide made billions of dollars in loans with reduced or no income/asset documentation to people with low credit scores. In fact, they were considered to be one of the most aggressive lenders for these products at the time, really pushing guidelines and rates in an attempt to corner the market.

Well it worked, but the ugly truth was that these loans were made on an expectation that home prices would continue skyrocketing. Laced with huge prepayment penalties and steep rate increases, these loans would have been enormously profitable- considering that at the time, the average American homeowner refinanced every 1.5 years. But as we all know, the market ran out of gas in 2006 and all the subprime loans on Countrywide's books shortly ran the company into the ground, forcing a desperation merger with Bank of America Corporation.

In closing, why should the payment for bad subprime loans stop just with three former executives? If you are a victim of one of these bad loans, you should contact us to see about your options.

It has been quite some time since my last blog. Things have been quite hectic with the recently low rates and we are busier than we've been in several years.

A lot has transpired in the market as well, I believe we are up to now the 4th AIG bailout and the Automakers have their hands out again. I promise to deliver some more in-depth market information in the coming weeks.

For now though I just want to promote the new stylistic changes to the website...some pages have been tweaked while the home page and footer has changed drastically.

We are still the #1 ranked mortgage broker in Sacramento, according to Google. In fact, there are almost 100 terms in which at least one of the sunrisevista.com pages is ranked in the top 10, and about 20 terms in the top 3.  According to our service provider, we are one of the most heavily trafficked websites on their network. Our focus on content and quality is paying off by attracting visitors such as yourselves.

Thank you for visiting Sunrise Vista! Be sure to look around.

First-time buyers can claim a credit worth $8,000 - or 10% of the home's value, whichever is less - on their 2008 or 2009 taxes.

This was announced a few weeks ago, but if you didn't know, now you do. The credit is for first time home buyers only(no ownership in last 3 years is the definition believe it or not), does have some income limitations and does not need to be paid back like the $7500 credit in 2008.

To see how this may affect your individual situation please visit Jenica Horn's blog here.

I am always collecting information for this blog, and am continually amazed at the speed of which said info becomes outdated.

But here goes.

Just how bad are things? Hundreds of thousands of America's dairy cows are being turned into hamburgers because milk prices have dropped so low that farmers can no longer afford to feed the animals. Theoretically this means burgers should get cheaper, right? Well, at least the Fed is leading us out of this mess...wrong. Timothy Geithner, current Secretary of the Treasury, was slammed last week by Wall Street, the media and foreign investors alike by failing to reveal any actual details of the bank bailout. In retrospect, holding a press conference intended to calm the markets without giving any clarification seems ill advised.

Bond markets have seen the yield on the 10 year T-bill push up to 2.98 today, which is up from the recent low of 2.04 in January. This is a violent reaction to the some 3.5 trillion Federal Budget for 2009 which is resulting in a massive budget deficit. The deficit, of course, is financed by T-bills, resulting in record auctions of the things. Oddly, the supply is being met with high demand, but yields still rise on concerns of America's ability to pay this "mountain of debt" (Obama's phrase, not mine).

There is also some concern that the Fed may nationalize some banks. If you haven't heard of the term, immediately read this article and be extremely concerned. Bernanke of course said that nothing of that sort was happening, but my trust hasn't been restored in the oracle. Previous emergencies (including the Bear Sterns debacle) have shown that no option is really off the table.

Great news on the Stimulus Package No. 2. A provision buried deep inside the 1000+ page monstrosity is, some believe, the initial groundwork for Obama's initiative for national socialist healthcare reform. Fully computerized medical records for all is a great idea, but...................

In closing, one must commend the ECB for refusing to cut rates, but unanswered is the length of time they can hold out. It is now blatantly apparent that the subprime crisis cracked the foundation of most of the world as well. The only country doing well seems to be China, yet remains the fact their economy is heavily reliant on exports to countries like the US. Trade deficit cuts both ways.

As if to add insult to injury, we're getting reports that local governments are raising property taxes. While this hasn't happened to my knowledge in the Sacramento area, it is a bad sign of liquidity. The worst sign of all is the current awful state of California finances, among which a credit downgrade(bet you didn't know that entire states have the equivalent of a FICO score) and a 10% job cut across all state workers.

But I digress. Since tax rates are based on value(ad valorem in the Latin), the silver lining on the dark cloud of falling value is that for recent homebuyers (last 3 years or so), it is very likely you are paying more property tax than you should. In fact, Pete Sepp, spokesman for the nonprofit group National Taxpayers Union, is on record as estimating this inaccuracy rate on home assessments is between 30% and 50%, depending on region. This could equate to a large savings on your tax bill, and all you have to do is ask for a reassessment(for the tax assessor to make a review of your home's value). Note that while assessed value is not the same as appraised value, they do move in step.

SO, how does one approach getting their property reassessed? You can view your county's website, or this list of tax assessor offices. There will be specific forms you will need to fill out and some may charge a small fee. What you want to steer clear of: Law firms, Realtors or "advisors" who solicit to reduce your taxes. This will set you back $1000 or more, for a simple filing of forms you can easily do yourself. If you are going to pay for anything, pay for information kit /to-do guide such as The American Homeowners Association or the National Taxpayers Union. The cost: $29.95 and $6.95, respectively. (The AHA's kit is a bit more comprehensive.)

Tbills took a massive beating today, with the 10 year Treasury yield down to 2.80. Yields were previously as high over 3.00, and they were as low as 2.03 a month ago, when rates were very low.  We saw some improvement in mortgage rates today, and hoping for more of the same. This activity was attributed to fears that the new Bailout will be infective, was accompanied by a sound beating to the DOW, and found Treasury futures contracts to be almost unaffected. To summarize, yields were up due to concerns on the bailout, now they are down for the same reason.

Bill Gross, legendary captain of PIMCO(who I've written about several times) went so far as to state yesterday that rates are headed to 4.5%. I've grown irate at all the noise coming out of Washington about "special programs" and "special interest rates" be 100% infective or include no followthrough at all. This however, is very different. He makes the point that when the Fed steps in and begins capping Tbill rates that rates will plunge across the board, and I agree. However it appears the Treasury is waffling and for good reason, this is an amazingly drastic action. But the PR and the rumors circulating speak to me that the Treasury is managing by market hysteria...in other words dropping rhetoric and letting the market run on itself. Things in the financial systems are so jacked up though that nothing except clear, decisive action involving a dollar sign will do anything except produce more volatility.

And, we have yet to see how Timothy Geithner, the new Secretary of Treasury appointed by Obama a few weeks ago, will play the few cards that are left. His wiki bio is an interesting read- for one, he holds a Masters in international economics and East Asian studies from John Hopkins and speaks Chinese and Japanese. This is an interesting insight into Obama's future monetary policy in the Far East. Let's hope it takes a much harder line than the last administration's.

First on the plate is this excellent article by our friend Jim Wasserman at the Sacramento Bee: Mortgage-modification pitches may carry big risk . It explains in a matter of fact way how just about every single loan modification company out there soliciting is operating illegally. Collecting a fee from a homeowner who's already received a notice of default? Illegal. Not putting fees in a trust account? Illegal. Offering loan modifications without or under a suspended license? Unethical and illegal.

Oh yes, the crackdown is coming already in process. I've been watching illegit loan officers and brokers who were "naturally selected" OUT of the ever-tightening loan business simply reincarnate as loan mod shops. These shops have been materializing like a swarm of vultures and most operate with little or no licensing, regulation or regard for the homeowner's best interests.  To my great pleasure, the CA Dept of Real Estate has created a special task force for the sole purpose of tracking and shutting down these operations. We've seen every single federal program like Hope for Homeowners and FHA secure get neutered or shut down and yet we continue to get calls. The people on the phone are destitute. They cry. They've lost jobs or family members, been injured, seen payments double or triple, can't put food on the table. These are the same people loan modification companies are taxing huge fees with no guarantee of help. These are the folks that need to be bailed out, not banks.

Speaking of bailouts, the Fed continues to tease us with promises that it will buy US Treasuries. The market rallies on the expectation, and then falls without a Federal promise of an exact date. Ugh. Then of course bond yields jump on [justifiable] fears that the new bailout Barrack Obama is freight training through congress will balloon supply of US debt.  As I wrote in the last post, global enthusiasm for this debt is starting flag. Reinforcements will be required to maintain this current bond market.

It is unfortunate, but record default & foreclosure losses continue to cause Fannie, Freddie, Mortgage Insurers and the secondary mortgage markets to tighten credit. Most recent is Freddie Mac with new changes to cash out, investors, etc...read more here. As noted previous you will need a 720 fico score and 10% to secure a conventional purchase money loan in CA. FHA has seen no major changes to it's guidelines which is nice seeing that it is pretty much the only game in town for most with it's lenient 3.5% downpayment and lower credit score requirements.

Promo Update: According to Google, sunrisevista.com is now ranked the #2 mortgage broker in Sacramento.

One bright spot: This is the US dollar's performance against a weighted global basket of currency. Not too shabby considering the hemorrhaging of debt that has been going on.

A busy two weeks this has been indeed. We've seen the inauguration of our new president(and the first ever botch of the oath of office), Bank of America take bailout money, and the structuring of another bailout bill.

In up to the minute news, Fannie Mae and Freddie Mac are undercapitalized again and are requesting a few more billions from the governmental piggy bank. This strikes me as odd- aren't these players already owned and operated by the Gov? That's a little like adding your kid onto your bank account and then he hits you up for your cash....

Mortgage rates are up across the board. As always, this indicates trouble in the MBS and thus the bonds. Yields are up across the board...flying in the face of extreme pressure, the latest force being mass purchase of MBS by the US Treasury. You read that correctly- the Government is now guaranteeing some loans(FHA), owns the markets where most others are sold(Fannie/Freddie) and is now mass purchasing the loans themselves. Um, what? Even in the face of a near 0% fed funds rate, investors worldwide are becoming wary of the US mammoth national debt

Which is increasing at a rate of 3.34 billion per day. So no wonder China is starting to have second thoughts about US paper. They need to fund their own stimulus package, and while yes, they are manipulating the value of their currency on a wide scale(they are communists, remember?), they had been spending as much a 1/7 of their entire GDP on foreign debt investments and currently own over 1.0 trillion dollars of US debt. While international financial relationships are extraordinarily complex, suffice it to say that it's not in China's best interests to let us drown, nor vise versa. Everyone is in this together, at least till the full extent of the damage is assessed.

In any case, US debt is still the #1 place to park your cash(from a global investment standpoint). My prediction is for rates to recover and continue the downward trend in coming weeks.

Promo Update: According to Google, sunrisevista.com is now ranked the #4 mortgage broker in Sacramento.

In closing, my time has been very short of late. From here on out, I intend to update this blog about once a week.