Marc's Mortgage Matter's

Much of life is a balancing act. For example, I eat my Captain Crunch with only low-fat milk because I wouldn't want unnecessary calories. Underwriting is also a balancing act, matching the risk of the borrower being able to make payments with the desire for the lender to earn a rate of return on the loan commensurate with the risk. In mortgage lending, there is some feeling that the "pendulum" has swung too far to one side here in the last year or two, leaving some borrowers (self-employed and jumbo, to name a quick two) in the lurch. But there are old, and new programs, out there that go back to the "old days".
 
But zero down payments - again? A new program from Fannie Mae called Affordable Advantage is available to first-time home buyers in Idaho, Massachusetts, Minnesota and Wisconsin, and created in conjunction with the states' housing finance agencies. Proponents say that low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting. Various state agencies have continued to make loans with low down payments to those who may or may not have the best credit. Affordable Advantage loans are 30-year fixed mortgages, with mandatory homeownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts). The buyers have to put in $1,000 and must live in the homes. In the Tri-State area we still have the 3.5% down payment available which is as good as it gets.

"Commercial paper" is used by businesses to finance their own working capital, meet payroll and pay suppliers, etc. From the third quarter of 2007 to that of 2008, GDP grew by 3.4%. Did commercial paper keep up? Heck no: outstanding paper fell by 25%, losing about $600 billion. Asset-backed commercial paper fell by 40%. If this borrowing falls by such a large percentage, but GDP remains constant, that is pretty good proof of a credit crunch. This week the amount of corporate debt being sold is unusually high. In a very basic sense, each dollar of corporate debt sold competes for investment dollars with mortgages, Treasuries, municipal bonds, etc. It appears that some companies are using the money to expand, or feel that the financing costs are better than issuing stock. But mainly companies like IBM, Dell, PepsiCo, Ethan Allen, Korea Hydro Nuclear, Burlington Northern, etc., are issuing debt to take advantage of lower rates - just like mortgage borrowers refinancing.

A while back I discussed how I felt that the credit pendulum had swung too far, and that self-employed borrowers are bearing the brunt of it. One originator correctly wrote, "I disagree strongly. Many self-employed people have no problem getting a mortgage. The self-employed people who now have a hard time getting a mortgage are the tax cheats: if a person wants to not report all the cash earnings or fictitiously create expenses/deductions that don't exist for the sole purpose of not paying Uncle Sam, then I revel in the fact that they can't get a mortgage. Until they pay the same percentage of their gross income into the tax man's coffers as I do - let 'em rent!"

However, another wrote; "Just would like to respond to the person who said self employed persons were "tax cheats". Many don't know about what it takes to run a business and the huge amount of taxes that are paid in the way of corporate tax, employment tax, business personal property tax, FICA, and the list goes on and on. Personal tax returns at least gave the self employed some relief on their taxes through allowable and legal deductions to their income. The net income figure should not be the self employed persons figure to qualify for a loan and unfortunately many who need it most - the self employed - the backbone of this country - are being turned away. I do know some do cheat, but a blanket statement like that is not correct. "

If the economic news gets less worse, interest rates will rise. If panic and "flight to safety" become a less-favored investment strategy, interest rates will rise. If yields become too puny to keep investor interest, but that debt must be sold into the market, interest rates will rise. It is the nature of the market.

Mortgage rates are of course one of those market interest rates, influenced by the yields on risk-free investments such as Treasury securities. Spreads between Treasuries and mortgages had widened appreciably in recent weeks, owing more to a desire for safety than a disdain for mortgage investments.

A little additional optimism was seen in the two-tick increase in the weekly ABC News/Washington Post survey of Consumer Comfort, which nudged up to minus-43 during the week ending September 4th. While still bound in a year-long range, it nonetheless was the highest reading for this indicator since July.

While it remains difficult to generate much enthusiasm for the economic climate, the economy's natural tendency is to grow. It's worth noting that absent repeated or ongoing shock, a kind of hopeful stability can begin to form as the noise subsides. Perhaps that is where we find ourselves at the moment, past the overseas mess of the Spring, neither growing very fast but not failing, either. A little bit of solace, and maybe even some careful consideration and thoughtful direction from fiscal and monetary authorities, and we might be able to pick up some speed as we go.

Mortgage rates have perhaps a little space to increase anymore then this past week - which saw rates rise by about .25%. The rise in underlying rates is largely serving to narrow spreads, but there may be a little spillover into mortgage rates. A mixed bunch of data next week includes retail sales, consumer and producer prices, and some consumer sentiment and production data. Is optimism firming? We'll find out.

(On September 11th, I would not have a joke as a very, very small nod toward 9/11. I will instead publish a serious tip.)

For recognizing a stroke: Remember the 1st three Letters....S.T.R.
Sometimes symptoms of a stroke are difficult to identify. Unfortunately, the lack of awareness spells disaster. The stroke victim may suffer severe brain damage when people nearby fail to recognize the symptoms of a stroke. Now doctors say a bystander can recognize a stroke by asking three simple questions:
S - ask the individual to SMILE.
T - ask the person to TALK and SPEAK A SIMPLE SENTENCE (Coherently, i.e., "It is sunny out today.")
R - ask him or her to RAISE BOTH ARMS.
Lastly, ask the person to 'stick' out his tongue. If the tongue is 'crooked', if it goes to one side or the other, that is also an indication of a stroke.
If he or she has trouble with ANY ONE of these tasks, call emergency number immediately and describe the symptoms to the dispatcher.