Marc's Mortgage Matter's

"A cute little girl, missing her two front teeth walks into a pet store. The owner looks at her and says "may I help you"?

Sports Illustrated estimates that 60% of NBA players are broke within five years of retirement! Sad. There’s got to be a better way.

CoreLogic estimates that about 53% of borrowers with equity in their homes are paying above market rates (defined as the current rate plus 1%, or 5.1%) and higher. About 36% are paying more than 5.5% and 17% are paying more than 6 per cent - think of the refi possibilities!! And about 8 million borrowers who owe more on their homes than they are worth, or about 75 per cent of all "underwater" homeowners, are also paying above-market rates. Ouch! 

Last week, Freddie Mac's Primary Mortgage Market Survey showed average fixed interest rates on 30-year mortgages dipping below 4% for the first time. Rates rose a bit this week, now back way above 4%, but they still remain very, very low on a historical basis. So if you are buying a home or wish to refinance, then it is a great time to get a new mortgage. That is, if you can qualify. Many Americans can't.

Have a look at a key detail about the criteria for mortgage quotes from which Freddie derives its weekly mortgage interest survey:

So those qualifying for these ultra-low rates must have pretty spotless credit histories and a pretty significant chunk of equity. That excludes anyone underwater or even slightly above water. And unfortunately, they're the ones who would benefit most by refinancing. According to real estate analytics firm CoreLogic, about three-quarters of underwater borrowers have mortgage interest rates above 5.1%.

That's why we're beginning to see more adjustable-rate mortgages being sold again. It wouldn't be surprising to see the portion of ARMs grow even larger in the second half of this year. In the first half, Freddie's the average weekly fixed interest rate for 30-year mortgages was 4.75%. Since July, the average weekly fixed rate has been 4.26%. That's about a 50 basis point drop, which might be big enough for yield-sensitive investors to demand more ARMs so they can benefit from the interest rate risk protection they provide.

Here is a notable take on Realtors, for better or worse, titled "Five Rules to Remember When Dealing with Real Estate Agents": CharmingBungalow.

After seven straight quarters of negative balances, the FDIC insurance fund has finally gotten into the black. The bad news is that it’s got only $3.9 billion in it, not nearly enough right now to handle a big bank failure.

The brief rise in mortgage rates has leveled off, leaving us at about five week highs. The economic news out of late continues to feature a mixed-to-brighter picture, and that will make it difficult for rates to fall by any significant amount. There are also some new rumors that the Fed may embark on a grander plan to support mortgage markets, if needed, and there is a new push afoot to re-increase the conforming loan limits in high-cost markets.

If we are starting to see even a mildly-improving economy, has anyone considered the option of just leaving things alone for a while? Constant change -- even that which may have some benefits -- also has drawbacks; fits and starts for programs and initiatives make it very hard to know where actual market baselines lie, and to evaluate the effectiveness of previous programs.

Will the Fed come back into the mortgage market in a larger way? Possibly. There is a continual drumbeat for someone to "do something" and the Fed has the available tools and capacity to do just that. The question is, how beneficial would this be? It's one thing to jump into re-start a non-functioning market (as the Fed did in 2008), but the market is functioning at this point, and liquidity is not the issue today as it was back then. As far as interest rate effects go, it bears noting that the lowest interest rates to date have come _after_ the expiry of the Fed's QE1 and QE2 programs, as the perceived economic support from the Fed's programs waned. To the extent that the Fed is back in the market, the economic climate is expected to be improved, and that can lift interest rates. To some degree, this is the situation today.

As far as the re-expanding the conforming loan limits: The reduced (not eliminated) limits have been in play for all of about six weeks, barely enough time to know if there has been any change in home sales in the affected markets. In fact, it might take a few months to see any effects, especially if some demand for loans in these classes was moved up into August. This is the case with incentives and deadlines... you can look up the homebuyer tax offers of 2008 and 2009 for vivid examples of this in action, as demand gets "advanced" from a future period into today, creating a more pronounced post-deadline decline in activity than might otherwise occur.

Compared to the spring/summer decline, the recent stability is not a bad thing. If persistent, even modest economic growth can provide a firm platform on which to build. Without the supply-chain shocks of the terrible Japan earthquake earlier in the year, and the as-yet unresolved troubles in euro-debt markets, we would arguably be in much better economic straits. As the first issue fades in the rearview mirror, we move a step closer to recovery, but the new troubles seem likely to be with us for a while longer yet.

But do we need even more extraordinary supports than those already in place? If earlier initiatives such as expanded loan limits in certain markets are so effective that the market cannot function without them, why put expiration dates on them at all? Can the wealthiest markets in the country really not manage a rise in available interest rates of perhaps 3/8 of a percentage point, themselves at near record-low levels?

At least part of the troubles we face to day comes from uncertainty, and making continual changes to the boundaries and structures of the market simply worsens this. How can anyone plan for the future when new interventions can happen at any time? If a lender, sensing opportunity, spent much of the spring and summer planning a strategy to get back into the jumbo mortgage market, should we simply throw away those efforts -- or blame them when they can't be bothered to jump back in to the market when the next expiration date comes? Before we permanently nationalize mortgages up to $729,750 can we at least see if the private market responds and what the effects on these markets might be?

Mortgage interest rates are a part of the solution to what ails us, but it would be a stretch to say they have been the problem for some time now. Access to those low rates via underwriting roadblocks, add-ons, overlays and more are today's more difficult issues, and lenders and investors are rightfully reluctant to expose themselves to more losses, future loan buybacks and other troubles.

Equity markets have had a good time of it since the Fed's recent decision, and have now put in three weeks of gains. That alone is putting pressure on mortgage rates and interest rates in general, and barring a selloff, we'll hang around present levels for next week.