Marc's Mortgage Matter's

A woman customer (rumor has it she's blonde) called the Canon help desk with a problem with her printer:
Tech support: Are you running it under Windows?
Customer: "No, my desk is next to the door, but that is a good point. The man sitting in the cubicle next to me is under a window, and his printer is working fine."

Questions have come about expiring homebuyer tax credits, which will conclude at the end of April. The program was last slated to expire in November 2009, but was not only rescued but substantially expanded at the last minute. However, the "damage" had been done; in anticipation of the expiry, sales flared higher in October and November, only to come crashing back to earth in December (and possibly January).

Will they expire? We think that there is a good likelihood that they will be extended, at least through the "spring homebuying season," if not longer. In addition to the enormous political pressure sure to be brought by Realtors, builders, and other interest groups as we near the deadline, the spike in sales at the last expiry approached provides demonstrable evidence that the program works and has value. As such, "success" can be claimed, providing the necessary political cover to advocate extending the program... especially since the simple fact is that it if doesn't work -- that is, if it's not being utilized -- that it costs nothing. Deficit issues and the concept of whether we're rewarding those who might have bought anyway will take a back seat. Keeping home sales going promotes home price stability, and that makes for less-grumpy voters as election time rolls around.

Home buyers heading into real estate’s busy spring season face a tricky question: should they buy soon, before mortgage rates increase, or wait a few months, when housing prices are finally expected to hit rock bottom?

Of course, the assumptions at the core of that question could easily fall through. But rarely in recent years have economists from the mortgage and housing industries been so closely aligned in their short-term nationwide forecasts as they seem to be now.

Economists are generally predicting that mortgage rates will begin to edge up in late March, settling at about 5.5 percent, possibly as high as 6 percent, for a 30-year fixed-rate loan. They also expect that the inventory of foreclosed homes will grow through the summer, saturating the market with cheap properties and keeping overall prices low.

“I wouldn’t rush,” said Mark Zandi, the chief economist at Moody’s Economy.com, “but if I found a house I was excited about, I wouldn’t wait. You might not be buying at the very bottom, but you’ll still get a great rate, and if you stay for more than a few years, you’ll be rewarded.”

By that time, he added, home values will have appreciated.

Two factors could push rates higher, economists say. First, the Federal Reserve is set to stop subsidizing the mortgage market sometime next month, when it exhausts the roughly $1.25 trillion earmarked for mortgage-backed securities sold by Fannie Mae and Freddie Mac. The government stepped in as a buyer during the mortgage market crisis, when most investors had rejected these securities. Economists expect investors to re-enter the market, but only if rates on the securities become more attractive.

Mortgage rates also typically move in lockstep with the long-term economic outlook. Economists generally believe that the nation is in the early stages of a slow recovery, and that as the recovery proceeds, interest rates will go up.

Why should anyone build a lot of new homes when there seem to be so many foreclosures looming, and how are foreclosures doing out there? Although percentage-wise filings dropped in January from December by 10%, Realty Trac reported that foreclosure filings were above 300,000 for 11th straight month. And versus a year ago they are up 15%. And home ownership here in the US is back down to 2000 levels: in the fourth quarter the percentage stood at about 67.2%.

While we're on foreclosures, for those who like bleak news recent studies conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure. The studies, reported the WSJ, suggest that more waves of foreclosures will keep downward pressure on home prices in parts of the U.S. over the next several years. "...estimates that five million houses and condominiums on which mortgages are now delinquent will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments." Of course the problem is largely concentrated in Arizona, California, Florida and Nevada. This does NOT seem to be the case in the Tri-State area especially not in the five boros!

After the close of markets on Thursday, the Federal Reserve raised the Discount Rate by a quarter percentage point. This is the interest rate that a bank would be required to pay to borrow funds directly from the Fed itself, a move usually done only as a last resort when no funding can be obtained from other lenders in the market. The interest rate on such a loan is usually well above other market rates for similar funds; it's often described as a 'penalty' rate.

The overall average for 30-year fixed-rate mortgages tracked FRMI rose by five basis points (.05%), ending the week at 5.41%. The FRMI includes conforming, jumbo and the GSE's "high-limit" conforming products in its calculation. As we expected, mortgage rates put in a little increase this week. Next week, it's all about housing, as we'll get a look at Home Prices, New and Existing Home Sales, durable goods orders and a few other interesting bit of market data. Given the drift higher in Treasury yields last week and again this week, we think it's a fair bet that we'll see a little bit more of an increase in mortgage rates again next week, probably another few basis points or so. 

A woman and a man are involved in a car accident on a snowy, cold Wednesday night: it's a bad one. Both of their cars are totally demolished, but amazingly neither of them is hurt. God works in mysterious ways.

After they crawl out of their cars, the man is yelling about women drivers.

The woman says, "So, you're a man. That's interesting. I'm a woman. Wow, just look at our cars! There's nothing left, but we're unhurt. This must be a sign from God that we should be friends and live in peace for the rest of our days."

Flattered, the man replies, "Oh yes, I agree completely, this must be a sign from God! But you're still at fault... women shouldn't be allowed to drive."

The woman continues, "And look at this, here's another miracle. My car is completely demolished but this bottle of wine didn't break. Surely God wants us to drink this wine and celebrate our good fortune."

She hands the bottle to the man.

The man nods his head in agreement, opens it and drinks half the bottle and then hands it back to the woman.

The woman takes the bottle, puts the cap back on and hands it back to the man.

The man asks, "Aren't you having any?"

The woman replies, "No. I think I'll just wait for the police..."