Whats Wrong With Mortgage Interest Rates and The Market?

April 18th, 2008 Columbus Buyer Info, Columbus Seller Info, Down to Business Jason No Comments

Whats Going On?? Thats a question a lot of people are asking. and Why Are Interest Rates So Volatile right now?

Heres a Looooong answer coming from The FNMA Capital Markets Sales Desk that actually presents a good picture of whats going on. If youre really interested, sit back, read up, and learn..

The Capital Markets Sales Desk has fielded a large number of calls from customers simply asking, whats going on? Why is the mortgage market trading lower every day? The following are reasons that could help explain why mortgages are struggling and why current market conditions are so volatile.

The question is, why are mortgages widening or losing value vs other benchmarks like treasuries? Mortgages are widening for a number of reasons. First, there are no buyers. The dealer community is quite full and has no more balance sheet to hold mortgages. In addition, with the market so volatile, dealers dont want to own mortgages at this time. Another reason why dealers do not have an appetite for risk is quarter end. Most dealers are experiencing a quarter end in March and have become even more conservative.

Banks are not buying either. They are more concerned with retaining capital to cover potential losses in other sectors. Banks and other securities firms have written down an astonishing amount of losses since the subprime mortgage market fell apart last summer. According to Bloomberg, as of February 8th, write-downs by banks and securities firms around the world had reached $120 billion. Therefore, banks remain defensive and prefer to either retain capital or put it to work in other AAA rated sectors.

Asia has been noticeably absent as well. Asian banks generally buy on strength and its obvious there hasnt been any strength exhibited in the mortgage market recently. Also, Asia is generally more active at the end of the month so their absence this week is not a complete surprise.

Money managers and hedge funds arent buying for the long term either. What they are doing is called momentum trading. They are buying at the wides (cheap) and selling at the tights (less cheap). Since they are buying and selling, they are not taking any production out of the market leaving the market to trade in a volatile fashion. The market is also trading very thin so exaggerated price movements occur when larger blocks are brought to market.

Okay, we know that dealers, domestic banks, Asia, money managers and hedge funds are not buying. But, who is selling? Well, we know servicers have been selling. When the market sells off, the current coupon increases and servicers attempt to keep their hedges in the current coupon. Therefore, servicers need to sell lower coupons (longer duration coupons) and purchase higher coupons (shorter duration coupons). This is called moving up in coupon and is a form of shedding duration. However, in large market moves, servicers may need to sell without the corresponding purchase of the higher coupon. This is called outright selling. The outright selling and duration shedding from servicers has put extra downward pressure on mortgages.

Originators are also selling. Although, with higher mortgage rates, originators arent selling as much as they were a month ago, the amount they are selling remains significant.

Okay, servicers and originators were the two expected suspects, but are there any other sellers? Unfortunately there are, and this group of sellers is what brings fears to the market. Thornburg Mortgage, a mortgage REIT that specializes in Jumbo and Super Jumbo mortgages received a margin call from JP Morgan in late February. A margin call is a demand for cash on an under-collateralized loan. Thornburg was unable to meet a $28 million margin call and may be forced to liquidate its holdings. We are hearing talk of a $4.4 bln list of Non-Agency ARMs and pass-throughs out for the bid from Thornburg today.

Another seller may be Carlyle Capital Corp, which is an investment bond fund located in Guernsey, UK. CCC missed four of seven margin calls totaling $37mln and another margin call notice is expected. According to Bloomberg, the fund raised $300mln in July and levered the money to purchase approximately $22bln in various forms of MBS. A portion of this $22bln is expected to be sold, and some market participants venture that a portion is being marketed today.

Although this is only two of the many accounts that participate in the MBS markets, their forced sales could have major repercussions. For example, lets say the bonds that are sold are sold at very low dollar prices. That may cause other market participants to mark their own portfolio down to current market levels. This may cause further write downs. The fear of further write-downs has banks on the defensive to a point where they want to preserve capital. If banks are preserving capital, then they are obviously not investing in MBS.

The few investors who do have available capital are putting their money to work in more profitable sectors. Municipal Bonds and certain classes of CMBS are yielding more than Agency MBS and have a AAA rating. Despite the inherent €œcheapness€ in the mortgage market, there are still other safe investment options that are more preferable at the moment.

In summation, we have more sellers than buyers. The selling bias puts pressure on mortgages, forcing mortgage prices lower and wider. The usual buyers of mortgages arent buying or are buying other investments at cheaper prices.

Another trend weve noticed is a flight to quality within the mortgage market. Generally, when the market experiences a flight to quality, money is moving into US Treasuries. However, with treasury yields so low, market participants are buying the next best thing, GNMA MBS. GNMA MBS has the explicit guarantee of the US Government. Purchasing GNMAs allows an investor to enjoy the explicit guarantee while yielding considerably more than US Treasuries. In times like these, banks prefer to own GNMA MBS vs conventional MBS for a reason other than the explicit government guarantee. The reason is capital. Banks have to hold a certain amount of capital against their investments. However, they are required to hold significantly less capital against their GNMA holdings vs. their conventional MBS holdings. With the flight to quality within the mortgage market, and a preference by banks for GNMA MBS, it is no wonder why the GN/FN swap spreads have gapped out to astonishing levels. The current GN/FN 5.5% swap has gapped out from 18/32s from January 22^nd, to its current level of 59/32s.

Another thing to keep an eye on is ARM issuance. The yield curve has steepened in recent weeks (current difference in yield between the 2yr treasury and 10yr treasury is 208 bps). Generally, when the curve steepens, the difference in ARM rates and 30yr mortgage rates increases. Therefore, one may assume ARM issuance is likely to increase now that the curve has steepened. However, due to the lack of liquidity in the market, ARM MBS is trading extremely cheap. In other words, the correlation between a steep yield curve and lower ARM rates has decreased. Because lenders cant sell their current ARM production in the secondary market at respectable levels, they cant lower their offered rates. When liquidity improves, look for ARM issuance to increase.

Columbus and Central Ohio Home Sales 2007

April 18th, 2008 Columbus Buyer Info, Columbus Seller Info, The Bad, The Good Jason No Comments

Heres the Good:
We had 24,445 homes sold for the year.
Interest rates were low all year (and remain low).
The average sold price was $172,531.00.
New listings for the year were 49,961. That means 49% of the new listings sold.

Now, lets look at the year 2005 the high point of sold homes, highest average sold price, etc. That year there were 50,086 new listings, and 27,493 homes sold. So, 55% of the new listings sold.

Now these figures dont allow for the existing listings coming into each year.. but folks, stop and take a look at these numbers. If you buy into the pervasive media doom and gloom, you believe that nothing is selling and nothing is working. Thats just NOT true in our area of the country. We had over 24,000 sales last year! Remember, Columbus has been described as the 3rd most stable market in the country. Our property values have been considered as undervalued compared to pricing of homes across the country, and our employment remains stable.

Heres a few stats for the Negative Nellys:
The average sold price was 1.2% lower than 2006 ($172,531 compared to $174,688).
The credit challenged had their lending sources dry up.
There was a lot more competition (as in many homes) in the market challenging for seller who had to reduce their pricing to compete, fabulous for buyers who had a lot to choose from.

Home Staging - Why Should I Do It?

February 2nd, 2008 Columbus Seller Info, The Good No Comments

Buyers are making their decisions on which homes to personally go and see by looking at home photos online.

As a Realtor, Ive heard buyers consistently say €œIf there arent any interior photos of the home, I just browse past it there must be something terribly wrong inside if they cant post a picture.€

Ive also heard home buyers say they have eliminated a home because €œThere was too much clutter and it looked dated.€

Now a home seller may respond to this with €œWha-a-a-t?!? Hey, my house works fine for me and if you want to change the mauve carpet go ahead and do so; Ive priced it accordingly. As far as clutter goes those family photos and knick knacks are mine and I love them get over it! You can decorate the way you want when you move in€

Theres a big problem, though.. people are people, and you (Mr. Home Seller) are being passed over in the most important marketing arena buyers are using the Internet. Thats going to affect your sale, and your sales price.

Home Stagers are professionals who know how to make your home look good to prospective buyers. Their services are becoming increasingly important to the seller because paying a little up front is going to bring you more money when you sell.

At times, a home stager is going to un-do what you did when you decorated something potentially maddening to a homeowner. Decorating is personalizing; a home stagers goal is to de-personalize your home, so the buyer can see themselves in it.

There are some basic goals for a sale-ready home: De-clutter, de-personalize, clean, and update as much as you can. Heres an important point: We live in our homes very differently than when we sell our homes. As one home stager told me: €œWhen you feel like its not your home anymore, then Im doing my job well. At every point think is this what I would see in a model new-build home? If its not, then make it that way.€

(Home owners right now are feeling their blood pressure rise with those last statements after all, you live in and love your home. Remember if you can make more money, you can put that same love in your new home and thats where you want to go!)

The de-clutter, de-personalize, and clean parts of making a home ready is low-cost and mostly sweat equity. The update portion of preparing a home is where the dollars can add up. All the more reason to get advice from a professional who can suggest where youll get the most bang for your buck. Now some home stagers can go a little crazy here, suggesting things that are going to cost thousands of dollars. Remember that home stagers know what sells homes and talk to them and your Realtor about the return on investment. At times its worth every penny and more.

How to find a good home stager? Ask your Realtor we interact with them on a daily basis. Google home staging or home stager in your area. For an additional list of tips for the do-it-yourselfers, click here.

Columbus Ohio Real Estate and Economy 2007 Update- End of Year

December 13th, 2007 Columbus Buyer Info, Columbus Seller Info, Columbus and Central Ohio Home Sales Stats, The Bad, The Good No Comments

We’ve all heard the hubbub in the news about urgent housing issues… so how is the market really doing here in Central Ohio? Here’s a few points to help get a perspective:

Columbus’ unemployment rates are the lowest in the state, sitting at 4.7% at the end of October.

Statewide, Ohio has one foreclosure for every 290 households.  That means 289 homes have stable, healthy mortgages.

The new home construction market is struggling.  Housing starts are 50% less in Columbus since 2003.

We are having one of the best Buyer’s Markets that we will see for a long time.  That’s fabulous news for buyers, frustrating news for sellers. (Sondra note: I’m telling sellers that traditionally the thought has been to make your money selling your home; but in this market, the money to be made is on the buying end.  Do what you need to do to get your home sold, and look for the equity-gaining deals on the buying end.) Keep in mind this market will change.  For those buyers sitting on the fence, a word of warning: it’s not going to get better than this. There are wonderful bargains out there, and great low interest rates.

A Forbes.com study reported Columbus as the 3rd most stable housing market in America. Central Ohio has had a long history of stable, reliable housing values, and continues to do so.

The end of October was the third month in a row for home listings being added to the market to be down from a year ago (6.9% down for October). This is a good indicator that the market is making a correction. As the listing pace slows, inventory levels drop and home sale prices stabilize and start to rise.

The average sale price of a home in the Central Ohio area for the furst 10 months of 2007 is $173,122.00– which is 1.5% lower than the same time frame for 2006. Average Days on Market for a sale is 107 days.

For specific statistics on sales in your area or neighborhood, contact Sondra for more details.

Columbus Ohio Job Growth Will Offset Foreclosures’ Impact

November 30th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, The Good No Comments

The Columbus Gross Domestic Product, or GDP (which is a measure of the value of goods and services) is projected to grow 2.5% this next year.  The national GDP is projected to grow 1.9%.  This will offset the impact of upcoming foreclosures in the real estate home market, and adds to Forbes Magazine (Columbus is listed as the 3rd most stable real estate market in the nation) and other media sources reaffirming the Columbus economy and housing market as stable.

Other Ohio cities are struggling…. Lima Ohio is projected to see a 1% loss in GDP, and both Cincinnati and Springfield are looking at a 1/2% loss in GDP for 2008.

For more details on the report specifics from Global Insight, click here.

Seven Reasons to List Your Home During the Holidays

November 18th, 2007 Cartoons, Columbus Seller Info, The Good 1 Comment

1. Many people start new jobs at the beginning of the year. Relocating buyers need to see your home now in order to buy and make their move….

2. Some people need to buy before the end of the year for tax reasons.

3. Your home will have that ‘warm and cozy feeling’ when it’s decorated for the holidays.

4. People shopping for a home during this time are serious buyers– the lookers are busy preparing for the holidays.

5. Serious buyers have fewer homes to choose from (since many homes go off the market for the holidays)– less competition means more money for you!

6. Sell now for more money and arrange a delayed closing…. you can celebrate the New Year in style.

7. Become a serious buyer yourself, and take advantage of this great buyer’s market while it is still so strong…. 

The ‘Subprime - Short Sale - Bank-Owned’ Primer

November 4th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, The Bad 1 Comment

Here’s a short and sweet summary of links and info to fill you in on the many issues the title words conjure up:

First off, if you’re caught in an adjustable subprime loan that is strangling you with upward spiraling house payments, check into FHA’s recent option to refinance called FHA Secure.  If a subprime borrower has a good payment history and at least 3% home equity, you can get a safe FHA loan with fixed payments. Even if you’re in default on your loan now, but were making payments before your adjustable loan reset to a higher interest rate, you can qualify. Special note: this is a temporary program (for now) with an application deadline date of 12/31/08– so let all those you know in this fix to move on this option.  There is also an option in Ohio sponsored by OHFA– the Ohio Housing Financing Agency.

If you’re a buyer that can’t find financing since the lenders have tightened their loan approval guidelines, click here.  There are new programs available (not all banks offer them) that can get you the money you need.

If you think that it’s the ‘end of the world as we know it’ and the real estate industry is imploding into oblivion, click here.  The media mavens who report all the real estate hoopla are talking about less than 1% of the total market.  Yes, it’s an issue, but let’s get a little perspective!  If you’re a numbers person, here’s statistics on the foreclosure numbers in the Columbus and central Ohio area as of September 2007…..

Trying to avoid foreclosure? Don’t ignore it– do something about it. Visit the HUD website to find a counseling agency near you. There are a number of agencies in Columbus Ohio; The Ohio Housing Finance Agency is one of them.  Another great resource is the Homeownership Preservation Foundation– they offer FREE advice and support.

Are you a victim of predatory lending? Call the Office of Attorney General Marc Dann at 800–282–0515… they want to know about it. The Ohio Division of Financial Institutions also registers complaints; call 866–278–0003.

Think you want to buy a bank-owned home?  You may want to think again… it’s a long and winding road.  Click here and here to see the experiences of others……

Need a little humor on the subject?  Click here to read about people who tried to get a loan and shouldn’t…….

The ‘short sale’ home situation is a unique animal…. which can kick the owner hard long after the sale.  Click here for more details. (A lender told me about a brand new surprise for owners. A couple had given their FHA deed-in-lieu-of-foreclosure to the bank and a year later wanted to get a new home loan.  However, the lender had filed a CAIVERS report on the couple months after the fact… which meant they could not get an FHA or VA loan for a period of 3 years! Please, talk to a knowledgeable lender or realtor early in the process….)

Curious about how and why the foreclosure crisis has developed?  Read earlier posts dated in March and August that gives some background…..

The Subprime - Short Sale - Bank-Owned Primer

November 4th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, The Bad No Comments

Heres a short and sweet summary of links and info to fill you in on the many issues the title words conjure up:

First off, if youre caught in an adjustable subprime loan that is strangling you with upward spiraling house payments, check into FHAs recent option to refinance called FHA Secure. If a subprime borrower has a good payment history and at least 3% home equity, you can get a safe FHA loan with fixed payments. Even if youre in default on your loan now, but were making payments before your adjustable loan reset to a higher interest rate, you can qualify. Special note: this is a temporary program (for now) with an application deadline date of 12/31/08 so let all those you know in this fix to move on this option. There is also an option in Ohio sponsored by OHFA the Ohio Housing Financing Agency.

If youre a buyer that cant find financing since the lenders have tightened their loan approval guidelines, click here. There are new programs available (not all banks offer them) that can get you the money you need.

If you think that its the end of the world as we know it and the real estate industry is imploding into oblivion, click here. The media mavens who report all the real estate hoopla are talking about less than 1% of the total market. Yes, its an issue, but lets get a little perspective! If youre a numbers person, heres statistics on the foreclosure numbers in the Columbus and central Ohio area as of September 2007..

Trying to avoid foreclosure? Dont ignore it do something about it. Visit the HUD website to find a counseling agency near you. There are a number of agencies in Columbus Ohio; The Ohio Housing Finance Agency is one of them. Another great resource is the Homeownership Preservation Foundation they offer FREE advice and support.

Are you a victim of predatory lending? Call the Office of Attorney General Marc Dann at 8002820515 they want to know about it. The Ohio Division of Financial Institutions also registers complaints; call 8662780003.

Think you want to buy a bank-owned home? You may want to think again its a long and winding road. Click here and here to see the experiences of others

Need a little humor on the subject? Click here to read about people who tried to get a loan and shouldnt.

The short sale home situation is a unique animal. which can kick the owner hard long after the sale. Click here for more details. (A lender told me about a brand new surprise for owners. A couple had given their FHA deed-in-lieu-of-foreclosure to the bank and a year later wanted to get a new home loan. However, the lender had filed a CAIVERS report on the couple months after the fact which meant they could not get an FHA or VA loan for a period of 3 years! Please, talk to a knowledgeable lender or realtor early in the process.)

Curious about how and why the foreclosure crisis has developed? Read earlier posts dated in March and August that gives some background..

99.2% of Mortgages Are NOT In Foreclosure

October 8th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, The Good 4 Comments

That’s a line from a report issued by Gary Watts, a real estate economist and forecaster for the real estate industry in California. There’s been a lot of buzz in the real estate blog world over his report he presented August 2007 in Monterey, CA at a Coldwell Banker retreat titled, “The Real State of Real Estate.”

In addition to the startling fact titled above (due to the fact that real estate drama has been a favorite topic of big media), here’s a couple other pertinent facts that will help put the Big Picture into proper perspective:

1. Sub-Prime loans make up only 5% of all the loans in the US.

2. Media reports of ‘massive delinquencies and huge foreclosures in the sub-prime market’ are not accurate– they are lumping three categories of a delinquent payment, a notice of default, and a foreclosure together.

3. Only 3.23% of all sub-prime loans (that’s 3.23% of 5% of the market– see #1 above) have gone from the ‘notice of default’ into the foreclosure process.  Only 1.28% of all prime loans have entered the foreclosure process.

4. As of July 2007, there was 1 foreclosure filing for every 693 homes in America.

5. For the 3.23% of sub-prime loans going bad in #3 above, 68% of these people are able to prevent the foreclosure by refinancing or selling their home.

6. In 2006, the US had a combined foreclosure (sub-prime and prime loans) of only 1.09%.

7. For the fore-closures that happened, the top 4 reasons they occurred were: 1. Fraud  2. Unethical lending  3. Loss of job  4. Medical crisis.

Why Big Media LOVES Bad Real Estate News

October 5th, 2007 Bank-Owned/Short Sale Homes, Columbus Buyer Info, Columbus Seller Info, From Professional to Personal 3 Comments

There’s a great article written by Dillon Devereaux of the Triangle News in North Carolina regarding this topic.  It’s one I’ve often wondered about…. I mean, when was the last time you heard Big Media showin’ a little love when it comes to real estate? When real estate is rolling, there’s a lot of muttering or silence. But get a few negative numbers in there, and we are slammed non-stop with stats and bad press.

In a nutshell, Mr. Devereaux believes there are 3 reasons why network television chortles with glee and negativity:

1. Real estate advertising is local.  There are little advertising dollars in the national coffers supporting television’s monthly bills.

2. All major media networks are owned by publicly traded companies. They cover Wall Street and are involved in Wall Street.  There is an interest to point investors towards the stock market… and if the stock market is having a downturn, it’s better to focus on downturns in other areas… like real estate.

3. There’s a lot of misinformation and partial information being presented.  “Consider a report that discusses a 25% decline in home sales…when the news caster fails to disclose that the drop was from an all time record high in sales, it skews the picture of real estate.” Viewers need to work at reading between the lines of what is being presented.

To get a REAL picture of what your local market is doing, talk to a local realtor who is working/living/breathing real estate 24/7… one who will present a true picture, and not give you a ‘song and dance’ from the other end of the pendulum.  (Living in the Columbus, Ohio area?  Call Sondra….) As my grandmother always said… “listen with a grain of salt– and then get the real answers you need”….