The Mortgage Insight

Why Mortgage Rates Were Up For The Third Day In A Row

Mortgage markets worsened for the third straight Tuesday after the government reported June's Retail Sales report came in slightly better than expected.

Since falling to near 5.000 percent last week, 30-year fixed conforming mortgage rates have risen by almost 3/8.

It's a similar mortgage rate pattern to what we've seen over the last 10 months -- rates drift down to near their "all-time lows", and then surge higher over just a few days time.

This week's movement, in particular, is vexing home buyers and would-be refinancers.

Many people thought mortgage rates would break below the 5.000 percent threshold. The markets, however, had other ideas.

In addition to the unexpectedly strong Retail Sales data, last month's Producer Price Index reported higher than expectations, too.

A rising PPI is important to rate shoppers because the figure is akin to the Cost of Living measurement for household, but for American businesses instead. The thought goes that if business costs are rising, consumer costs will eventually rise, too, as businesses share their expenses with American households.

This is inflationary, of course, and inflation is awful for mortgage rates. It's part of the reason why mortgage rates closed higher again Tuesday.

All year long, mortgage rates have been jumpy and unpredictable. This past week has been no different and it's why you shouldn't necessarily try to time for a market bottom with mortgage rates.

If an interest rate looks good to you today and the payment is manageable, consider locking it in. There's no guarantee rates will ever fall back toward 5.

Realtors, CPAs, LO's...great product to supplement income!!!

Security Based Lending

FUNDS AGAINST ALL TYPES OF SECURITIES (Except 401K). WORLDWIDE

USE THIS PROGRAM TO REFINANCE A MORTGAGE OR FUND A MAJOR PROJECT. No limit on dollar amount.
Protect Your Stock Portfolio AND Get Cash. Our securities-based loan program allows you to leverage your securities portfolio and offers you protection from market decline without selling your securities.

No Credit Review Required. Since our loan is securities-based, there are no credit or income requirements. In addition, our program allows you to continue to reap the rewards of any appreciation and dividends generated by the pledged securities.

Eligible securities include stocks, bonds, penny stocks, mutual funds, and foreign exchanges.

Here are the program details:

• No Credit Requirements.
• Low Interest Rates: Fixed rate between 2% to 4.5%.
• Terms: From 3 to 10 years.
• LTV: From 35% to 80% of value of asset.
• Non-Recourse: You can walk away anytime.
• It is a Loan, Not a Sale

The program is very flexible. At the end of the term, the loan can be paid off, refinanced, or renewed. You keep all market appreciation and dividends.

You'll get a fast decision: You'll usually receive an answer on your loan within 2 business days of providing your securities information. Once the loan is signed, funds are deposited to your account within 5-7 business days.

Basically the loan uses the borrower's securities as collateral. It's a non purpose loan, meaning the funds can be used for any purpose. Most often, to fund projects or payoff a commercial note.

The interest rates are from 2- 4.5%
Eligible collateral are stocks, bonds, mutual funds, etc.
We cannot lend against hard assets...i.e., land, buildings, etc.

The loans are non recourse meaning the borrower can walk away no penalty if the loan falls below the LTV value. This provides a great opportunity for borrowers to hedge against the market. Most of my clients are higher level executives with heavy portfolios...This provides them access to capital on their portfolios.

Last deal:
Client paid off commercial note
Loan amount $30MIL
Interest rate 3.5%
The dividend yield was 4% on the securities that were pledged, rather than making quarterly payments he receives a check for the difference.

There are distinct benefits to our securities lending products as they compare with outright stock sales and margin loans and we'd like to outline the benefits and clarify any confusion among these choices.

Security Loans
·     Not taxable event
·     Non-Recourse-walk away if stock value drops below LTV value with no liability
·     Up to 80% LTV's
·     No margin calls-protection against stock volatility
·     Loans flexibility-almost any stocks at any price point including penny stocks, restricted stocks and options
·     Benefit from stock growth during loan term-upside potential
·     Low fixed rate loan
·     Privacy - no reporting
·     Flexible unlimited proceed usage-except margin securities
·     Large loan amounts accepted
·     Quick turnaround in funding process
·     Dividends credited towards repayment

Margin Loans
·     Non taxable but full recourse loans
·     Subject to margin call if stock price falls-subject to stock volatility
·     50% LTV maximum-government regulated
·     Higher variable interest rates in most cases
·     Highly regulated use of proceeds
·     Accessibility of funds thru "cash out" can be difficult

Stock Sale
·     Taxable event
·     No future growth in stock available
·     SEC reported in case of restricted stock
·     Public knowledge of sales in some cases with officers and major stockholders
For future reference...

Hong Kong shares are fine (H shares). Tokyo works. Australia, Malaysia, and Singapore work. If the stock is solely traded on mainland China exchange (Shanghai) we can not do it at this time. If it is dual listed on the Hong Kong exchange it does work. We've seen a lot of activity out of Tokyo lately--apparently it is very tough to get a traditional margin loan so we are seeing that business.
These are the exchanges that don't work:
Shanghai
Korea
Vietnam
India
Bombay

I know it's a lot...Hope this helps! If you have any prospects you want me to look at please fill out the inquiry sheet. I can get a term sheet out in 24 hrs.

Mortgage Markets In Review : December 29, 2008

In a week defined by low volume and lack of conviction, mortgage markets idled ahead of the holiday last week. Friday's post-holiday action was even slower.

After falling for two consecutive weeks, mortgage rates held flat last week.

It's somewhat surprising that mortgage rates didn't rise considering the flow of negative economic news last week:

Joblessness appears to be worsening
Consumer spending sputtered
The U.S. dollar is showing weakness

Lately, each of these elements has played a role in mortgage rate movement but it's the last bullet point that could throw home buyers and refinancing Americans for fits.

It's because of the relationship between mortgage rates and the strength of the U.S. Dollar.

All things equal, a strong dollar pressures mortgage rates lower whereas a weak dollar pressures mortgage rates up. And, because the dollar's recent beat-down has been swift, it wouldn't be unexpected to see similar mortgage market movement at any time.

This week, like last, is interrupted for the holiday. Regardless, there's much going on. Aside from two economic reports, there is nothing else for markets to digest and no planned speeches by members of the Fed.

Expect just a small number of traders to show up for work this week. This means volume will be especially light. But don't be lulled into taking your eyes off the market -- low volume on Wall Street is sometimes accompanied by high levels of volatility.

For now, mortgage rates are hovering near their 2008-lows. Given the path of the dollar and low-volume trading, that could all change in a flash.

(Image courtesy: The Wall Street Journal)

Market Review

Mortgage Markets In Review : December 23, 2008

Mortgage markets improved last week for the second week in row. After the Federal Reserve said it would use "all available tools" to stimulate the economy, traders responded by driving mortgage rates to 50-year lows.

It didn't last long, however.

After bottoming out early-Wednesday morning, mortgage rates trended higher all the way into Friday's closing. It was the third time in 2008 that a sharp mortgage rate drop lasted less than one full day of trading.

Many Americans took advantage of the historically-low mortgage rates, locking in new home loans below 5 percent. And, in general, these homeowners shared 4 characteristics:

Credit scores of at least 720
At least 20 percent equity
Relatively low debt versus household income
Ongoing relationship with a loan officer

Now, the first 3 bullet points are easy-to-understand but it's the fourth one that really mattered -- it's the trait that got people "real-time access" to low rates the moment they published.

After all, it wasn't until Thursday morning that the press ran its stories about "4.5 percent mortgage rates" and, by that time, mortgage rates had already retreated -- by as much as a full percentage point in some cases. Thursday morning's news was a half-day too late.

Still, mortgage rates do remain low.

This week is trade-shortened and thick with data. In addition to two pieces of housing news and a consumer sentiment survey, we'll get a look at the Federal Reserve's preferred Cost of Living index. All four data points are expected to validate the recession, so don't expect mortgage rates to move much.

Instead, the biggest threat to mortgage rates this week is momentum. If mortgage rates tick higher Monday and Tuesday, expect that to continue Wednesday into the 2:00 P.M. market close and then to resume again Friday.

Markets are closed Thursday for the federal holiday.

(Image courtesy: The Wall Street Journal Online)

What happened to my rate!

You'll Get The Best Mortgage Rates If You Watch Certain Patterns

When it comes to mortgage rates, sometimes it's better to "act now".

On Tuesday, mortgage rates fell to their lowest levels in 4 years. It happened because the Fed said it would "employ all available tools" to resuscitate the economy.

On Wednesday, however, the markets had second thoughts.

After considering the long-term implications of a near-zero percent Fed Funds Rate and the cumulative cost of government intervention to-date, suddenly, traders grew fearful that U.S. government action would devalue the dollar and lead to inflation -- the enemy of low mortgage rates.

As a result, mortgage markets unwound.

At first, the exit was a slow and orderly. Then, without warning, investors began a full-on sprint for the exits. By the end of the day, mortgage rates were higher by as much as a half-percent. Nearly all of Tuesday's big gains were erased.

In hindsight, the reversal Wednesday wasn't all that surprising -- it's the same trading pattern we've seen twice already this year. The first time was after the Fed's "surprise" rate cut in January, and the second time was after the federal takeover of Fannie Mae and Freddie Mac in September.

Sharp rate drops tend to be followed by immediate bounce-backs, it seems.

But, unfortunately, not every would-be refinancing homeowner saw the increase coming. While those that locked at the first opportunity to save money are sitting pretty today, the rest that "waited for rates to go lower" are likely kicking themselves about it.

Going forward, mortgage rates may fall, or they may not. We can't possibly know. But we've now seen the pattern 3 times now -- when mortgage rates plunge like they did Tuesday, they rarely stay that low for long. When you find a rate you like, get in and get locked as soon as possible.

Sleeping on it for even one night may end up costing you dearly.

(Image courtesy: The New York Times)

The Fed meeting 12/16

Explaining The Federal Reserve In Plain English (December 16, 2008)

The Federal Open Market Committee voted to cut the Fed Funds Rate by at least three-quarters percent today. The benchmark rate now rests in a range of 0.000-0.250 percent.

In its press release, the FOMC identified three key economic sectors in which activity has weakened since October. The FOMC noted that:

The U.S. job market is deteriorating
Consumer spending levels are falling
Business investment is contracting nationwide

The Fed intends its rate cut to provide stimulate to each of these areas.

In addition, the voting members of the FOMC singled out inflation as a diminishing threat to the economy. This is an important admission because it's well-known that cuts to the Fed Funds Rate can spark inflation. Rapidly falling oil prices and commodity costs, therefore, likely paved the way for today's historic cut.

In its announcement to markets, the Fed gave The People what they wanted -- a reassurance that the policy-making group would "employ all available tools" to help turnaround the economy. Lowering the Fed Funds Rate to an all-time low is one such step; its plan to purchase mortgage-backed debt in the open market is another.

After the announcement, stock markets rallied and mortgage bonds did, too. Rates ended the day slightly lower.