HARP 2.0

Many of you have either heard or read about last Monday's announcement from the Obama administration along with Fannie and Freddie about coming changes to the Home Affordable Refinance Program (HARP) ….now being coined as HARP 2.0.

HARP is unique in that it is the only refinance program that enables borrowers who owe more than their home is worth to take advantage of low interest rates. It is targeted for borrowers with loans closed and sold to the Fannie or Freddie on or before May 31, 2009. One of the major hurdles for California Homeowners is the current limit to the LTV of 125%....and most of our investors limit them to 105%! They do that because currently the risk to the lender for buyback is so high.

The Key changes that have everyone excited is:

1.       Removal of LTV limitations….giving a lot of borrowers the chance to refi for the first time.
2.       Fannie and Freddie will drop the “reps & warranties”….meaning they won’t come back to the lender to buy the loan back if the borrower then defaults sometime soon.

These two changes alone could open the door to more investors participating and a tremendous amount of opportunity for homeowners to reduce their payments.

Fannie/Freddie plan to issue guidance with operational details about the HARP changes to mortgage lenders by November 15^th. Remember that lender participation in HARP is not mandatory and each investor will vary on their willingness to play and their overlays…..So we expect that we will start hearing from our investors sometime around 11/15 and shortly after.

Remember that often programs do now always work the way the politicians and agency s claim they will when they finally hit the streets, because the investors who buy  the loans ultimately determine the guidelines not the politicians.

Click here to read the announcement from FHFA. 

Weekly Update by Bill Fisher 10.31.2011

Okay, we have a new plan from the EuroZone—or, at least, the vague makings of a plan. And, as always seems to happen, stock markets all over the world rejoiced at the new plan…for about a day. Sarkozy and Merkel smiled at each other for the cameras (though there was a big hint this time of a strain in their relationship). And we read headlines declaring that the solution may have been found.

As usual, it didn’t take long to realize that the solution slips like a greased pig from the grasp of any analysis of the actual program.

For example, dig into the idea of asking creditors to cut in half the amount of interest they receive from Greek bonds. This would be done voluntarily.

In whose dreams?

At the same time that Greek yields are halved, the EU would guarantee the first 20% of the yield of new Spanish and Italian bonds bought by investors. Is that really supposed to calm the fears of investors? Surely, it won’t. Nor does it seem to have been dreamed up in the same universe as was the 50% haircut on Greek bonds. It all looks exactly as it is: a wild, unpredictable carnival ride with no clear idea of whether the little car you’re riding will end up with its wheels on the tracks.

Further, the banks of the region would be strengthened so that they can withstand the next inevitable credit crunch in which sovereign bonds lose a large share of their value.

And here’s the truly bad news: Europe is already edging back into recession. Waving magic wands over Greek, Spanish and Italian bonds won’t change that—but the current economics of these countries are exactly what needs changing.

In times like these, we turn to the master of bad news, Nouriel Roubini, who notes that, though the current suggestions will not work, they are necessary. Necessary but insufficient to create recovery. “Unless you have economic growth there is going to be a train wreck,” he says in his straight-forward way.

We need, Roubini adds, a major rate reversal and cut by the European Central Bank; a move of the euro toward parity with the U.S. dollar; and massive economic stimulus among Europe’s core nations. His odds on these things happening? Zero.

Does that mean his odds on an economic “train wreck” are about 100%? Yikes!

Lest we get completely caught up in this fiasco and lose our ability to think, though, it’s well worth noting that the data for the American real estate markets—perhaps especially the new homes market—are picking up a bit. So how bad you feel depends on where you’re looking.

How, then, can we reconcile an improving American real estate market with a deteriorating world credit market? This is a wild guess. The world credit and currency markets are deal with old problems in very old ways. They want to ante up more debt money so the affected countries have more wiggle room. That’s a weak policy, to say the least.

The real estate market, on the other hand, is in the beginning stages of approaching its problems in a more proactive fashion. Instead of simply waiting for a recovery to finally show up, it’s beginning to think about market-creating—developing new home styles that aren’t generally available in the resale market but that buyers want NOW. Infills and retrofits may become the order of the day among existing homes.

It’s exciting to watch—as we also crouch in fear of the damage the world markets may cause to everyone’s banking system.


by: Bill Fisher

Daily Commentary by Larry Baer 10.31.2011

Commentary:  For all the talk last week suggesting European financial leaders had successfully developed a comprehensive plan to avoid a major economic meltdown in the euro-zone -- global credit markets have now come to the unsettling realization that key pieces of the much ballyhooed agreement may be extremely difficult, if not impossible to get implemented.  The biggest question mark surrounds how exactly the "European Financial Stability Fund" - the major element of the entire strategy -- will actually be funded. 

Leaders from the world's 20 leading economies will meet in Cannes, France on Thursday and Friday.  Market participants will be listening and watching intently to see if other countries, particularly China, announce intentions to help fund the European financial rescue effort.  If it appears other members of the global financially community intend to contribute substantial sums of money to the "EFSF" look for investors to respond by shifting their funds from the relative safe-haven of Treasury debt obligations and mortgage-backed securities into riskier but higher yielding assets  like stocks.  On the other hand -- should the global financial community choose to keep their check books closed -- it is highly likely mortgage interest rates will tumble yet lower as capital flees Europe for the safety of dollar denominated fixed-income assets.  More on this story to come.

Here at home the Federal Open Market Committee gathers for two-days of monetary policy discussion on Tuesday and Wednesday.  With fears receding a new U.S. recession is imminent the Fed will likely make no change to the current level of their benchmark short-term interest rates.  There are some who believe the Fed may offer hints on how close it is to expanding asset purchases - perhaps even returning as a major buyer of mortgage-backed securities in an effort to spur economic growth.  I suspect the Fed will not discount such a move completely - but will make it clear that further stimulus is not likely to be forthcoming for the balance of the year - a mortgage interest rate neutral event. 

The Labor Department will release the October nonfarm payroll data on Friday, November 4^th at 8:30 a.m. ET.   While the media will try to whip up some excitement going into the number the probabilities are high the current forecast calling for the creation of 100,000 new jobs and a national jobless rate stuck at 9.1% will likely be proven accurate.  These values are already well price into the mortgage market so numbers generally matching the forecast will have little, if any impact on the current trend of mortgage interest rates.

   

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Daily Commentary by Larry Baer 10.27.2011

Commentary:  Almost all of the momentum behind this morning's selling pressure in the mortgage market is being generated by investors' perception that Euro-zone leaders have stuck a deal to limit the damage from the financial crisis gripping the region.  Early this morning international bankers, heads of state, and officials from the International Monetary Fund announced they had reached a deal to recapitalize ailing European banks together with an aggressively negotiated commitment to expand the euro-zone rescue fund to $1.4 trillion.  

The headlines surrounding this event make it sound as though the 17-country currency bloc has managed to avert a major financial collapse just in the nick of time.  And maybe they have - but the devil is in the details - which are largely missing.  That fact should come as no surprise to most analysts - the just completed summit is the 14^th such meeting in less than two-years designed to produce "the" solution to the regions economic woes. 

As the serious business of drilling down into the essence of today's agreement gets underway -- it is highly likely the current euphoria driving a sharp rally in global stock prices will morph into disillusionment as it becomes evident a convincing fiscal and political solution to the European crisis has yet to be developed.  If this assessment proves accurate - stock markets will be exceptionally vulnerable to a November slide - a condition almost certain to support the prospects for steady to perhaps fractionally lower mortgage interest rates.

In other news of the day -- the government reported earlier this morning the economy, as measured by Gross Domestic Product, expanded at a 2.5% pace in the third-quarter.  Most mortgage investors discounted the news a bit - assigning part of the improved performance to temporary factors not likely to be repeated in the fourth-quarter.  Still, the expansion signals some relief as the economy appeared to be on the brink of another recession just weeks ago. 

   

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME

Today is a good day to lock!

Click Here to view today's RateWatch Video

Daily Commentary by Larry Baer 10.25.2011

Commentary:  Mortgage interest rates edged lower this morning driven by news that a European Union finance ministers meeting set to take place before tomorrow's much anticipated summit of all EU leaders has been cancelled.  Even though the larger body is still scheduled to meet tomorrow - today's cancellation raises doubts in the mind of the global credit market investment community about the ability of European leaders to make meaningful headway in efforts to recapitalize euro-zone banks and to resolve the debt crisis plaguing many countries in the region.     

Failure to reach a deal by tomorrow to insure the next sovereign debt default averting payment to Greece (due by the end of the month) will further undermine market confidence in the currency bloc and its collective ability to solve a two-year-long debt crisis.   Should such an event occur - look for mortgage interest rates to move sideways to fractionally lower from current levels as capital flows out of Europe and into the relatively safe-haven of dollar denominated assets like Treasury debt obligations and mortgage-backed securities.  

The probabilities are also high further delays in making meaningful progress with respect to avoiding a multi-country financial disaster in Europe will take a toll on stock market investors here at home - resulting in a sell-off in both the DOW and the NASDAQ.   If such an event were to occur, the "flight-to-quality" buying spree generated by capital fleeing the selling pressure in our domestic equity markets will also serve to support the prospects of steady to perhaps fractionally lower mortgage interest rates.

Uncle Sam will be in the credit market this afternoon looking to sell $35 billion worth of 2-year notes at an auction scheduled to conclude at 1:00 p.m. ET.  The relative short maturity of this security should be attractive to a large number of investors.  If so, this event will likely have little, if any meaningful impact on the direction of mortgage interest rates today.   

THE MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME