Feb. 21, 2008: mortgages on a wild ride, and remember that no one knows MSA prices yet!

Feb. 21, 2008: mortgages on a wild ride, and remember that no one knows MSA prices yet! Rob Chrisman

Some folks are never satisfied. A Jewish grandmother is walking along the beach with her young grandson. Suddenly, a huge wave comes up and sweeps the boy out to sea. The grandmother drops to her knees, turns to the heavens and prays “dear lord, that child is my life. If you send him back to me, I’ll never ask for another thing from you!!!’

Boom- another large wave surges up and deposits the child at the grandmother’s feet. The boy is sputtering and coughing. Looking down at him and then up to the sky, the grandmother shouts, “He had a hat!”

Are loan agents ever totally satisfied? What about people in the capital markets trying to hedge loans? Is everyone processing, underwriting, and hedging the same pack of loans? Are those files filled with applications that you took during the 4-hour refi boom now collecting dust on your desk, with rates suddenly 1% higher than where they were a few weeks ago? Falling interest rates combined with ARM loan adjusting upward have brought a lot of business to the mortgage companies still around, and a large percentage are staffing up. Many people whose mortgages are priced at six percent or above are applying for refinancing, and January mortgage application volume was generally higher than a year ago, and higher than December. But large investors and smaller originators are reporting high fallout.

Investors are certainly confused on where to price mortgages – today Treasury yields are slightly better, but mortgage prices show big improvements! Relative to Treasury yields, mortgage rates experienced some large swings yesterday as rumors came through about large sellers, then large buyers came into the mortgage market, and we finished the day relatively in decent shape. The market continues to trade thin as any large flow could move the market one way or the other.  According to a news story in Bloomberg, dealer balance sheets are quite full, and trading is “thin” (low volumes), so it easy for a large buyer or seller to move prices quickly. Jobless Claims fell to 349k from an upwardly revised 358,000, but the four-week moving average of these applications stood at the highest level in more than two years. The four-week moving average, which irons out weekly fluctuations in the data, rose to 360,500 from 349,750 in the prior week, which was the highest level since October 2005 in the aftermath of Hurricane Katrina. And the Fed Minutes released yesterday point to further easing at the March 18th meeting, in spite of continued talk about “Stagflation”. Generally speaking, further deterioration in the labor market could easily translate into lower consumer confidence and spending.  Later on we’ll see the February Philly Fed index, expected to rebound from January’s level. But after the numbers, the 10-yr stands at 3.85% but mortgages are better by .375 in price!

The National Association of Realtors released their 4th quarter report recently. The report showed that half (73 out of 150) of the cities analyzed showed increases in year over year prices in the fourth quarter – a fact rarely noted in the press! That being said, on a regional basis, the West saw the biggest declines at -8.7%, while the Midwest saw the smallest declines at -3.2%.  Overall, home prices in the US declined by 5.8% in Q4 ’07 versus a year ago. 

As I mentioned before, HUD has 30 days from the day the President signed the package into law to identify the impacted Metropolitan Statistical Areas, so it may be sometime in mid-March before all lenders receive the official pricing notification. At this point anything else is pure conjecture. Although several mortgage lenders have promoted lists of what they believe the new limits will be, these are only estimates because HUD has yet to determine the higher loan limits. HUD will determine the new loan limits based on the median area sales prices – but which ones? 2007? The fourth quarter of 2007? The third quarter? Median area sales prices may be dramatically different throughout the year, so the timeframe used by HUD to determine the higher loan limits is very important.

On the first day, God created the dog and said: "Sit all day by the door of your house and bark at anyone who comes in or walks past. For this, I will give you a life span of twenty years." The dog said: "That’s a long time to be barking. How about only ten years and I’ll give you back the other ten?" So God agreed. On the second day, God created the monkey and said: "Entertain people, do tricks, and make them laugh. For this, I’ll give you a twenty-year life span." The monkey said: "Monkey tricks for twenty years?  That’s a pretty long time to perform.  How about I give you back ten like the Dog did?"  And God agreed. On the third day, God created the cow and said: "You must go into the field with the farmer all day long and suffer under the sun, have calves and give milk to support the farmer’s family. For this, I will give you a life span of sixty years." The cow said: "That’s kind of a tough life you want me to live for sixty years. How about twenty and I’ll give back the other forty?" And God agreed again. On the fourth day, God created man and said: "Eat, sleep, play, marry and enjoy your life. For this, I’ll give you twenty years." But man said: "Only twenty years?  Could you possibly give me my twenty, the forty the cow gave back, the ten the monkey gave back, and the ten the dog gave back; that makes eighty, okay?"  "Okay", said God, "You asked for it." So that is why for our first twenty years we eat, sleep, play and enjoy ourselves.  For the next forty years, we slave in the sun to support our family.  For the next ten years, we do monkey tricks to entertain the grandchildren.  And for the last ten years, we sit on the front porch and bark at everyone.

Rob