My New Blog

 Friday, March 07, 2008

By yesterday evening, mortgage lenders that were not found in the middle of the 101 babbling to themselves or imbibing their favorite adult beverage were too stunned to talk about their day. In the morning we were all doing the happy dance with the announcement of FHA loan limits for Maricopa and Pinal Counties to $346,250. Without warning, interest rates turned ugly. All of the tracking tools we have for interest rates were burned by the banks in a big bon fire - which us lowly drones were not invited to. We were told that the banks were adding on fees to compensate for the costs Fannie Mae and Freddie Mac were charging, translating into higher loan rates. O.K, so why did the FHA/VA rates increase?

The employment numbers today stated more people out of jobs. This news should have also brought the rates even lower. Ha! An e-mail from Fannie Mae indicates the issues with banks and investment bond funds have made the mortgage guarantees unstable. Did you think, well, o.k., we still have A.R.M.’s? Change your thinking. Adjustable Rate Mortgages have also increased. We are in historic economic times, we have homes to sell, yet the rates are .500 more than they should be. Are they high?

FYI: With the exception of Maricopa and Pinal counties, the rest of Arizona’s housing market is stable. Yuma and Flagstaff have actually experienced a small increase in home prices over the past 6 months. But the tract builders stayed away from the smaller communities.

Diane

Once upon a time (2005) in a peaceful sunny land not too far away (Arizona), Builders came and built homes. Then the Builders got greedy. All of them decided to increase prices. The people of Phoenix became afraid that there would be no homes left for their families, so they bought. Would-be investors traveled to Arizona to buy rental property because they had read it would be a good thing. The Banks saw the Builders making truck loads of gold (it was really dollars) and were jealous. So the Banks decided they wanted truck loads of gold and called their ogre friends at Wall Street (no relation to Shrek) and structured loans so that any human no matter how terrible their credit or job situation, could buy a home. The Builders convinced families that $400,000 was a fair price for a 1400 square foot home. The Banks sprinkled fairy dust on the Buyers so they thought they could afford $2800 per month on their new home for two years. Wall Street ogres continued to invent more magical loans so everyone could buy. The Buyers, the Builders, the Banks and Wall Street thought they were all going to live happily ever after. And then….. the big, bad housing decline in 2006 started eroding all of the imaginary home equity. Even good people stopped making their house payments they could not afford to begin with; and really could not afford after the two years. The Builders panicked and starting dropping prices lower and lower to get rid of their houses, but continued to build. The Wall Street ogres fled the land and said “Oh my, our magic has run out. We are not buying these loans from the Banks anymore”. So the angry Banks decided to punish the good people by not accepting good loans with good appraisals and making Buyers put more money down since someone has to pay and it is not going to be the Banks or the ogres at Wall Street. The End. Well, not quite. On a steed of white came FHA to save the limited down home buyers and home owners who want to refinance their homes. And those buyers that want to purchase homes above $357,000? They are still waiting for their knight in shining armor.

FYI: Metropolitan Phoenix’s population increased by 132,000 people in 2007 behind Dallas and Atlanta. People are moving to Arizona! And…..

According to the Phoenix Business Journal a group of local business leaders and university officials are proposing a $1.4 billion capital stimulus package to boost the construction industry by adding 32,000 jobs to benefit Arizona's three state universities by building structures to accommodate health science and biomedical education.      Diane Gerdes

by Diane Gerdes

This holiday weekend has started on a calm note after a colorful week. The Fed is allowing Fannie and Freddie to carry fewer reserves, therefore freeing up the much needed $200 billion dollars to buy mortgage loans. Mortgage guidelines are changing hourly and there is chatter that the Fed will supervise lenders and their mortgage criteria. The Fed is also lending billions of dollars to Wall Street firms that are cash strapped because of the investors jumping to any investment that does not say “mortgage.” The Fed is trying to overt another rip off (oops, I meant fire sale) like the one this week when J. P. Morgan Chase picked up the once mega Bear Stearns (known for their mortgage securities investments) for a mere song. J.P. Morgan along with Bank of America and Wells Fargo will have loads of money to buy Easter eggs this weekend with the gazillion dollars they made on the initial public offering of Visa.

FYI: The Fed’s dropped the Fed rate by .750 this week. Yes, interest rates have gotten better. No, they are not at 4%.

Today’s Consumer Price Index indicated that what we are paying for our stuff is in line with what we make, as long as you take out oil and food prices. The Feds were doing the happy dance because it meant that the scary hairball called inflation has been swept under the bed (for now) and the chances of lowering the Fed rate at least another .500 may be a reality. How will that affect us? Unless you are a bank borrowing money from the Fed, you probably will not feel it. In the old days (last month) the adjustable rate mortgages or home equity lines of credit dropped every time the Fed moved. No so anymore. Until two weeks ago, the 30 year fixed rates moved along with the 10 year bonds. To compare, in June 2003 the 10 year bond was at 3.10 and the 30 year fixed was around 5.25%. Today the 10 year bond is close to the 3.10, but the 30 year is around 6.125%. Investors are terrified by the mortgage defaults so all of the lenders, including Fannie Mae and Freddie Mac are having trouble refilling their vaults, therefore higher interest rates. Getting back to that scary hairball, its name is oil and the March numbers may be frightful (sorry, couldn’t resist).

FYI: China’s miracle economy of the 21st century has overtaken France to be 4th largest economy in the world. But….China has 1.3 billion Chinese. France has 60 million French people that produce almost as much economic output each year on a 35 hour work week and still produce 246 different types of cheese.