As of today, June 15th – rates are back to the 5.375 range after going as high as 5.625% last week..

While this was a welcome change for lenders to catch up on their underwriting turn times, it has definitely slowed down mortgage applications.

Of course a housing market recovery will greatly help the overall economy..  And I feel if we can get back into the higher 4% range and stay there for another 6 months to a year, the housing market will will finally begin to level out somewhat.  We’ll see – please read below. – Matt

05-28-09

Yesterday, Mortgage Bonds had their worst one-day performance since October.

So…what the heck happened and what’s next?

The main culprit for yesterday’s selloff…SUPPLY.  The Treasury has literally been printing money by way of Treasury auctions to pay for the massive spending.  And these hundreds of Billions of dollars of new Bond supply have to be absorbed by the market… So the additional supply literally weighs on the entire Bond market and drags prices lower – making mortgage rates higher.

Also, when you think of supply, consider all the recent refinances..  all those loans have been bundled, packaged and sold on Wall Street…and this additional supply has now started to hit the secondary market, as those closed loans are now getting turned around and sold.  This supply also must be absorbed, and while the Fed has been a buyer, they simply can’t buy enough to balance all the selling.  It’s Economics 101… Anytime supply vastly exceeds demand, prices will move lower.  And as prices move lower, yields rise – that rise in yield will attract new buyers as they get a higher return on their investment.  This is how the market finds balance – in turn it also raises our mortgage interest rates.

Many governments have made attempts to support a currency.  In other words, a country individually, or a group of countries, can join together to purchase a nations currency in an effort to “prop it up” or support it.  A historical perspective indicates that this may work as a temporary fix, but never works over the long term.  In some ways, we can draw parallels to what the Fed is attempting to do with mortgage rates.  As you know, we have been quite vocal on how a 4% mortgage rate was a myth, and it appears now that some clients who elected to hold out for that rate find themselves in a tough spot.

The question on everyone’s mind..will rates come back?  The answer is that we will probably see some improvement, but it will be difficult to see rates fight back to the levels they were at just last week.  There are both fundamental and technical reasons why a retracement back to last week’s levels would not be easy…  Fundamentally, the aforementioned supply issue still exists, with no end in sight to the amount of debt still to be issued – the printing presses are just getting started. Yes, the Fed will continue to buy Mortgage Bonds, which will help to some degree, but it’s like trying to clean up a flood with a sponge. 

The recent price declines have pushed Bonds into an “oversold” state, which means prices could be ripe for a bounce or reversal higher, yet we need to be mindful of a few things.  After a few bad days, we have fallen through several floors of support, which now become overhead resistance – so the long haul back to the mid to high 4% range may take quite some time while it battles the inflation of the summer months.

 

Matthew J. Goulart

Murphy Home Loans, Inc.

www.centralcoastmortgage.org

805.596.4455 SLO

805.773.6222 Pismo Beach

mattg@murphylends.com

DRE Lic. # 01794720

 

“Please remember, referrals to your friends & family are the best compliment I can receive.”

 

 

**Original orgin of material above taken from the Mortgage Market Guide

With the supposed elimination of the adverse market fee FNMA and Freddie Mac have been charging lenders, as well as the decline of “risk based pricing” and “Loan level price adjustments”… One would hope lenders will pass some of the savings onto consumers through mortgage brokerages within the next few months.

We’ll see… they seem to be holding their profits pretty tight, at least until confidence is renewed in the financial market. 
For now, see below!

I want to take a second to thank Allyson Nakasone for sharing this article which she received from Michael Gray, CPA’s Tax & Business Insight. Please read below:

Housing Act includes a tax surprise.

President Bush signed The Housing Assistance Act of 2008 (H.R. 3221) on July 30, 2008. The tax part of this legislation is The Housing Assistance Tax Act of 2008.

The big surprise in the tax act that isn’t being widely discussed is a cutback in the home sale exclusion. The reduction applies for home sales in tax years after 2008. Gain eligible for the $250,000 exclusion for single persons, $500,000 for married, filing joint returns, is reduced for periods of non-qualifying use after 2008. For example, if you convert a principal residence to a vacation home or a rental, the gain eligible for exclusion is reduced for the period of non-qualified use. (Temporary absences, such as for a vacation or for medical treatment, still count as qualified use.) This is a major change that many people won’t understand, and is especially important for real estate investors who convert a principal residence either to or from rental or vacation property.

For example, John Taxpayer, a single person, bought a residence on January 1, 2007. It was his principal residence until December 31, 2008. He used it as a vacation home starting January 1, 2009. John sells the house on December 31, 2010 and has a $200,000 gain. Before the change in the tax law, the entire gain would be eligible for the $250,000 exclusion, resulting in no tax. After the change in the tax law, only one-half of the gain is eligible for the exclusion, the other $100,000 is taxable as a long-term capital gain.

The Act also includes a tax credit for first-time home buyers. The credit is 10% of the purchase price of a home, up to $7,500 ($3,750 for married taxpayers filing a separate income tax return. The credit is phased out for married persons filing a joint income tax return with modified adjusted gross income from $150,000 to $170,000, and for single taxpayers with modified gross income from $75,000 to $95,000. The credit is effective for homes purchased from April 9, 2008 through June 30, 2009. The credit is actually an interest-free loan that is repaid over a 15-year period. The balance must be repaid if the home is sold before the repayment period is over. A “first-time homebuyer” is defined as a person who had no ownership interest in a principal residence during the three-year period before the new home is purchased.

 

 

Please read the following snippet below from last Thursday (AP), (edited down, of course).

 

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NEW YORK (AP) THURSDAY 07.18.08 — Treasury prices fell sharply Thursday as several upbeat earnings reports, falling energy prices and an unexpected jump in housing starts alleviated some of investors’ concerns about the economy. The news lured investors back into stocks and away from the relative safety of government debt.

Treasurys were benefiting earlier in the week as Wall Street fell on uneasiness about the financial services sector and the broader economy.

Stocks also soared because the price of oil declined sharply for the third straight day. The Dow Jones industrials rose more than 200 points and logged the best two-day percentage gain since October 2002.

Kevin Giddis, managing director of fixed income at Morgan Keegan, said the bond market will remain choppy until stocks appear to stick with a direction; advances like the surge on Wall Street the past two sessions have often been given back quickly. Investors have jumped between both markets depending on the strength of corporate and economic news.

“This has been a wild and crazy last few days, and the focus is on the credit markets,” he said. “We’re bouncing back and forth on this safe-haven play all day long, and we will have volatility until we get a better idea about earnings, credit and the economy.”

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Unfortunately, the trend continued through Friday, leaving us with some of the highest rates we’ve seen this year.

However, as Kevin Giddis said above,

“Advances like the surge on Wall Street the past two sessions have often been given back quickly.”

And this week is chocked full of economic reports which hopefully will bring our rates back to the level we started the beginning of last week…

I will keep you posted as we move forward. J

I hope you all have a great Monday, please be sure to give me a call or send me an email if you can refer anyone who is thinking of purchasing or refinancing.

Hope to hear from you soon,

Matt

Well, Fannie Mae and Freddie Mac dont believe you.

 

 

Unless that is, you have at least 30% equity in your home.

Which unfortunately…. most of us don’t.

 

 

Many people out there have been taking advantage of the low market and qualifying by stating that their old home will be used as a rental. Once they close escrow on the new home, they stop making payments and let the bank foreclose on the old one.

 

Frankly, Fannie Mae and Freddie Mac, (FNMA & FHLMC) aren’t “buying it” anymore, (Pun totally intended). They’ve updated their guidelines; and us as mortgage brokers need to follow their new rules.

 

In summation, if a borrower is purchasing a home without selling their current residence….

Unless they have 30% equity in the property they are moving from, they will not be allowed to use any proposed rental income.

They must then qualify for both payments and have enough reserves to cover both payments for 6 months.

 

 

Converting a primary residence to an investment property (during a new purchase transaction):

Fannie Mae will continue to permit up to 75% of the rental income to be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property (derived from an appraisal, AVM, or BPO, minus outstanding liens).

The rental income must be documented with:

·         a copy of the fully executed lease agreement; and

·         the receipt of a security deposit from the tenant and deposit into the borrower’s account.

 

If the 30% equity in the property cannot be documented, rental income may not be used to offset the mortgage payment.

·         Both the current and the proposed mortgage payments must be used to qualify the borrower for the new transaction; and

·         6 months of PITI for both properties is required to be in reserves

 

These guidelines are applicable to manually underwritten loans and, except for the additional reserve requirements, must also be applied (on a manual basis) to loan casefiles underwritten with DO/DU. DO/DU will determine the level of reserves for each loan casefile.

 

All of the above guidelines go into effect August 1, 2008.

 

The Housing Crisis Is Over

	Stolen From the Wall Street Journal: http://online.wsj.com/public/us

 

DOW JONES REPRINTS By CYRIL MOULLE-BERTEAUX May 6, 2008; Page A23 The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now. How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor. Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982. Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability. The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much. Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst. Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in. The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do. In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months. The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months. Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually. Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market. Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons. Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading. This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity. When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face. More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure. A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy. We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now. Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.

Dining Out: Try a beachside special

I found this article on SanLuisObispo.com after doing a brief search for Seaside Cafe in Shell Beach. Lana and I lived in Shell Beach for a number of years and would frequently take walks up to Sea Side Cafe when Tim’s mother ran the tiny cafe.. She always had great coffee and made the best quiche around, (not to mention scones, muffins, cinnamon rolls, etc.).

After we moved to Nipomo, (a couple years ago now…) we began to miss the coffee and goodies at the cafe, so we decided to take a drive one Sunday morning up to Shell Beach to cruise in for breakfast..

Now, we knew Tim and his girlfriend from seeing them inside the cafe, and knew that they were eventually taking over… But now it was for real, and changes were taking place… Both to the menu as well as the food. We ordered quiche and coffee, maybe a croissant, and sat down.

Let me tell you, we were absolutely blown away with breakfast. We couldn’t believe Tim and Liz were making such gourmet food in the little cafe that’s always felt like home… We felt like we discovered something that no one else knew about..

Well.. Word has gotten out a bit since then, and Tim and Liz are busy as ever. Nonetheless, the food is as top notch as it was that quiet morning. And even though there is a new buzz around town, nothing has changed in regard to the food, the quality, or the service..

So if you are ever near Shell Beach, and want to have some wonderful coffee, breakfast, lunch, etc. go see Tim and Liz. They’ll be there waiting for you… Hat’s off to them as well, as they’ve proven that hard work, dedication, and having a great attitude does pay off.

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Seaside Cafe and Bakery in Shell Beach has earned a stellar reputation for its freshly made breakfasts and lunches

By Dawn White

TRIBUNE PHOTOS BY JAYSON MELLOM

The Seaside Cafe and Bakery’s french toast features homemade sweet bread accompanied by bananas, fresh berries, coconut and vanilla glaze.

SEASIDE CAFE AND BAKERY

1327 Shell Beach Road, Shell Beach, 773-4360

Hours: 7 a. m. to 4 p. m. daily, with food cooked-to-order until 2 p. m.

The scene: Quaint coffee shop and cafe a block from the beach

The cuisine: homemade comfort food including pancakes, waffles, sandwiches and casseroles

Expect to spend: $3 to $8 for breakfast, $5 to $9 for lunch

When I first went looking for the Seaside Cafe and Bakery, I nearly missed the tucked-away eatery in Shell Beach.

Its storefront is tiny, and there are few signs to direct you to the quirky cafe and coffee shop.

But now that I’ve dined there, I’ll know I’ll never miss this beachside gem again.

Owners Tim Begovich and Liz Lynch opened the cafe nearly two years ago and have slowly gained a following of loyal java-lovers who enjoy freshly made delectable breakfasts and lunches.

Is this heaven?

Each morning at 7 o’clock, the aromas of bread baking, pancakes and freshly brewed coffee welcomes groggy diners. There are a few cozy tables and a nice patio that is perfect to hang out on in warm weather.

The owners prepare everything from scratch, which guarantees that most menu items will be a sure bet.

During a recent visit—after the breakfast rush was over—I had my choice of blueberry pancakes, savory quiches, a variety of sandwiches, homemade enchiladas and two kinds of lasagna.

Although the variety of menu items seems a little random, all are prepared by cafe co-owner Lynch, who seems to be able to make anything taste good.

The food

Breakfast items are enticing with oversized fruit scones, various muffins and homemade cinnamon rolls. The cinnamon roll, deliciously soft and gooey, was drizzled with a cream cheese frosting.

For lunch, the green chili chicken enchiladas are a standout. Ample chunks of white chicken are smothered in sour cream and tangy tomatillo sauce, then wrapped in a flour tortilla. The enchilada was the ideal blend of melted cheese and spices, making it one of the best enchiladas I’ve tasted in the area.

The daily quiche was a large wedge of fluffy eggs and cheese packed with Canadian bacon, green beans, spinach and tomatoes. The quiche is served with breakfast potatoes, an ultimate hash of sautéed potatoes, peppers and onions.

Add a little hot sauce and this makes for a tasty late breakfast or lunch that will keep you full throughout the day.

The sandwiches

The sandwiches at Seaside Cafe are a pleasant surprise. Figuring that my turkey and avocado sandwich would be served on a croissant or French roll, I was delighted when it was placed in front of me on freshly baked wheat bread.

The thick slices of bread are toasted so they’re crispy on the outside and still warm and soft on the inside. The sandwich was filled with thick slices of turkey, cheese, lettuce and tomatoes. The sandwich was so ample that I saved half for my next day’s lunch.

A cup of java

Seaside’s coffee and tea selections will satisfy any enthusiast. The cafe offers at least three varieties of illy coffee, a rich Italian brew that is popular with coffee connoisseurs.

With so many coffee shops selling Costco-made products or prepackaged lunches, Seaside Cafe’s menu of freshly made dishes is a welcome return to the way coffee shops used to be.

Reach Dawn White at 781-7946.

 

 

“If it looks too good to be true, it probably is.”

 

It seems that about once a month, I get something in the mail offering Lana and I a “No Closing Cost” Mortgage… I did a bit of a Google search and came up with this article written by Juan Boldizsar. He did an outstanding job in answering the question and I thought many of you would find it interesting and easy to understand. Enjoy!!

Here is the full article: http://www.mortgagenewsdaily.com/wiki/Contributors.asp?pID=24890

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 If it looks too good to be true, it probably is. Let me explain… Even if we omit the lender’s fees that get charged in connection with a mortgage, there are still third party fees, e.g., title examination and insurance, closing fee, recording fee, flood determination, appraisal etc. None of these parties give away their time, resources or services for free, nor does the mortgage broker or the retail lender who arranges your loan for you. The money to pay these people has to come from somewhere.

Here’s how it works. Banks and mortgage companies make lots and lots of loans. They pool them together and use them as collateral for loans that they get from institutional investors. This process is referred to as “securitization.” The loans they get are in the form of bonds that they sell in the financial markets, i.e., Wall Street. When the institutional investors like hedge funds, pension funds, insurance companies etc. buy these bonds, they expect a certain return on their investment. This rate of return is referred to as the bonds’ yield. This describes the rate of interest that the investors earn from these bonds.

 So, if a lender figures that on a given day, they can borrow money at 6%, lend it at 7% and cover their overhead and make a reasonable profit, the rate you will see advertised in the paper will be 7%. If they have to pay your closing costs they have to charge a higher rate if they still want to be able to cover their overhead and generate money for their shareholders. By charging a higher rate, they get paid more for the pools of loans that get turned into bonds. That extra money is used to pay your closing costs when you get one of those “no closing cost” loans.

All of that being said, the important thing to know is not whether there really is such a thing as a “no closing cost loan” — because in reality, there isn’t — but rather whether what gets referred to as a “no closing cost loan” makes sense in your particular situation. For instance, let’s say currently have a loan that has a rate of 8% and you have a choice of refinancing into a loan with closing costs that carries a rate of 6% and one that has no closing costs and a rate of 6.5%. Assume that the difference between the monthly payments is $100 and that for the loan with the lower payment the closing costs add up to $5000. By paying closing costs, you save a hundred dollars for every month that you keep the loan past month number fifty. On the other hand, if you plan on keeping the loan for less than 50 months, it doesn’t make sense to pay the closing costs because the total monthly savings don’t cover them.

Before we finish, let me make it clear that the numbers used in my example are for illustrative purposes only. When you are out shopping for a loan, you should consult with an experienced and knowledgeable mortgage professional. Ask that person to give you a “break-even” analysis so you can determine whether paying closing costs or going with a “no closing cost loan” makes more financial sense for your particular situation.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

For my clients, I will usually issue a few different Good Faith Estimates in order to examine the different types of loan programs we offer. Next, we’ll narrow down which program makes the most sense for the clients overall financial goals.

Once a program is decided upon, we will look at a few different Good Faith Estimates with different rates and fees for the same program. That way, it is clear what, (if any) benefit will result in paying down the rate in the form of points, or the extreme opposite of raising the rate to pay for the loan and 3rd party fees.

Generally speaking, I do not recommend paying points to lower an interest rate, unless the borrower is positive they will be keeping the loan long term or the property is an investment. However, I also do not typically recommend “no cost” loans because of the amount that the rate must increase in order to pay the fees…

I feel that with experience and proper mortgage planning comes finding that “happy medium” required to put together the perfect loan.  

 Please go here to see the full article by Jon Markman.

 By Jon Markman

Big investors and government officials have pulled out all the stops in recent weeks to make it look like equity markets, and possibly the U.S. economy, hit rock bottom in early March in sync with the crash and sale of Bear Stearns (BSC, news, msgs).

Yet new evidence suggests that credit markets, where most of the world’s businesses are financed, have hardly improved a bit in the past month and threaten to drag corporate earnings and stocks back into the hole from which they appear to be emerging.

If that’s confusing, considering Tuesday’s 391-point pop in the market, imagine the climactic scene in a horror movie in which the hero fights to wriggle out of quicksand, yet every time he makes a few inches of progress he’s yanked back in by hidden forces.

What makes a happy getaway for stocks so plausible is that it has come at an ideal time in the market cycle. Investor sentiment readings by mid-March had fallen to extreme lows, prices and valuations of favorite stocks were at multiyear nadirs, short sellers had become fearless, and, by every account, a mountain of cash had accumulated on the sidelines.

Moreover, the Bush administration had shockingly stepped away from its long-standing effort to keep its mitts off Wall Street by announcing a plan to rein in bank and brokerage meanies with sweeping new rules.

In other words, everything looked perfect for a massive rebound, as savvy hedge fund traders — flush with money from their successful efforts to push the market down over the past few months — could take advantage of an obviously sour mood. You could smell a short squeeze coming a mile away, and that’s why I recommended a bullish stance amid the pall last week.

Give traders credit: Their effort to prey on late-coming, mom-and-pop short sellers and force them to cover their bearish bets at higher prices in the past few days has proved effective so far……………..

 

Said Drill: “I do believe the stimulus by the Fed and other parts of government will win the day — but what kind of day will it be?”

This truly is the point, as it is easy to guess that $160 billion worth of fiscal stimulus and the slashing of interest rates by more than 2 percentage points in record time are likely to improve companies’ access to credit. But it’s another thing to wait and see whether it actually occurs.

Mary Moloney with Coldwell Banker Premier in San Luis Obispo introduced me to this video today while setting up my blog. I think it speaks volumes in regard to where we are headed and how the internet is changing the World by bringing people and information together. If you would like to contact me, please email me here .

Enjoy!!!!