Team Empowerment Mortgage Chatter: June 14; News & Headlines; QRM: The Potential Cost To A Purchaser; Why They Are Saying To Buy A Home Now; 7 Highest-Performing Major Housing Markets

“To be successful, all you have to do is give up everything you know.” – Asara Lovejoy: Motivational author and coach



World economies are struggling, debt in the US is mounting, mortgage bankers are grappling with disclosure, buyback, and volume issues, banks are holding huge amounts of cash reserves in case the “worst case scenario” hits, and…NMLS is reminding everyone that “the NMLS Approved Course Provider logo will no longer be authorized for use after July 1, 2011. Providers who are currently using the logo on their web site and/or are using it in marketing materials should begin the process to remove it. We are currently finalizing the new approved course logo and anticipate starting to send the updated logo to providers the first week of July. To deter unauthorized use, the new logo design incorporates the unique course ID number and a digital watermark.”

Life is tough when even the agency set up to regulate you seems to not only take the credit for your improved performance, but then indicates it would rather you went away: FHFA.

Yesterday the commentary mentioned a report stating that broker business was down to about 7% of total originations. Say what you will about how mortgage production statistics are tabulated, broker business is down. What is the “investor chatter” out there with regard to broker business? Barclays released a piece reminding us that for brokers, “The new loan compensation guidelines, which went into effect on April 1, have several key provisions that limit the types of compensation that they can receive. Yield spread premiums are prohibited. Compensation based on loan characteristics or terms is prohibited, other than the loan balance. Only the borrower or the lender, but not both, may compensate the loan originator for making a loan. A broker can no longer receive fees from both parties. Overall, these changes seek to eliminate the incentives for originators’ steering borrowers into riskier loans for financial gain. While correspondents, and retail lenders are somewhat affected by these rules, they substantially restrict the previously existing business model for brokers.”

Turning to the markets, yesterday MBS prices were unchanged although traders reported higher-than-average volumes. “J.P. Morgan anticipates that buying from banks and REITs will more than offset the dealer positions, while a new quarter and month will bring in some balance sheet space.” The 10-yr ended at 2.99% with no substantive news.

But today we’ve had Retail Sales for May at -.2%, ex-auto +.3%. RS was close to expectations but still a negative number. May PPI was +.2%, ex-food & energy +.2%, a little stronger than expected. The inflation gauges Producer and Consumer Price Indexes are expected to confirm the Fed’s belief that inflation is not a threat at this time and is expected to remain a nonevent for some time given the economic growth slowdown. Later this morning we have Business Inventories – hardly a market mover but is seen +0.9%. After the early numbers stocks are pointing higher, the 10-yr is at 3.06% and agency mortgage prices are worse by .250.


The Quality Residential Mortgage (QRM), a proposal by the government to tighten lending standards, has initiated quite a debate. The government feels strongly that standards must be raised while others have debated that the new guidelines are an example of the pendulum swinging back much too far. For the government’s position on QRM, click here. For the other side of the debate, click here.

We do not want to enter this debate today. Instead, we just want to shed some light on the increased cost a buyer should expect under the new guidelines. The fact that it will cost a purchaser more is not argued by either side. The only question is the extent of the increase.

The most complete study we could find on this issue was JP Morgan’s 55 page report on Securitized Products. According to their research, in order to entice lending institutions to replace government lending, mortgage interest rates could increase 3%.

“…in this new world of higher capital requirements, mortgage rates would need to rise by more than 300 basis points (3%) from current levels…”

That’s assuming the banks would be looking for the same returns they normally receive. The report went on to say that perhaps the banks would be satisfied with a smaller return.

“This is not to say that the new capital requirements will necessarily drive interest rates 3% higher…the mortgage rate impact could be anywhere from 1% to 3% higher.”

Let’s assume the eventual increase in mortgage rate is 2% (the middle of that 1% – 3% window). What impact would that have on a purchaser?

Today, interest rates are approximately 4.5%. A two percent increase would bring them to 6.5% which happens to be about where they were prior to government intervention. On a $200,000 mortgage, a buyer’s monthly mortgage payment (principle and interest) would go from $1,013.37/month to $1,264.14/month.

That is an additional $3,009 each year and a total of $90,277 over 30 years.

Bottom Line

It doesn’t matter which side of the QRM debate you are on. If you are considering the purchase of a home, waiting could be expensive if lending costs do increase.



Despite what appears to be a non-stop wave of tough news regarding real estate, four major media players have come out this month with the same advice: It Is Time to Buy a Home! Here are the four articles and a breakdown as to why the advice makes sense.

The Wall Street Journal: Why It’s Time to Buy

CBS Money Watch:Why the Time to Buy is Now

Forbes Magazine: 9 Reasons to Buy a House Now

National Public Radio: For Many, It’s Still a Good Time to Buy a Home

With prices continuing to depreciate in most regions of the country, some may wonder why these four entities are suggesting to their readership that now is the time to buy. Each organization realizes that PRICE is not as important as COST. The cost of a home can go up even if prices continue to fall. Unless you are an all cash buyer, you must take into consideration the expense of mortgaging when calculating the full cost of a home. Here is some information to consider.

Interest Rates

Currently, interest rates sit at historic lows. However, Fannie Mae, Freddie Mac, PMI and the National Association of Realtors are all projecting approximately a 1% increase in mortgage rates over the next year. A one percent increase in rate negates a ten percent fall in prices.

Lending Standards

The government has proposed a tightening of lending standards called Quality Residential Mortgage (QRM). If accepted as proposed two things will happen:

The qualification process for loans will become more difficult

The cost of a loan will increase

Bottom Line

There is a reason more and more financial organizations are suggesting to their followers that now is the time to buy a home: because the cost of purchasing a home is about to increase (even if prices continue to fall).



Several real estate markets are starting to show signs of improvement with home prices in the last quarter as the industry demonstrates more signs of stabilizing, according to Clear Capital’s latest monthly Home Data Index Market Report.

REO saturation rates have improved in the majority of the country’s largest markets. However, many areas are still battling year-over-year price declines. Clear Capital’s index reports that quarter-over-quarter home price declines were 2.3 percent in the latest quarter, which is less than half compared to the previous month.

“The latest market report results through May suggest that home prices are starting to ease back from the heavy declines seen over the winter,” says Alex Villacorta, director of research and analytics at Clear Capital. “We are still far away from the strong demand needed to fully turn things around for the housing market. However, it is clear from the initial spring sales data that prices are softening, suggesting stabilization in the market.”

The High Performers

Seven of the top 15 markets posted quarter-over-quarter property price gains in this month’s report, compared to none in last month’s, according to Clear Capital. Here are the seven highest-performing major real estate markets, according to the report.

1. Washington, D.C.-Arlington, Va.-Alexandria, Va. Quarter-to-quarter home price change: 4.5% Year-to-year price changes (May 2010-May 2011): 4.9% REO saturation: 17.5%

2. St. Louis, Mo. Quarter-to-quarter home price change: 2.2% Year-to-year price changes: -11.4% REO saturation: 35.3%

3. Pittsburgh, Pa. Quarter-to-quarter home price change: 1.6% Year-to-year price changes: 0.3% REO saturation: 10.9%

4. New York, N.Y.-Long Island, N.Y.-No. New Jersey, N.J. Quarter-to-quarter home price change: 1.5% Year-to-year price changes: 1.4% REO saturation: 9.6%

5. Virginia Beach, Va.-Norfolk, Va.-Newport News, Va. Quarter-to-quarter home price change: 1.4% Year-to-year price changes: -13.2% REO saturation: 22.4%

6. Miami-Ft. Lauderdale-Miami Beach, Fla. Quarter-to-quarter home price  change: 0.6% Year-to-year price changes: -5.2% REO saturation: 39.6%

7. San Jose-Sunnyvale-Santa Clara, Calif.  Quarter-to-quarter home price change: 0.5% Year-to-year price changes: -5% REO saturation: 25%

Tthe lowest-performing market for the fifth straight month was Detroit-Warren-Livonia, Mich., with a 13.2 percent decrease in quarter-over-quarter home price change and a 58 percent REO saturation rate.


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