Motivation Speech for today's tough times...

" . . . it ain't about how hard you hit; it's about how hard you can get hit, and keep moving forward. How much you can take, and keep moving forward. That's how winning is done. Now, if you know what you're worth, then go out and get what you're worth."

Market Watch for 1.26.09

Mortgage Bonds start the week somewhat unchanged and continue their sideways trading pattern.

Existing Home Sales surprisingly came in a bit better than expected. Perhaps the current low interest rate environment - combined with firesale prices on many homes - is helping more homebuyers make their purchasing decisions.

The employment environment continues to be shaky. Home Depot announced a cut of 7000 jobs, Caterpillar announced they will be laying off 20,000 and Sprint is cutting 8,000 employees.

For today, I will recommend a floating stance, but in this wacky market anything can happen. I will let you know if anything changes.

The Fit Expo with Tito Ortiz

Today I hung out at the L.A Fit Expo at the Convention Center, had the opportunity to meet and chat with Former UFC Light HeavyWeight Champ; The Huntington Beach Bad Boy Tito Ortiz....One of the greatest MMA fighters of all time and nicest people you'll meet. Hate him or like him I recommend his book "This is Going to Hurt"....He is scheduled to fight in July 2009 stay tuned and watch him...

Rate Sheets Gone Wild!

What's going on? There's very little above par or "premium" pricing available...and the latest round of Fannie and Freddie pricing adjustments means more and more borrowers need to pay points. They don't understand why and they don't like it. Combine that with some investor rate sheets getting worse...at the very same time that mortgage backed securities are getting better...and we've got the makings of a wildly confusing situation. But here's the good news. There are very logical reasons for what is happening.

What Lenders Learned During Prior Refi Booms

If you've been in the business for a number of years, you know that 15 years ago it wasn't uncommon to see nice buy-up schedules on many products, with an increased yield spread premium being offered in return for a higher interest rate. In fact, you could even get par plus 5 or 6, with the buy-up schedule giving about 50bp in return for a .125% mark-up on the interest rate.

But then along came the refinancing - and re-refinancing and re-refinancing once again - frenzies of 1993 and 1998, followed by the big daddy refi bonanza of 2002 to 2003. As home loan rates dropped ever lower over the years, you can imagine how the investors felt as they watched "par plus" loans get originated with the payout of juicy premiums...only to see those same loans turn around and be paid off in relatively short order, as increasingly lower rates made it attractive for the client to refinance, sometimes multiple times. These losses on loans were very costly to lenders. Think about it - when a lender offers a premium in return for a higher than market interest rate, it takes some time for them to make up with future interest earnings what they paid out in hard cold cash for the premium pricing when the loan closed. So after learning their lesson many times over many years and many refinancing booms...the lenders got smarter and started to reduce the amount of par premiums, followed by making those premiums more expensive by demanding even higher rates in return for a smaller premium and eventually have now nearly eliminated that premium pricing which cost them so much money in the past. Fannie and Freddie Loan Level Price Adjustmtents Make Paying Points Almost a Given Now, let's add the string of Fannie and Freddie loan level price adjustments to the picture, another set arriving on the scene just recently. Who would have ever thought that a credit score of 680 or an LTV of 90% would be considered such risky business? But it's been a tough year for everyone, including the agencies, and risk-based pricing is one measure they can take to protect themselves. In the past, pricing hits or adjustments could more easily be built into the rate, with a small bump up in rate offering enough premium pricing to cover the hit. But as we explained above...those days are gone, often leaving the borrower with no choice but to pay points for the adjustment. This can be frustrating to clients who don't understand why the recent pricing adjustments have to translate into potentially thousands of dollars in cash out of pocket. Bottlenecks in the Pipeline Keep Rates Artificially Inflated But wait, the fun isn't over yet...let's add some current events to the party. Investors have been slammed with the recent uptick in volume, at a time when they have both shrunk in number and depleted their head count, in an effort to slash costs. So while the increase in volume is certainly a good thing, it is apparently "too much too soon" for some investors to handle...and the only way to slow down the volume is by an increase in pricing. And if you're an investor...hey, why not bump up pricing, even though the mortgage backed security market might dictate otherwise? If your capacity is maxed out, raising rates helps increase profits while making the workload manageable by slowing down the flow of incoming files. What's Temporary, What's Long-Term and What You Can Do What's the result of all this? Frustrated originators, frustrated clients and frustrated agents...but there are answers and opportunities once you understand what is happening and why. You'd have to be living in a cave to not to be aware that the financial and lending climate has changed dramatically...but it's up to me as your trusted advisor to explain these dynamics, simply and clearly. What might make sense to me doesn't necessarily make sense to my clients and referral partners. On the other hand, the issue of reduced premium pricing, loan level pricing adjustments and point paying may be here for awhile - and could perhaps get stricter still as delinquency and default issues continue on. Any originator who would just quote a rate - without asking a number of questions - is really not a professional at all.

Market Watch 1.23.09

Inflation was back in the news today. Fed member Frederic Mishkin appeared on CNBC this morning stating that inflation could come to the forefront given all of the government programs. The news is keeping Mortgage Bond prices near unchanged levels.

The Federal Reserve Bank of New York reported they purchased $19B in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae between January 15 and January 21, bringing its total purchases so far up to $52.6B, or around just 10% of their $500B commitment through the end of June. The program was instituted to shore up the slumping housing market.

For today, I am currently recommending floating as support seems to be holding just below where Mortgage Bonds are trading. With the Fed still buying Mortgage Backed Securities there is a potential that home loan rates could improve in the near term.

Market Watch 1.22.09

It's been another wild and volatile morning for Mortgage Bonds after a slew of disappointing economic news and negative corporate earnings reports initiated an early sell-off in the Stock market.

Initial Jobless Claims reached its highest level since November 1982. In addition, housing remains weak as Housing Starts fell more than 15% in December and Building Permits also came up short.

Mortgage Bonds are attempting to trade above support. I recommend floating for now, but I will let you know if today's volatility requires a change of course.

Market Watch 1.21.09

Mortgage Bonds are trading just above important support at the Rising Trendline, and with no economic reports scheduled for release today, pricing could be influenced by action in the Stock market. After a rough start in 2009, Stocks are hovering right near important support as well, and could bounce higher from here.

Adding a slightly positive tone to Stocks this morning is news that IBM beat earnings estimates for the 4th quarter. The tech bellwether said it also plans to earn $9.20 a share in 2009 versus expectations of $8.70.

After a few days of pricing pressure, Mortgage Bonds are trading near oversold conditions, which could make prices ripe for a reversal higher. Couple that with the strong underlying support from the Fed and it suggests for the time being to float.

Market Watch 1.20.09

Today marks the inauguration of Barack Obama as America's 44th president. There are no economic reports due for release, but lately that hasn't stopped Mortgage Bonds from trading erratically... and today is no different.

The markets are waking up and realizing that more Treasury Bonds will inevitably have to be sold in order to carry out the rescue plans and stimulus packages of late. The additional Bonds create more supply than demand, which drops prices. Treasuries, in particular, are under very heavy selling pressure this morning.

Overall, prices have improved significantly from their worst levels earlier. I recommend floating for now as prices test an important level of support. If the situation changes, I will let you know.

Market Watch 1.16.09

This morning, the Consumer Price Index for 2008 was reported the lowest since 1954, indicating that inflation is not a problem. The big news of the day, however, is in the banking sector.

Citigroup reported a $8.29 Billion loss, completing its worst year ever since its inception in 1812. Bank of America also lost $1.79 Billion in the 4th quarter, making 2008 the bank's first yearly loss in 17 years. However, Bank of America received a lifeline late last night in government funds in exchange for preferred stock.

Currently, the Stock market is rebounding a bit higher, which is applying selling pressure on Bonds. However, prices have already improved since early lows. For now, I recommend floating, as we watch to see if prices can hold.

Market Watch 1.15.09

There has been a barrage of economic data and news released today, yet Bonds have remained relatively steady so far this morning. Meanwhile, JPMorgan Chase surprised the market with an earnings report that beat expectations. It's been awhile since a financial Stock actually surprised to the good side.

In other news, inflation is virtually non-existent at the wholesale level as the Producer Price Index showed that prices fell in December for the fifth consecutive month. Tomorrow’s Consumer Price Index report will show how costs have increased or declined on the consumer side, and I will be watching to see how the markets respond.

Overall, Bonds continue to move in a sideways pattern, thanks in part to the Fed buying support of Mortgage Backed Securities. For now, I recommend floating, but I will let you know if Bonds begin to move sharply in one direction or another.

Market Watch 1.14.09

Mortgage Bonds improved and Stocks lost more ground today on the awful Retail Sales news. Sales plunged by 2.7%, far worse than expected. Even worse, when you strip out autos, the number declined 3.1% versus expectations of a 1.4% decline. Retail sales have now fallen for six months in a row.

In the banking sector, Deutsche Bank, which is Germany's largest bank, warned of a fourth-quarter loss of $6.3 Billion, and Chase announced they are pulling out of their broker wholesale lending. This has added to the selling pressure on Stocks.

The Fed's Beige Book will be released this afternoon at 2 pm and could influence the markets, so stay tuned. For right now, I recommend floating to see if prices can revisit resistance at the all-time price highs, about 40 basis points above present levels.

Market Watch 1.13.09

Stocks are trading near unchanged levels after being under selling pressure yesterday due to Alcoa's 4th quarter loss of $1 Billion and rumors that Citigroup has more credit losses mounting.

In other news, Federal Reserve Chairman Ben Bernanke discussed the financial crisis this morning, saying that the highest priority is to promote global financial stability. On a positive note, he said that the US Federal Reserve still has enough policy tools to combat the current recession.

For now, I recommend floating. But I will be watching carefully to see if Stocks rebound after losing 500 points in the last 5 days. If that happens, Bonds could drift a bit lower and a change of course may be needed. I will keep you posted.

Market Watch 1.12.09

Today kicks off the 4th quarter earnings season for the Stock market. No one expects any stellar reports to be in store, but many eyes and ears will be on what these companies say regarding future earnings.

In other news, Oil prices are tumbling this morning to near $38 a barrel on concerns that slumping demand will outweigh output cuts by OPEC. Due to the present economic slowdown, Oil consumption is expected to fall by 1 million barrels a day this year in the US alone.

Currently, Bond prices are down, but may rebound a bit later if the Fed steps in with some buying. Therefore, I recommend floating for now. With so many variables affecting the market, it's more important than ever to have an advice-based strategy when structuring your loan, and I appreciate you trusting me with this role.

Market Watch 1.8.09

Mortgage Bonds are trading higher and at historic levels as the Fed was likely active in the markets continuing their purchase program this morning.

Meanwhile, Stocks are under selling pressure thanks to a rash of earnings warnings from the nation's retailers. Wal-Mart said today that 4th quarter profits will miss expectations after one of the worst holiday shopping seasons on record, while Macy's and Limited Brands cut their earnings forecast after the weak December sales readings. Macy's also said they are closing 11 stores.

In other news, the markets are bracing for a bad Jobs Report tomorrow and if the number is indeed bad, Mortgage Bonds could improve further as Stocks will likely come under selling pressure. Therefore, I recommend floating into tomorrow's report, but I will let you know if the news of the day requires a change of course.

Market Watch 1.7.09

Mortgage Bonds are taking a breather so far today, after a sharp run up the last two days which was fueled by the Feds long-term purchase program of mortgage backed-securities.

This morning, the ADP Employment report showed US private firms lost a whopping 693,000 jobs in December. This was far worse than expectations of 495,000 jobs lost.

The Fed's purchase program should help mortgage rates going forward. For now, I am recommending to carefully float however with so much volatility in the markets, things can change quickly.

Market Watch 1.6.09

Mortgage Bonds are taking a breather so far today, after a sharp run up the last two days which was fueled by the Feds long-term purchase program of mortgage backed-securities.

This morning, the ADP Employment report showed US private firms lost a whopping 693,000 jobs in December. This was far worse than expectations of 495,000 jobs lost.

The Fed's purchase program should help mortgage rates going forward. For now, I am recommending to carefully float however with so much volatility in the markets, things can change quickly.

Market Watch 1.6.09

The Fed was back in the markets this morning aggressively buying Mortgage Backed Securities pushing prices higher as it tries to lower home loan rates. The Fed will be buying $500B of Mortgage Bonds - that equals approximately $4B in buying power each trading day...that is pretty good buying support, which could help mortgage rates move steadily sideways to lower over the first two quarters of 2009.

At 2pm ET the Fed will release the Minutes from the December 16 Meeting which may shed some light on the Fed's view of the economy and the reasoning behind the aggressive cut. The Fed lowered the Fed Funds Rate by .75% to a range of 0 to .25% at that meeting.

With the Fed providing underlying buying support to Mortgage Bonds, I am recommending to float longer-term, but on short-term transactions we should be ready to lock at a moment's notice to protect pricing. We will likely see the lowest rates in our lifetime during the first two quarters of 2009, so get this message to everyone who can benefit and have them lock in during this once in a lifetime opportunity.

Market Watch 1.5.09

Happy New Year! Mortgage Bonds are off to a great start in 2009, as the Fed begins its planned purchase of Mortgage Backed Securities. This process will continue gradually through June and should help buoy Mortgage Bond prices. For today, there are no economic reports due out, so Mortgage Bonds will likely respond to today's Fed announcement.

In other news, President-Elect Obama's new stimulus package will reportedly be worth $775 Billion and will include hundreds of Billions of dollars worth of tax breaks and credits for individuals and businesses. This is good news for the economy and should help with consumer confidence over time.

Currently, I recommend floating, as Mortgage Bonds ride a nice long-term trend higher. Remember, with today's continued volatility and sharp swings in the market, trusted market knowledge is as important as price in your rate decision. If you have any questions or concerns, please contact me. I’ll be happy to help."

Market Watch 12.31.08

Mortgage Bonds are soaring higher this morning, thanks to the Fed reiterating its New Year's Resolution to purchase $500 Billion of Mortgage Backed Securities by June 2009. The announcement has led to another wild disconnect between Mortgage Bonds and Treasuries, as the 10-Year Note is trading sharply lower, while Mortgage Bonds are sharply higher.

In other news, Initial Jobless Claims were reported at 492,000, which was well below expectations that it would rise to 575,000. The Labor Department said that seasonal volatility led to the surprise drop in unemployment claims.

With the Fed's new program starting early next month, we should see improved Bond prices ahead - but we're also likely to see more volatility as the New Year begins. For now, I'll maintain a floating stance, but be ready to take action if the situation changes.