Archive for July, 2007

Why Alerting Your Mortgage Lender About Bad News In Advance Is Better Than Surprising Them

David Kosmecki | July 31, 2007 in Uncategorized | Comments (0)

If you are going to be late with your mortgage payment, be sure to tell your mortgage lender prior to missing a payment

Having trouble paying your mortgage? You aren’t alone. According to RealtyTrac, 1 out of every 134 homes filed for foreclosure in the first half of 2007.

More and more, though, mortgage companies are doing their best to work things out with delinquent homeowners.

Loss of a job or a sudden medical emergency are just some of multitude of reasons that forces an otherwise responsible borrower to find themselves in difficulty.

What’s important to remember is that you are not alone, and there are people you can talk to. Remember: foreclosure is a difficult and expensive proposition for a mortgage company and it wants to avoid the foreclosure process as much as you do.

If you are having trouble making payments — before you fall behind! – call your mortgage lender and explain to them your situation. The lender will likely put you in touch with credit counselors and will usually attempt to work out a payment plan with you.

Never miss a payment (or make a partial payment) without first speaking to your lender because no news is bad news in the case. The lender will assume the worst — that you plan to never make a payment again.

People with excellent credit are burdened with bad luck all the time so don’t let a temporary problem destroy your credit or threaten your home.

No one benefits from drastic action taken against you, so give the lender a call and work things out to everyone’s satisfaction.

The Week In Review (July 30, 2007) : What To Watch For

David Kosmecki | July 30, 2007 in Uncategorized | Comments (0)

The stock markets faced large losses last week and the bond market was a beneficiary. That was good news for mortgage rates, but the news could have been better.

Unnerved by losses in the sub-prime market, investors are beginning to question the safety of mortgage bonds overall. Once considered a “safe” investment, mortgage bonds may be losing their luster and that could drive mortgage rates higher.

Less demand for mortgage bonds forces mortgage rates up.

This week, markets should stop taking their cue from “sentiment” and instead focus on actual data. There’s a lot of inflation-related news coming up.

Tuesday is the first big data day of the week, featuring Personal Consumption and Expenditures (PCE) and the Employment Cost Index. The former answers “What is the cost of living for ordinary people?” and the latter answers “What is the cost of keeping a workforce?”.

Increases in either will be viewed as inflationary which should contribute to a rise in mortgage rates.

Then, on Friday, the Bureau of Labor Statistics will release the jobs report from July. Markets are expecting 135,000 new jobs created, a 3,000 increase over June 2007.

As always, though, the real story in the Non-Farm Payrolls report is not the headline, but the upward or downward revisions to May’s data and June’s data.

It’s been a wild ride for mortgage rate shoppers lately. This week does not figure to get any smoother.

Market Update – July 27, 2007

David Kosmecki | July 27, 2007 in Uncategorized | Comments (0)

Risks favor: Cautiously Floating

Current Price of FNMA 6.0% Bond: $99.00, -9bp

Mortgage Bonds are trading a little lower after the Commerce Department reported the advanced second quarter GDP growing at the quickest rate in a year coming in at 3.4% and hotter than expectations of 3.2%. Stocks, which were punished yesterday, reversed their pre-market losses on the GDP release and this improvement in stocks hurt Bond pricing. The Bond was also pushed back below a ceiling of resistance at the 50-day Moving Average and this is something we are watching very closely to see if this morning’s modest sell-off in Mortgage Bonds gains momentum.

The Michigan Consumer Sentiment was reported at 90.4, which was just slightly below expectations and had little effect on prices.

Right now it is all about technicals and stocks. The Bond is testing resistance at the 50-day Moving Average and how the Bond performs near this ceiling will likely be influenced on what happens in the Stock market. Should stocks rebound after yesterday’s sell-off, the Bond could have difficulty breaking above this ceiling. However, should stocks continue to come under selling pressure, Bond pricing could benefit. We want to be patient and see how stocks perform and give the Bond a chance to trade back above the 50-day MA, so for now we are cautiously floating, but be ready to lock as the picture could change quickly in this volatile market.

The Charts Show That Yesterday’s Stock Market Plunge Was Really Just A “Blip”

David Kosmecki | in Uncategorized | Comments (0)

The Dow Jones Industrial Average lost 311.50 points yesterday. On the rankings of Top 10 Daily Losses of All-Time, 311.50 doesn’t even come close, according to (and the charts above)

So, as we always do, let’s put yesterday’s action in perspective for the average person.

#7 on the “total points” list happened five months ago today — February 27, 2007. On that day, the Dow lost 416.02.

Was it a crisis? Probably not. We know that because if you pulled your money out of the market February 27, you would have missed the 10.3% in market gains since that day.

Yesterday’s loss doesn’t register in the Top 10 on a points basis, and on a percentage basis, it’s even farther off the chart. At 2.3%, the loss is just a blip.

The point is this: If you are invested in stocks, don’t react too swiftly to the headlines. Many passive investors lose money when trying to time the market’s ups-and-downs. If you’re nervous about your exposure to stock market fluctuations, speak with your wealth planning professional for advice.

The Dow’s worst day ever remains Black Monday on which the market lost 22.61%. Since that date, however, the Dow Jones Industrial Average has added more than 12,000 points. Investors that stayed the course endured temporary pain, but emerged as winners.

Don’t let yesterday’s losses get your down.

Market Update July 26, 2007

David Kosmecki | July 26, 2007 in Uncategorized | Comments (0)

Current Trend Direction: Sideways

Risks favor: Floating

Current Price of FNMA 6.0% Bond: $98.91, +12bp

Mortgage Bonds are trading higher as Stocks look like they are going to be punished today. We have seen how earnings season drives Stock prices, and how Bonds typically move in an opposite direction to Stocks. Today, oil giant Exxon missed earnings expectations even though oil prices are now above $77 a barrel. With Stocks close to all-time highs, the weak earnings report from Exxon gives traders a chance to take profits, and the Stock market is pulling back lower as a result. The good news is that Bonds are the beneficiary, as the money from Stocks sold gets parked over into Bonds, helping pricing improve.

In economic news, the Durable Goods Orders report for June was reported at 1.4%, which was lower than projections of 2.0%. This weak report is also helping Bonds hold their higher ground. The weekly Initial Jobless Claims was reported at 301,000, slightly lower than expectations of 310,000. Overall, the Jobless Claims data suggests the labor market remains stable, with unemployment rates hanging around historical lows of 4.5%.

At 10am ET today, the latest read on the housing sector will be released with the New Home Sales report. Unless this report wildly misses expectations, we shouldn’t see much of a market reaction.

Bonds have freed themselves from the 25-day Moving Average and have now popped above the 40-day MA. With a very negative sentiment in Stocks today, Bonds may continue to benefit. For now, we will continue to Float, and give Bonds a chance to test resistance at the 50-day MA, presently at $99.04.

Using Flip-Charts To Understand How Sub-Prime Mortgages Work

David Kosmecki | in Uncategorized | Comments (0)

This video from CNBC via YouTube does a terrific job of illustrating how sub-prime mortgage defaults are impacting mortgage rates overall.

There’s some jargon in there, but overall, it’s very easy to follow.

Market Update – July 25, 2007

David Kosmecki | July 25, 2007 in Uncategorized | Comments (0)

Current Price of FNMA 6.0% Bond: $98.81, +3bp

After getting roughed up yesterday, Stocks are attempting to rebound this morning, which could lead to pressure on Bonds if a rally in Stocks gains momentum. And as has been the case, Bonds are still somewhat attached to the 25-day Moving Average, containing any upside moves. A look at the Bond page shows the Bond now being squeezed between support at the 25-day MA and resistance at the 40-day MA. The inevitable breakout direction will depend on upcoming news and Stock direction.

Speaking of Stocks, today's morning move higher was sparked again by stronger corporate earnings. Amazon and Boeing are both flying high, leading the way for Stocks. But our good friend, Bond fund “guru” and harbinger of doom, Bill Gross from Pimco, stated yesterday that he believes the Stock market is ripe for a 5-10% correction at any moment due to rising interest rates in the high-yield or junk bond arena and the meltdown in subprime mortgages. Given his track record, his comments should be taken with more than just a grain of salt.

Existing Home Sales for June were reported at 5.75 Million units, which was less than the 5.90 Million expected.

But there was some good news within the report – the median home sales price increased 0.3% to $230,100 representing the first year over year price increase

in 11 months. Additionally, the monthly sales inventory dropped to a level of 8.8 months from the prior month’s reading of 8.9 months. All in all the report suggests the housing market is stabilizing and isn’t as dismal as the media portrays.

At 1pm ET, the US Treasury is auctioning off $18 Billion in two-year Notes and this added Bond supply could weigh on the overall Bond market later today. Then at 2:00pm ET, the Federal Reserve will release its Beige Book - the Fed's survey of subjective views on the economy. There shouldn't be any surprises in this report as the Fed's views are widely known at this point, but you never know how the Bond market may react in this overly sensitive environment we are presently in.

Bonds continues to walk the tightrope along the 25-day Moving Average, and we will float so long as Bonds can keep this level underfoot.

Why You Should Approach Tomorrow’s Existing Home Sales Headlines With Some Skepticism

David Kosmecki | in Uncategorized | Comments (0)

Existing Home Sales reports on a national level and that is irrelevant to hyper-local real estate markets

June’s Existing Home Sales reported weaker than expected and dropped from prior levels, according to the National Association of REALTORS.

Because our country (A) loves to discuss real estate, and (B) loves statistical headlines, expect tomorrow’s newspapers to emblazon one (or both) of these data points on the front page:

  • Home sales are down 3.8% from May 2007
  • Home sales plummet 11.4% from one year ago

Those are two of the negative points from the NAR report.

There were positives in the report as well, but they’ll likely get buried deep in the newspaper coverage.

For example, homes are more affordable today than they were a year ago. Mortgage rates for “A” paper home buyers (i.e. strong income, assets and/or credit rating) are slightly lower today in June 2006.

Additionally. the number of homes on the market dropped in June which led to, in part, an increase in the median home sale price.

We bring the up today because it’s important to remember that real estate is not a national news story — it’s hyper-local. That’s why newspaper headlines need to be taken with a grain of salt.

Your home is a part of your neighborhood and that has its own “real estate market”. Just like on any street in America, your street has good buys and outright lemons listed for sale. What’s happening on the national scene has absolutely nothing to do with what’s happening in your backyard.

Unfortunately, this is a truth that remains largely untold.

Prospective pool of buyers can be frightened by negative headlines like the ones we’ll likely see tomorrow morning. Fewer buyers means less demand for homes, placing additional downward pressure on the housing market.

Market Update – July 24, 2007

David Kosmecki | July 24, 2007 in Uncategorized | Comments (0)

Current Price of FNMA 6.0% Bond: $98.78, +3bp

In the absence of market-moving economic reports being released, Bonds are continuing to react to the action in the Stock market. We remain deep in the midst of “earnings season”, where businesses report their quarterly earnings to the public – and as the market absorbs the numbers, traders and investors will make investment decisions based on what they hear. Strong earnings will cause investors to put more money into Stocks, but may access money already invested in Bonds to do so. This selling of Bonds hurts Bond pricing and our rate sheets. On the flip side, weak earnings will cause investors to pull money out of Stocks and park it into Bonds, thereby benefiting Bond pricing and our rate sheet. And that’s exactly what’s been happening today, as a series of weak reports are putting Stocks under selling pressure, and helping Bonds hold their ground.

There are no economic reports on the docket today, but another round of Bond supply is set to hit the market at 1pm ET by way of $6 Billion in 20-Year Treasury Inflation Protected Securities (TIPS). The extent of foreign demand and overall success of the auction could have an impact on pricing later today. Yesterday’s auction of three and six-month T-Bills showed decent results and foreign participation, so

if today’s auction shows similar results, the overall Bond market could benefit.

Bonds closed above their 25-day Moving Average during the past two trading sessions but have not made a convincing break beyond it. If Bonds are able to separate themselves above the 25-day MA, this once tough ceiling of resistance should become a floor of support. While the Bond remains above the 25-day Moving Average, we’ll remain in a Cautiously Floating stance.

The Biggest Banks Are Eliminating The Most Prevalent Sub-Prime Loan

David Kosmecki | in Uncategorized | Comments (0)

Mixed news from the sub-prime sector, depending on how you look at it. Many lenders discontinuing their short-term ARM products.

Washington Mutual, Countrywide and Wells Fargo are among the sub-prime lenders no longer offering the 2/28 mortgage product.

The “2/28″ is a adjustable rate mortgage in which the interest rate remains fixed for two years, and then adjusts for the loan’s remaining 28 years.

The 2/28 mortgage was the basis of all sub-prime lending in recent years.

First Franklin has gone a step further, eliminating the 2/28 and the 3/27. As you’d expect, the 3/27 is a mortgage in which the interest rate remains fixed for three years, and then adjusts for the loan’s remaining 27 years.

Lenders are continuing to offer 5/25 mortgages and 30-year fixed mortgages.

The mortgage lenders hope that longer “fixed rate periods” on their mortgage products will help keep their loans from defaulting so soon.

Today, 2/28s originated in 2003 and 2004 are in their adjustment phase and are contributing to rising foreclosure rates across the country.

For homeowners, the downside to loan portfolio paring is that longer fixed-rate periods creates more “time risk” for the lending bank and, therefore, leads to higher interest rates for home loans.

The potential upside, though, is that better sub-prime loan performance overall will reduce the risk levels in sub-prime, thereby lowering mortgage rates. Either way, borrowing money classified as “sub-prime” continues to get more difficult.

If you believe you are a sub-prime borrower, speak with your mortgage lender and/or financial planner and craft a plan to improve your credit rating and lending risk profile.