Rates are good, let's keep this ball rolling!

What more can I say than rates are good and let's keep going for as long as we can.

The economy sucks. Don't let anyone tell you differently. I'm constantly seeing "signs" of a turn around. You never see the article weeks later that refutes those claims or that after the numbers are adjusted we're still suffering from a depression.

I had an interesting talk with an associate the other day. Everyone in the Real Estate business (that I feel knows what they're talking about) agrees that we're still only about 1/3 of the way through the foreclosure mess. People are not paying on their mortgages but it's become such a huge problem and the lenders don't want to 1) truly solve the mortgage issue which would be easy, drop the principal amount. Lowering the interest rates on modifications are just patchwork fixes and in some cases still won't solve the problem. If you owe 400k on a now 200k property, even a 0% interest rate isn't going to probably solve your issues. 2) hire more staff and quality staff to address all these files. I know from talking to inside people that not only is there more work and files than the people that are hired able to address but the people working on the files don't know anything about what they're working on. Many times your dealing with someone from a collection department that was transferred over to foreclosures / short sales and can't figure out what's a good deal or arrangement. They'll submit the file and the computer system will tell them no on a short sale. But maybe the offer on that short sale is only 1,000 off. The computer says no but a person who knows can say yes and save a company thousands in further interest and falling home prices. 3) been living off free money from the government. While most of these departments to rate mod or lower interest rates are slowly helping people (I read that B of A was touting that they had modified 57,000 loans in 2010 already, WOW out of probably 10 million loans in trouble, we should really be getting a grasp on this problem soon) on the other side of the bank, they're making money doing loans that then have been sold off to the government and backed so that there is no risk that falls to them. Banks have shown profits during this time while people are loosing their homes and jobs. Banks have been able to rely on Fed money to make sure that they're not risking anything, in essence it's been business as usual but with no risk. They just pass the risk on to the Fed or the smaller lenders who use them as money lines.

And the list goes on. Basically even though "We" are backing the loans, the lenders are doing the hardest to not close loans. Underwriters are nit picking each line of the approval and application to see how they can cover their asses when / if a loan gets put into question a month down the line.

Back to the issue of false news. The conversation I had was funny in a bad way. I was saying how a report was showing that people where spending more money and this was a sign that we where on our way to recovery. But from everyone that I talk to, we're way out from seeing true recovery. I don't see anyone that's doing better. There's no one saying that it's easier to find a good job or even a bad one. Then my friend tells me the secret behind this consumer "confidence"... People are buying more things because they're not paying their mortgage. I just thought to myself, DUH!! Sure, with all these modifications and people stringing out foreclosures, anyone who's still working will have extra cash so why not buy yourself something. You didn't pay your 2,000 mortgage so why not buy that new flat screen TV you've been checking out. People have more money to spend because they're not spending it on their monthly housing bill.

If anyone comes into my office and tells me that they're getting foreclosed on and loosing there house and this process just started a few months ago, my first question is what's wrong with you? I know of people who haven't paid a house bill for 2 years and are still in the property. With a few creative ways of working the system you can string out a foreclosure or short sale for a long time. The banks are so screwed up that you can play the game. Don't get me wrong, I'm not suggesting people do this or saying it's the right thing to do but lets get realistic; it's happening.

Is this fair to the people who are paying their mortgage, no. Is it fair to the banks, no (but come on, it's like if the deal accidentally give you an extra chip are you going to feel bad for the casino?). It's the world we live in. If I were to guess, and I feel this happens in cities more than rural areas, that 20 - 30% of people are trying to get assistance on their mortgage and in some why are going to be able to miss at least one payment if not multiple payments and not suffer severe consequences. In worse hit areas I'd put that number up to about 50 - 60% of homes. That's how bad this economy is.

That's why I tell people that this is a great time for loans. Sure the lenders aren't lending and are taking forever to get anything done. Sure they're over conditioning and denying anything that they can. But if you can survive the fight and close a loan, which we've been doing here at BEAR Financial (plug, plug, plug - hey it's my blog) you'll be extremely happy with the results over the life of your loan / home.

If you haven't thought of refinancing or purchasing something, it's time that you have. If we're in the middle of refinancing or purchase, just bear with us. It's a tough journey but we'll get there. Now some people won't fit into the box. I say to hang in as well because I'm guessing we're going to go through another batch of changes over the next six months with all the Federal regulations coming out soon. This year is about patience and as I started this post out, we need to keep the ball rolling. So hang on and push!!

Thinking about rates

I want to thank everyone who's been calling and emailing. I know we're super busy and I really appreciate all the business. I'm doing the best to stay caught up and make sure I get my hands dirty on every deal.

These are amazing times. Everyday there is economic news, good and bad. There are changes happening all over with every lender and every program, some good and bad. And rates are really good still!

To everyone waiting for rates to drop, stop. We're at 5% or better on average, so what are you waiting for? Pay a point, pay two points, with money this cheap you don't want to miss it because over the long run no one has seen much better. Besides, I had an interesting conversation the other day. I was getting into rates and there was a realization (to which I could be wrong) that rates can't get much lower. You can't have 3% rates and here is why; investors can find that elsewhere. Our whole system is based on rates selling on the secondary market, even with all this Fannie and Freddie intervention, we're based on a secondary market. If you could get 1 or 2% in a bond or straight interest savings or money market from the bank, you would take that over a 3% government backed mortgage instrument. Your money would be liquid and there is no risk. So there has to be a natural bottom to where the rates will go. How low, I don't know? but somewhere there is a bottom.

I can't imagine that rates are going to ever be at 2%. I hope they do and I can refi everyone again, but I just don't think so. I often relate rates to the stock market and say "you never buy at the low and sell at the high, so we can just get close" and along with that stocks just don't go to 0, unless they go BK. Rates aren't a company, they're a tool or equation. You can't touch a rate so can it go BK? I will say no. I'm sure there is a flaw in my thinking but until I see it, this makes sense to me. Now, I'm getting a little too Andy Rooney, next thing you know I'll hate water because it's too wet.

Rate Drop??

Above is a 5 day snapshot of treasury yields. This used to be a good barometer of where the rates would go. 5 days ago was when the Fed said they where going to buy up assets over the next few months. The yield tanked and everyone called to see about this huge rate drop they heard about. As you can see, the yield when right back up and the low rates lasted no more than 24 hours.

Today, the same thing happened only later in the day. I can see rates being lower tomorrow and then going back up. I think gradually rates will come down slightly, but not overnight. The yield has been creeping up over the past few weeks but rates have stayed in the 5% range. Now that the yield is going down, I don't see why there would be a massive rate cut, since there wasn't one on the way up.

The main lesson to be learned is, what I've been preaching to so many, to get your loan in and let's get it going through processing. We can set a goal and when the rates hit that goal we are able to lock. Lenders are swamped and overloaded. From a time frame standpoint it's very hard to get loans closed in 30 days. If we can get the loan in, get it underwritten and then be ready to move when the rates do, we'll be much more successful than to wait until the rates get to where we want and then start the process.

As you can see, a rate might only be available for a moment or two.