Stomach of Steel

There's a strange phenomenon happening these days. Maybe it's not so strange. People are going crazy. Not just because the economy is built on toothpicks and people are actually giving up on even looking for jobs but I think that instead of excepting the fact and the truths about the world, people would like to live a "crazy bubble" because in this bubble they can feel safe.

Let's go back a number of years. When I first truly understood rates and could watch them, day to day with some sense of accuracy and knowledge, I was a wreck. I'd watch as each day they'd change. Now when I talk about rate changes I'm not talking about interest rates I'm really talking about the rate pricing. That's why it's never good to ask me, "what did rates do today?" Because I'll give you an honest answer. And unless you're in the business, you won't really understand.

If I looked at the rates and the treasury yield, which has been the most accurate indicator of what rates are doing (not priced but whether they go up or down daily) I can give you an honest answer to the question, "What did rates do today?". There are only three answers to this question. Up, down, or (the unlikely) nothing. With these three words I could go into a five page essay each day on why they did what they did and where I think the rates / pricing are going from here. But that's not the question asked and my answer isn't really the answer you as the consumer are looking for. I assume you want to know what "interest rates" are doing each day. Let me tell you now, NOTHING. On a daily basis the actual rate you're going to get doesn't move. It takes weeks, if not months for interest rates to truly change. A change where I'd say 5% or 5.5%.

I bring this up because back in the day I'd look at rates everyday and see that there was an .125 better in rebate one day or a .25 worse in rebate the next, but in reality the rate I'd give the borrower is going to stay the same. It's gambling for money people. What's worse is you can't turn it off because everyday it changes and affects how you do business. Needless to say I became one of the many mice that follow these numbers as if they're life or death. Trying to figure out when the best day to lock would be so I could earn the highest amount of commission. It would kill you to lock with 1 point back and then the next day you see it at 1.125 back. Oh the humanity!! I lost an extra $500. The rate was the same, say 5%, so the borrower wouldn't know the difference. Because rates / pricing are on a sliding scale, I wasn't going to give a borrower 4.875% because now the pricing is .625 vs .5 back. It would be true the other way where I wasn't going to go up to 5.125 because now I'm making 5.125 and make 1.5 rather than the day before making 1.375. These are the back room games that we all play. It's so easy to get wrapped up into this that it only seems natural that when you are a Broker or Loan Officer you have to start this dance. But it kills you.

Pretend I just gave you a bunch of examples that included Loan Officers trying to juice everything out of their one loan and borrower's reading headlines written by people not in the business that are trying to use RATES HAVE LOWERED as marketing ploys for their banks. A huge cluster of annoyances and stupidity driven by irrational and uneducated thinking. Picture us having that conversation, while I go to the bathroom....

OK I'm back. So here's where I learned the secret. "It doesn't matter". None of it. It's all a distraction. It's all based on lies and greed. If you're a good broker, you should strive to make between 1 - 1.5% on your deals. The pricing will dictate what rate comes from that. If you get a file that is just impossible or you're putting in a ton of effort to make something happen or you're dealing with certain special situations or you just get lucky because the rates are so unbalanced that you luck into 2 points +/- I understand. All of what I just said, doesn't matter. Not to the borrowers. Not to Brokers or Loan Officers who have "pipelines" instead of one or two deals.

This was a long introduction to my main point of having a stomach of steel. For the past month, we've see rates but more specifically the treasury yields go up and down like I've never seen before. The past two days I've seen the rates go up sharply, so in layman's terms they went up .25% in rate (take a step back and really think about that one and how much that costs you). Then today, I've seen it all just come back down. Now the past two days I've gotten calls from LO's and borrowers who've been hearing about rates on the rise and we must find a way to lock the loans in. THIS IS LIFE OR DEATH FOR GODS SAKE!!! As one rude telemarketer told me once, "slow your roll."

For the past month I've been watching these changes. For the weak at heart or uneducated these movements would kill you on a daily basis. I've added this chart to show you what I mean. Look at where we're at today. Even over the last 5 days, there have been such swings that if you don't have faith that everything levels out and that this industry is like every other entertainment industry where there always has to be a story, you'd loose your marbles. BUT LOOK AT THE FACTS. Rates are the same now as they where in November. Yeah we saw a run up during the holiday season, but that's to be expected. I also expect that consumer spending will be up in the coming months. These notes of consumer spending going up will drive rates up in a false sense that the market is stabilizing and people are spending money again. I don't agree. People are spending money because they're not paying their bills or mortgages. If you miss a few credit cards or don't pay your rent / mortgage for a month, you suddenly have 2,000 to buy that new TV. Is your job situation any better, no but they can't take that TV away from you!!!

Just like the past two days, there where signs of recovery only to be blasted down again today by a real estate report that told the truth.

If you look at the first graph, you can convincingly say that rates have gone down over the last year. Maybe about .25% - .5%, at most. If you look at the rates on a daily basis, they haven't gone down. Take a look at the second graph. It shows the madness over the past 5 days. But look at where we started to where we ended. Maybe you could have gotten lucky on hit the low, but more often than not, you've already been sold on a rate so the tiny bit extra is what a good broker would call a bonus. If we've talked and we've agreed that 5% is the rate you're getting, but I choose to not lock a loan in, that's my gamble. I've certainly been on the wrong end of that gamble but sometimes you guess right but at the end of the day the borrower gets what is agreed upon, 5%. Obviously if rates get so much better that we now have to base everything off of a different rate level, things change. A year ago, I'd have quoted 5.25 and now I'm at 5%. Within those 30 - 45 days when a particular loan goes through it's very rare that the market would make such a volatile swing that a borrower would see the rates actually come down. Especially in this market when the lender have priced loans in a way that they are really dictating where loan rates should be at. If we talked on Monday about rates, we're at the same place on Friday.

So you really have to have a stomach of steel if you want to know what happens each day. You also need to comprehend that some days you're the winner and other days you're the looser. The only way to truly make it in this business or deal with your loan rationally so you're not crazed over the period of getting a loan is to agree and come to terms with a rate. If you're happy, go for it and close the loan out.

Lastly, let me give borrowers a little secret. If you're cool and settle on a rate that you can live with, don't be all over the broker about did rates get better or worse since you've locked it. Because it doesn't matter. Do you know the difference between 5 and 4.875% is probably on average only $35 - 50 per month. But that .125 could mean thousands in commission to the broker. I've noticed that not, just me but with other Brokers or LO's that if the borrower is cool and there's a chance or decsion that needs to be made, I'll lean in the borrower's favor. While if someone was riding me constantly for a month about rates and not worrying whether they're going to get the loan I'm going to lean towards making as much as I can. It's just a fact of nature. Like the boss you can't stand. Are you going to volitarily come in on Saturday to work or the boss that let's you get overtime or doesn't ride you all day, aren't you going to be more willing to go the extra mile and eat some pay to make things happen.

"Don't walk over dollars to pick up pennies", "Pigs eat and hogs go to the slaughter" and one from the Coach who recently passed "Things turn out best for the people who make the best of the way things turn out." Maybe not his best but fits our discussion - R.I.P. Coach Wooden.

We're in this job to make money, yes. But I've stayed in this job because of the people that I work for. Most of my clients trust that I'm doing the best job that I can. I've earned that rep because I actually do the best job that I can. I've learned that you can't do the best job if you're trying to make the most money out of every deal and you won't get a good job done for you if you're shopping around for the lowest deal and cheapest rates / prices around. I have to have a stomach of steel to go through the ups and downs of the market. But I also have the brain to know that if McDonald's stock goes up or down $5 in a day, will they stop serving burgers the next day? No, either way they'll continue and for good or bad they'll taste the same. Just like rates. The treasury will go and down each day. Rates will still be posted the next day and more than likely the rates will stay the same.

So how did the rates do today, Friday the 11th of June, they got better. Are you getting the same rate as you where going to get yesterday, probably. It doesn't make sense or maybe now it does. Or maybe as a Broker or LO you should be looking for the next deal and do the best job for your current borrower to just finish and close the loan.

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!!

HVCC info

As you know if you've been reading this blog, I'm not a fan of the HVCC (Home Value Code of Conduct). It's killing values, deals and realationships that good brokers and good appraisers have built over many years.

Yes, I understand why the HVCC was created but it has done more damage than good. Please, find the time to go to this website and learn more. Anything you can do to help; by signing the petition and writing to your state and local officials.

http://hvccpetition.com/

How does this affect you? The best example is that if you want to go to Wells Fargo and order / pay for an appraisal, and then for ANY reason; whether it's because of rate, program or service, you decide to go to another lender, you'll have to order / pay for another new appraisal!!! This costs you time, money and you don't know what each appraiser is going to come in at. Many times the appraisers do not know the area and we as brokers are to have no contact before or during the appraisal process to help get the value you need.

Good news! Or at least some...

FHFA notice

The good news is that HARP has been extended by a year. You can click on the link to see the press release. This is great but now the next step is to keep the interest rates down and have the Fed continue to buy up MBS.

I'm glad to see that someone or some people recognize good programs when they're working.

Last Horahhh?!?!

Rates aren't really dropping to record lows, but we've seen a few days of the treasury yields go in our favor.

With all the turmoil in what the economy is going to do, especially with every financial article that I've read saying that even though the 4th quarter was better than expected, they still see signs of a declining economy starting off the new year and the gains will not be sustained.

Every bone in my body tells me that in order to keep the Real Estate market somewhat alive, the Fed will have to continue it's purchasing of MBS and keep rates low. Bernake basically said that the Fed rates would stay low for the next year or so, but no one is addressing the fact that when the Fed gets out of buying MBS we should see a natural rate hike, even if it's just by a half a point.

That might not sound big but believe me, the already slowing RE market will continue to slow and the refinance will drop off dramatically. We need your help. YES YOU!! Write or email your congress person, senate person and even the white house (all info easily found by Googling each branch) to extend the Fed's purchasing of Mortgage Backed Securities and temporary Fannie and Freddie guidelines. This will help you and be good for the economy.

As for anyone looking to refinance or even purchase, get off the fence and do it now. Stop waiting and get those applications in. With the new guidelines and low rates everyone is getting backed up. We've got the time now but if you wait another month or two to start, you quite possibly could miss the boat.

As always, feel free to write willie@1bearfinancial.com or call 818 264-0999 to get your loan started. We're extremely busy but we'll take care of you. Thanks.

Interesting week

In the past week or more there seems to have been a bit of over zealous speculation that we were going to have strong financial numbers come out. Mainly due to what the experts thought of as a good holiday season. Let's not mistake what "good" means. It was good to them in the sense that people still bought presents and the world didn't collapse. That's how fragile our economy is right now.

I don't get any sense of a stable economy when talking to people on "main" street. But as I have been saying, there seems to be a greater divide between what Wall street thinks and what is really happening to the average person. We're playing on two separate playing fields. It's easier and easier for Wall street to make it's money back than it is to put people back to work and figure out a health care system that will help the average American rather than use us a living ATM. I like that analogy. The health care system now, takes and takes from us like an ATM and never maintains it. The ATM could be in Beverly Hills or Compton, it still pays and the owner never has to take care of it, just keeps making money off of it. Every now and then the ATM will need some maintenance and instead of using the profits that they've been making doing nothing, the owner has the repairs made and then raises the transaction fee. There, I thought I was going to be talking about the economy but I somehow figured out our health care system and why it's broke.

Thank you, goodnight. I'm here all week, don't forget to tip your waitresses.

We'll I'll quickly get back on track. After anticipation of a healthier economy and fears that it would bring on inflation faster than expected, you saw rates move up. But when real economic numbers like housing purchases and refinance applications come out lower than ever, you see that we are still teetering on the edge of a very sharp knife. Don't push rates up too fast because you don't want to bring down one of the major pillars of economic recovery. Not just mortgage rates but businesses that utilize credit which right now are relying so much on low rates to be able to make a profit in this bad market. I think you need to see people back at work and the average man being able to spend more money before you start raising rates and worrying about inflation.

I'm anxious to see what the president's speech will do to the markets. If more and more news comes out negatively, it might help the president make a case for universal health care.

No rate drop - follow up

The treasury auction didn't do as well as most anticipated. Who knows why, it could be because half of the east coast is under 3 feet of snow and no one went to work?

Bottom line is that we're just about where we were a week ago. I still hold out for a swing down. But as I've been telling clients lately, let's take a step back and look at the big picture. "So you don't get 4.875%?" Is there something wrong with 5% or 5.25%? I don't think so. Let's remember pigs eat and hogs go to the slaughter (or something like that, but you know what I'm getting at).

I don't believe this next item to be what will happen but the Fed is supposedly slowing down on its buying of MBS (mortgage backed securities). This will probably cause rates to rise by a percentage. Like all things lately, if the Fed does this and rates go up, I think we're going to be in for a big disaster. One of the few REAL green "shoots" that are propping up our economy is the fact that rates are low which encourages purchases and refinances. Just like the housing credits, which they actually expanded who can qualify, I feel they'll see the light and continue the buying of MBS through the end of the year. But you never know.

My suggestion is let's capitalize on these great rates and not try to gamble and get the very bottom. Let's get loans in and closed out. Because you don't want to be someone who missed the boat because you HAD to have a rate in the 4's instead of 5%, which probably is only a $25 - 50 per month difference.