Happy New Year.

As we end 2009 we can look back at some of the lowest rates ever in the mortgage markets. This weeks rates are up by .375% from two weeks ago and are expected to rise during the first quarter and again each quarter through the end of 2010. We are coming to the end of lowest rates ever as the 10 year treasury bond yields are now hovering at 3.85% today very 3.22% last month. Nevertheless, rates in the high 4’s and low 5’s are still incredible!!!!!! We are spoiled with low rates and our expectations of mortgage rates in the 4’s are unrealistic. When rates are this low we all receive low interest pay out for our savings accounts and CD’s. Investors want a higher yield when they are buying bonds (which fuel the mortgage markets). So, we must accept that rates in the 5’s and 6’s is normal for mortgages and will still provide a great lending platform for people to purchase homes.

I hope that you have a very prosperous, healthy and fun 2010 and we look forward to working with you all year.

Home prices to fall in 2010 - foreclosures coming

Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%."We've seen recent price stabilization because of low mortgage interest rates and the impact of the first-time homebuyers tax credit," said Pat Newport of IHS Global Research. "But there are really good reasons to think prices will now start going down." There are three main reasons for the reversal: a coming flood of foreclosures, rising interest rates and the eventual end of the tax credits. According to Gus Faucher, the director of macroeconomics for Moody's Economy.com, the huge number of foreclosures that remain in the pipeline is the big problem. In fact, Moody's upped its estimate of defaults recently because of shortcomings of the government-led mortgage modification programs. Trial workouts are not being made permanent and completed modifications are redefaulting at high rates. "There are going to be fewer
[successful] modifications than we thought." However, he says most of the price decline has already occurred and Moody's forecast is for only another 8% drop. The worst-hit markets will be the ones suffering the most foreclosures, places like Arizona, California, Florida and Nevada. Some analysts, according to Newport, also think rates for a 30-year mortgage will pass 6% next year as the government curtails housing market support. Finally, many economists see the end of the tax credit in April as a significant brake on home prices.

NAR - the decade in real estate

The National Association of Realtors (NAR) has put together a retrospective of the real estate market for the last decade. Notable developments: In 1999, buyers who went online in search for a home were in the minority – only 37 percent of buyers used the Internet in their home search. Today, 90 percent of buyers are searching online. Despite the current price declines, median home values over the past decade have increased more than 25 percent, from $137,600 in November 1999 to $172,600 in November 2009. Fewer people are buying detached, single family homes – 82 percent in 1999 compared to 78 percent in 2009 – but more people are buying homes in suburban neighborhoods – 46 percent in 1999 compared to 54 percent today.

Married couples comprised 68 percent of all home purchases at the beginning of this century but only represent 60 percent of all buyers today. Single men and women have made up the difference – single men purchased 10 percent of all homes last year, compared to only 7 percent 10 years ago. Single women now represent more than one-fifth of all home buyers – 21 percent, up from 15 percent in 1999. Other things haven’t changed. The median age for home buyers last year was 39, just as it was in 1999. Neighborhood quality, affordability, and convenience to work and school have consistently been top priorities for both past and present buyers. And eight out of 10 recently surveyed consumers believe that owning a home is an investment in their future. “... one constant during [the last 100 years] has been the persistence of homeownership as the American Dream,” says NAR president Vicki Cox Golder.

Jobless claims down

There were 432,000 initial jobless claims filed in the week ended Dec. 26, down 22,000 from the previous week's revised 454,000, the Labor Department said. The figure is the lowest since July 19, 2008, when there were 413,000 claims filed. A consensus estimate of economists surveyed by Briefing.com expected claims to jump to 460,000. The 4-week moving average of initial claims totaled 460,250, down 5,500 from the previous week's revised average of 465,750. Continuing claims: The government said 4,981,000 people filed continuing claims in the week ended Dec. 19, the most recent data available. That's 57,000 down from the preceding week's revised 5,038,000 claims. The 4-week moving average for ongoing claims fell by 122,250 to 5,101,250 from the previous week's revised 5,223,250. But, as always, the slide may signal that more filers are dropping off those rolls into extended benefits. Jobless claims in ten states declined by more than 1,000 for the week ended Dec. 19, the most recent data available. Claims in Tennessee dropped the most, by 2,972. A total of 12 states said the claims actually increased by more than 1,000. Claims in New York jumped the most by 1,155, which a state-supplied comment said was due to layoffs in the construction, service and real estate industries.

Loan Issuance falls more than a quarter

According to data from Reuters Loan Pricing (RLPC), U.S. loan issuance in 2009 tumbled 28 percent to $547 billion, from $764 billion in 2008. Investment-grade loans fell to $229 billion, down 28 percent from 2008's $319 billion, while leveraged loan issuance slid to $239 billion, down 19 percent from $294 billion in 2008, RLPC reported on Wednesday. Loan volumes fell as many distressed companies took advantage of improving borrowing costs in the high yield bond market to refinance bank loan debt and stave off potential liquidity crunches. "Refinancing of both leveraged loans with high yield bonds and straight bond-to-bond takeouts has provided many leveraged issuers with crucial debt extensions," RLPC said in a release. "The displacement of leveraged loans by high yield bonds is expected to continue into 2010 as most experts believe the rally in the high yield market will thrive so long as interest rates remain low," it said.

New mortgage rules in effect tomorrow

Federal rules that take effect tomorrow will require mortgage lenders and brokers to give consumers better estimates of the costs they incur when taking out home loans, and mandate a standard three-page Good Faith Estimate that urges consumers to shop around for the best loan and helps them compare lenders' offerings. The rules, announced by the Department of Housing and Urban Development in November 2008, are an update of the Real Estate Settlement Procedures Act, a 1974 law known as Respa. One difficulty of shopping for mortgages is that the lender with the lowest rates sometimes isn't offering the best deal. High fees can wipe out the benefits of low rates, and little-noticed features such as prepayment penalties can burn borrowers.

Even for savvy consumers, it is hard to compare different combinations of rates, "points" (paid in exchange for a lower rate), fees and other terms. Lenders often sprinkle in lots of confusing charges, such as processing and messenger fees. Dickering over the smaller fees could distract borrowers from the bigger picture of total costs. The new estimate form requires lenders to wrap all the fees they control into one "origination charge." HUD has estimated that the revised requirements will save $700 for the typical consumer, partly because of the greater ability to shop intelligently. The Federal Reserve Board also is preparing new regulations designed to help people avoid mortgage land mines. The Fed in July announced proposed changes in regulations under the Truth in Lending Act. Among other things, the rules would bar mortgage brokers or loan officers from steering consumers to certain types of loans as a way of increasing a broker's or loan officer's compensation. The F ed is due to study public comments on those proposed changes in early 2010 before finalizing them.

Credit restrictions to ease in 2Q10?

According to analysts at Barclays Capital, credit availability for mortgage originations may increase in the next six to 12 months. “In particular, in H210, there could be a meaningful extension of conventional credit to currently under-served segments,” write the analysts in their Agency MBS Outlook 2010, referring to segments like “the substantial population of borrowers with low LTV but only mid-range FICOs (700-740).” Tougher underwriting standards at the GSEs over the past year have reduced credit availability. Traditionally, these loans would hold around a 30% market share, the analysts say, but tapered off from this level in 2009. “They have to balance political pressure to make mortgage credit available, while at the same time reducing their credit risk on their ongoing book of business,” they write, adding that they are leaning more to the GSEs not loosening credit standards on their own device and instead needing a “clear mandate from the administra tion to do so." "However, with the utter failure of [the government refinance program] HARP and the disappointing results thus far of [the government modification program] HAMP, we would not discount this outcome.” They reason instead that repurchase risk, the speed at which issuers must buy back delinquent loans and also drives a level of credit tightening, will decrease due to the expectation that repurchase rates on originations will lessen due to a more robust economic environment on a macro level and dropping levels of delinquencies as worse-off borrowers are shaken out of the system.