Mortgage Market Shifts (100% Financing Still Available)

  We've seen the bond market moving in our favor the last week or so but no real adjustment in the rates to follow which has become a reoccurring event. In the past, you could follow the bond market and know where the mortgage rates were headed. However, the past couple years have told us a much different story with mortgage rates not reacting so much to the bond movement as directly or instantly as it had in the past prior to and during the refi boom of the previous years.

  Here's some reasons for this to help us understand and to help us offer our borrowers intelligent explanations for the current characteristics of the mortgage market we're in. The mortgage pricing only tracks the bond market on products that are secured directly by FNMA (Fannie Mae) securities which are products like C30, Flex, MCM (My Community), some of the ARM's, etc... These are tied directly whereas products like our Alt-A and any “Stated” product is not sold to the agencies and are not linked. These are bid-type products only. Ultimately they are secured into Bonds and purchased by the open market in that format. Two weeks ago,.. those securities DOWNGRADED by Moody's and Standard & Poors (kind of like a THUMBS DOWN vs. a THUMBS UP). These two firms are the worlds leading provider of credit grades, risk evaluations and valuations for investors to analyze risk. SO,... Bonds are given rankings, AAA through DDD all the way down to “junk bonds”. Hence our pricing goes up when the ultimate investor insists on higher yields/percent return on their investment because it is more risky than another. That being said, let's go back to Moody's and Standard & Poor's. They have downgraded securities that are made up of individual loans and mortgage products since they're NOT performing. So, what happens when a Bond/security gets downgraded??? An increase in price for investors to purchase new products and future loans is warranted. Investors want a better rate of return on the ALT-A, HYBRID, Pay Options and basically ALL stated products. Why??? CONSUMER DEFAULTS !

  You may see some lenders with strangely better or worse pricing than others on certain products or those with strangely different guidelines or limitations. Some are bank depositories who portfolio certain products, usually short term ARMS,.. but changes are taking place in that area too. They desire a certain amount of the product which is why they often are in and out of the market on those products and with their pricing. Others, can be slower to react to the market conditions and can end up bankrupt when the market does not move in their favor, This is why it seems some lenders can go bankrupt overnight. All is well one day and closing their doors the next. They get stuck with loan portfolio's they can't sell or at least can't sell at a profit. Most warehouse facilities will allow a dwell time ( time the loan is on the line ) of 120-180 days. After that, the warehouse line wants to be made whole so they start clipping from the loan until that loan is satisfied and off the warehouse line. Large and small lenders have closed their doors due to the current market volatility. This does not equate to any one lender (no matter the size) being immune to market changes. Personally, I don't think anyone is immune to what's happening but I'd be more concerned about the pipelines with lenders whose guidelines still appear lenient in comparison to everyone one else's and just know that the potential problems exist with those closings. Take measured risks with your pipeline and make your realtors and builders aware.

Blake Hodnett / CEO / CRM