The Mortgage Manifesto

Hear What You've Been Missing

The rules of mortgage finance have changed! 

Every single day I am talking to clients about their mortgage financing and find one common theme:  most people are basing their decisions on assumptions that worked 20 or 30 years ago but do not fit the markets of today.  If you follow the "rules" that your parents and grandparents followed you will fail where they succeeded.

Don't make the mistake of following the advice of those that only quote you rates but have blinders on with respect to properly manage your financial security, liquidity, and wealth creation. 

It's time to hear what you've been missing, http://www.brettgrendahl.com/mortgagepromo.mp3.

Take a listen.  You will begin to see the world of mortgage finance completely different than you did before.  Where once you thought the world was flat, you will now see a sphere of choices.

Market Teeter-Totter

Mortgage rate direction sits in the balance as mortgage bonds trade near a wall of technical resistance.

The winds of change are blowing as the Federal Reserve's Open Market Committee removed just a few words from their policy stating.  What was missing in this week's statement was the language "additional firming may be needed."

The markets have read into this statement as the Fed beginning it's posturing to talk the markets into an easing monetary policy.  While it is still too early to know when the Fed may cut (I am guessing it will be sometime between July & early September 2007) they are signaling that the balance of on the teeter-totter is tipping.

The bottom line is that we should see mortgage rates begin to improve prior to the first Fed cut as bond investors begin to discount that future (price it in).  This the the technical basis baring any market-moving fundamental (i.e. news story, war, natural disaster, Asian market selloff, etc.).

My bets are on mortgage rates to begin to stair-step lower in the coming 1-4 months.  Target for the move lower is about 0.25 to 0.375 in fixed rates and I'd expect 0.375 to 0.625 in adjustable rate mortgages (ARMs) by the year end.  The flat yield curve should improve.  If not, a recession is around the corner.

Fed Prognostications

Good morning,

Well, here we are again awaiting word from the Federal Reserve tomorrow on rates.  I find that most people will ask me "what wil the Fed do about rates?"  There is one big area of clarification needed in question.  It is not what the Fed will do about "rates" but what will the Federal Reserve Open Market Committee decide to do with their Fed Funds Rate.

It is the Fed Funds rate that is charged to the largest of banks when they need to borrow money from the Federal Reserve overnight.

The Fed DOES NOT directly affect mortgage rates.  Depending upon where we are in the economic cycle mortgage rates might rise or fall if the Fed cuts rates.  It is not a direct relationship.

What does the upcoming Fed meeting mean to us today?

We are at the top of cycle in interest rates right now.  The Fed raised their rate 17 times during a two-year period but has been steady for several months now.  It is highly unlikely they change their rate at their Wednesday meeting.  Their accompanying policy statement will likely stay the same as well.  It might still be several months before the taming of the inflation data shows up in monthly economic reports and that is the time the Fed will begin to indicate that rate cuts are in the near-term future.

Expect mortgage rates to begin to move lower PRIOR to Fed rate cuts as mortgage bond investors begin to discount (or price in) that future action of the Fed.

More Tricks from Credit Card Companies

Yes, the credit card companies are up to some new tricks.  This new wrinkle is one that really disgusts me.  It is called the "universal default clause."

This is the situation where if you make a late payment on another account they can use that as cause to raise your interest rate on their card even if you've paid every single payment on time.

David Bach wrote a great article about this topic.  Check it out at http://finance.yahoo.com/expert/article/millionaire/26303.

Yes, it does pay to read the fine print!

The Shattering of Subprime

If you are reading the financial news you are hearing all about the shattering of the subprime credit markets.  Every day the news pieces seem to get worse.  Where will this end?

I saw a similar credit crunch in 1999 as subprime lender after subprime lender went out of business and underwriting guidelines were tightened up.  Should it be a surprise to find ourselves back hear again in 2007?  I think not.

This is basic economics at work.  Financial markets work in cycles.

During the recent liberalization of credit money was flowing.  Unfortunately, the power of greed was at work and the financial institutions could not resist borrowing out on ever-increasing liberal lending guidelines.

Here is a confession of a mortgage insider.  During the past 2-3 years more and more of prospective borrowers I'd talk to were wanting 100% financing but were not going to provide income verification.  Hmmm?  Would you borrower money to an acquantaince of yours that did not have a job and you didn't have knowledge of how they could pay you back?  Would you borrow them $100?  $1,000?  How about $10,000?

Would you borrow them $500,000 of your hard-earned money?

Well, this is exactly the crazy loans that were being funded one after another in recent years.  Worst yet was the loan programs and terms on these fundings.  So many had intro rates that borrowers could not afford once rates adjusted to the current market.

Let's get back to our first question.  Where will this end?  Like it did in 1999.  Underwriting guidelines will become more sensible as risk premiums model reality.  Simple as that.

Initial Musings

Well, the late-night hours find me working away as I get my blog endeavor underway.  Those familiar with my writings will know what to expect.  Straight up advice and information on real estate and mortgage finance.  Let's throw in my hobby turned career, technical analysis of stocks.

Oh yeah, let's not forget some musings about music, soccer, pop culture, and great books.

Peace,

Brett