The Mortgage Manifesto

A Quick Tap of the Fed Discount Window

Quick FYI to everyone:  Citibank has tapped the Fed discount window to the tune of $500 million.

Some Good News Amongst the Gloom & Doom

Two quick notes with that bring smiles instead of frowns this morning.

First, we are seeing the best pricing on conforming mortgage loan rates since May 31st.

Second, one of our primary investors (a major national lending instituion) is improving their pricing for the jumbo and Alt-A product mix this morning.  As the market was reacting the past two weeks they had worsened the pricing for these products, across the board, by 5 points!  That effectively put a red light on any new loan registrations.

Now, as their secondary market operations are settling down somewhat they are moving to a yellow light by making product-by-product improvements to the pricing.  These are by no means back to the pricing we had just a month ago but this is a good sign regarding the fact that the secondary marketplace is settling a bit.

All in all, the day-to-day risk is high so we do maintain a LOCKING BIAS on any new mortgage transaction.

www.BrettGrendahl.com

Mortgage Bonds Breaking Out

Some good news this morning.

Mortgage bonds are trading higher in price (pushing mortgage rates lower) this morning.  They have now broken past that key technical level we had been watching (and mentioned in an earlier post this month).

If they can hold this new ground we should see slightly improved conforming mortgage rates ahead.  Jumbo rates are still higher due to the credit crunch in the market.

Capital One Shuts Down Its Mortgage Shop

There goes another folks.

GreenPoint Mortgage, Capital One's mortgage lending business unit, announced that it is closing down, effective immediately.  1,900 employees are now out of work.

Add that to the 5,000 of First Magnus, 7,000 of American Home Mortgage, and countless more amongst the other 128 mortgage lenders that have closed their doors in the mortgage meltdown of 2007.

When there are no more buyers for your wares it sure gets tough to stay in business.  What ever happened to the assets backing these Asset-Backed Securities?  Seems like confidence in these financial instruments is continuing to erode as no investor wants to step in and catch the falling knife!

www.BrettGrendahl.com

Guest Access to Tidalwave Trader

In this turbo-paced world of change in the mortgage and equity markets I thought I'd give everyone guest access and a peak behind the curtains to see what is happening with members of my online, living textbook experience, Tidalwave Trader.

Click here for your access to this week's Market Insights.

This episode is chock full of my read on what is really moving these markets, some stocks to be watching to make money during the carnage, and some key thoughts regarding the mortgage financing check-up everyone should be doing to make sure they are on a rock-solid foundation.

Enjoy!

Brett

Fed Bias Changing

So, the Fed finally acknowledges the constipation in the credit markets but only moves to help the big insitutions, not the consumer.  The move today to cut the Discount Rate helps the big banks.  It will do nothing for rates paid by the consumer.  It also does nothing to cure what is really the underlying problem.

There is a big chasm in investor thoughts between Treasury bonds and mortgage bonds right now.  That is because there  is a lack of confidence in the mortgage-backed securities as people what is the true risk in those big pools of loans that were made in recent years.

We are in unprecedented circumstances so trying to predict where mortgage rates will be next week is difficult and trying to forecast next month is almost impossible until the day to day volatility and market mood swings simmer down.  We are also seeing days where Treasury bonds rally higher while mortgage bonds fall.  Don't follow the moves of the 10 Year Treasury and think you can predict where mortgage rates are going.  That is like gauging whether or not it will rain by how windy it is.  Mortgage rates are determined by the price that mortgage bonds are selling for and there is a lack of buyers for mortgage bonds.  Simple as that.

With today's action the Fed has finally moved from a tightening stance to a neutral posture.  This is the first step but I'm afraid they won't act to cut the Overnight Rate until things get much worse.

www.BrettGrendahl.com

Um, What's That Countrywide?

Wow, there sure is a lot to comment on today with the equity markets moving lower, much as I had predicted to my members at Tidalwave Trader (www.TidalwaveTrader.com).  In fact, while the markets tank we are up 90% on one position and 17% on another in only 4 days.

What I want to talk about with this post is the news that Countrywide drew down on its $11.5 billion credit facility.

Um, what was that?

If their story from a week ago was accurate everything was clicking fine over there in Calabasas.  Why did they need to draw down on their humongous credit line?  Maybe to get the money before it was shut down on them?

This is just one more crack appearing in the stability not only of Countrywide, but of the national mortgage marketplace.  With every passing day consumer choices are evaporating.  This will only lead to higher costs ahead.  Remove competition and choice and guess what happens to prices?

www.BrettGrendahl.com

Mortgage Bonds Testing KEY SUPPORT LEVEL

Quick note to everyone this morning.

Mortgage bonds are trading lower this morning (bad for rates) and are now testing a key technical support level.  If they cannot maintain this level we will see rapidly worsening pricing for conforming mortgage rates.

Do not think that it is a guarantee to see lower mortgage rates ahead.  The dynamics of the unprecedented market conditions we are currently in will not follow other historical patterns.  Those relationships are broken and usurped by the constipation in the credit markets.  The flow of money is seizing up as everyone has to reassess risk.

This will not clear up in a matter of days.  We should expect months before the markets return to some sort of normality.

I'll say it again.  The only certainty you have in today's marketplace is what we know today.  Don't make decisions to wait on the hopes of lower rates in the near future.  Don't place your financial future on the hopes of the Fed to act.  The only control you have is to make sure your finances are positioned to weather the stormy waters ahead.

If you'd like my advise with your specific situation shoot me an email and let's schedule a brief phone meeting to discuss it.  Email me at brettg (at) tidalwavecapital.com.

www.BrettGrendahl.com

First Magnus Closes Shop

This morning news hit the wires that First Magnus, who made the 2005 Inc. magazine list of the 500 fastest-growing private companies, announced that is was shutting down it's mortgage lending operations.

They were a major local employer in Tucson, Arizona.  In 2006, they funded in excess of $30 billion in residential home loans.

They have more than 350 offices across the country employing more than 5,000 employees.

www.BrettGrendahl.com

Why Planning is Better Than Rate Everyday

While emailing a client of mine recently something came up in our conversation that is good for everyone to keep in their minds.

I know many people who are considering a refinance in the next year or two.  Maybe they have an ARM program that adjust then?  Maybe they have other reasons to do a cash-out transaction at that time?  Whatever the case may be, some tell me that they will wait for rates to move lower before they act.

This is not the approach that takes into account ALL the factors that influence what mortgage rate and program might be available.

Think about this.

If property values continue to decline for the next several years that brings your current loan-to-value (LTV) ratio higher.  If underwriting guidelines continue to tighten it makes higher LTV transactions more difficult to get done.

There are major market risks that may continue to erode what options will be present to you in the next few years.  This is a prime example of why a singular focus on interest rate might not best serve your total financial picture.  It is important to approach your largest debt with a strategic mindset that takes into account your short and long term plans, and a careful analysis of the risks and opportunities ahead.  In today's world, future risks far outweigh future opportunities.

The time to act is now, before home prices fall further, before guidelines get tighter, and before you find yourself not being able to get the loan at the rate you can today by waiting for the unknown of tomorrow.

www.BrettGrendahl.com