Tonight as I sit here and unwind from yet another hectic day in the office I felt impressed to get out the laptop and share some insider mortgage insite. There is so much going around out there about the mortgage industry and today's economy but I am going to hit you plain and as simple as I can, and I will not patty cake you.
I had a very candid conversation today with an executive from a national bank. One of the biggest in the US today. It was interesting to hear his point of view and to see what we agreed on and to see what we admittedly disagreed on as well. One of the most interesting facts he brought to my attention today was in regards to the Fed's "setting the rate" so to speak in the bond market.
This is something that the government did in the student loan sector of the banking world some time ago and it has all but alienated all of the lenders from that industry so that now the government is the only player in the game. They are standing there holding the bag on almost all student debt today which makes the industry far less competitive and all but impossible to navigate for borrowers. You see it is not worth it for private investors and banks to play along with the government in a game that is rigged. One where it is hard to turn a profit and the red tape and bureaucracy force the lenders to spend more then they earn just to stay compliant.
This fiscal policy has failed miserably and yet the talking heads in DC seem to think that this same policy should be adopted in the mortgage industry as well. Yeah that usually works, if at first a policy doesn't succeed do it again in another industry?? Whatever...
Back to the Feds setting the rate. This is where they are basically buying coupons (bonds) at a certain rate no matter what the market is dictating that day or no matter what supply and demand are bearing. Essentially falsely inflating or deflating the rates for that day in an attempt to "set a target rate". It has been proven that our market is much more effectivein setting its own rates from day to day and from week to week then the government falsely trying to replace supply and demand. I'll take free and open markets any day of the week for a healthy economy. I am not saying that there is not a need for the government to sure up a badly damaged credit market, I just think they may be going about it the wrong way.
What I am seeing in the wholesale and retail markets is Banks so unsure what the feds next move is that they are loosing interest in the game all together. I believe that it was Chase that all but completely pulled out of the mortgage business at the end of January. They are "over it" so tospeak in all the games and tricks that the government is trying to pull. Basically saying "we are out" let us know when things get back to normal and then maybe if we feel like it we may jump back in at that point. Until then we can more then replace our mortgage income by buying up troubled banks for pennies on the dollar and then selling off their assets piece by piece making billions of dollars, oh and by the way we will take a multi billion dollar line of credit from the government to help us do this if they are stupid enough to give it to us.
We now have 28 major players left in the Mortgage Market. Just over 2 years ago there were over 200 lending institutions, private equity firms, insurance companies and more fighting over these bundles of loans....fast forward to today there are 28. Less demand means over abundance of supply, couple this with Fannie and Freddie changing their guidelines almost every single month and mortgage insurance companies announcing at the drop of a hat that they will no longer insure mortgages with this credit score or that loan to value and you have what we are facing today, banks that are so gun shy that they are going to get stuck with loans that are unsellable on the secondary market, uninsurable thereby making them unsellable, or with rates that are far to low to attract any buyers in a market that has had less and less interest domestically and internationally.
I hope that this has shed some light on what is really going on in the mortgage market today. Why yields are at or below all time lows yet the yield spreads are as large as they have been in a decade. And why underwriting times are longer and longer and why you hear it is harder to get approved today for a loan then even 2-3 months ago.
2003 was the largest mortgage origination year ever with over 4 trillion dollars in mortgages originated during that year alone. It is predicted that if rates stay low there will be a demand for 15 trillion dollars in mortgages to be originated between refinances and purchases this year (2009) in the US. That is 4 times the all time record and with only 1/10th of the banks actually funding loans compared to 2003. The numbers don't add up and something has got to give or we will see 4-5 month turn times to close a loan...it feels like a train wreck waiting to happen.
If I were the one setting policies I would see how we could make the mortgage market more attractive to investors with incentives, warranties and tax cuts. I certainly would not be competing with or falsely setting a market to the detriment of that market. Hey but that's just me.
The key to obtaining financing this year is going to be working with someone that will help you navigate through these treturous waters that are the mortgage industry today. I am here to help, so give me a call 801-318-4996 or email me at stetsonlowe@gmail.com and we can get the ball rolling right away.
Dedicated to giving you the inside scoop.
Stetson Lowe - The Mortgage Insider - www.utahloantips.com
