CMG quoted in the NYSun. 2.15.08

Mortgages Get More Costly As Fed Cuts Interest Rates
By JULIE SATOWStaff Reporter of the SunFebruary 15, 2008

Since the Federal Reserve chairman initiated a series of aggressive interest rate cuts last month, it has actually gotten more expensive for buyers to take out mortgages.

The reason is that investors are increasingly fearing inflation and are driving up the yield on the 10-year Treasury, off of which most residential mortgage rates are priced. In fact, the yield on the 10-year note topped 3.8% yesterday, a one-month high; before Chairman Ben Bernanke's surprise 0.75 -percentage-point rate cut in January, the yield was 3.4%.

Bond buyers aren't likely to be reassured anytime soon, with Mr. Bernanke testifying yesterday before the Senate Banking Committee that additional rate cuts are possible. He has already cut the target for the key federal funds rate by 2.25 percentage points since September, chopping off 1.25 percentage points, to 3%, in January alone. The Federal Open Market Committee, which is responsible for cutting rates, is next scheduled to meet March 18.

"The FOMC will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks," Mr. Bernanke said. He also called the economy "sluggish," saying it was unlikely to recover until later this year, and suggested there would be more mortgage-related losses at banks.

The markets responded poorly to Mr. Bernanke's testimony, with the Dow Jones industrial average falling 175.26 points, or 1.4%, to 12,376.98 at yesterday's close. The 10-year Treasury fell for the third straight day, with the yield curve steepening as the 10-year yield reached its highest level compared with the two-year Treasury yield since July 2004.

"The bond market has the ability to see into the future, and the smart money sees inflation out there," a principal at mortgage firm Commodore Mortgage Group, Richard Bouchner, said. He said that when rates were lower, he called all of his clients suggesting they refinance their mortgages. "Most stayed on the sideline because they expected more rate cuts, but now they've missed their opportunity," he said.

Mr. Bernanke's rate cuts haven't just failed to lower mortgage rates — the Fed chairman is also spurring a new credit crunch, analysts say. The leverage loan market is nearly closed, with yields so low that they offer little incentive for lenders, while worries over defaults persist.
"With Mr. Bernanke's reiteration of his current rate-cutting path, the credit market noose continues to tighten," an equity strategist at Miller Tabak + Co., Peter Boockvar, wrote in a research note. He called the tightening of credit in the market "an unintended consequence" of the Fed's rate cuts.

In addition to a lack of leveraged loans, there is a shutdown of so-called auction rate securities. This is a more than $300 billion market where long-term municipal bonds, student loans, and corporate bonds are repackaged to create short-term paper and auctioned off to investors. Investors, however, have stopped bidding for them, and so banks have stopped providing auction support. Investors and banks are balking because the breakdown in bond insurance for these securities, as monoline insurers such as MBIA and Ambac struggle to cover their losses, as well as the low yields, provide little incentive for investors to take on the growing default risk.
An analyst at Banc of America Securities, Jeffrey Rosenberg, wrote in a research note on Wednesday that 80% of these auction rate securities auctions are failing.

"With a total size of $330 billion and roughly half of that held by individuals, a significant, albeit likely short lived liquidity crunch is again emanating out of the credit markets," he wrote.
Not everyone believes Mr. Bernanke's rate cuts are bad for the economy. "The rate cuts are definitely helping," a professor of economics at New York University, Mark Gertler, said. Mr. Gertler attributed rising yields on the 10-year Treasury note to investors predicting the economy will improve and that the Fed will eventually raise rates again. "It's going to be a sluggish period for a couple of quarters, but I have reason to believe we will be in a recovery by the end of the year."

Still, a growing number of investment banks and economists are predicting we are in a recession, and some feel that Mr. Bernanke's rate cuts are not addressing the problems.
"Unfortunately, bankers are no longer in the business of taking deposits and loaning money, but rather in securitizing loans," a professor at the University of Maryland School of Business, Peter Morici, a former chief economist at the International Trade Commission, said. "Mr. Bernanke has simply not addressed this more fundamental structural problem that frustrates his monetary policy. Lowering the fed funds rate does absolutely nothing to help clear up that issue."

E-mail to CNBC re: 100% Financing and Stated Income

Good morning:
My name is Rich Bouchner and I am a principal at Commodore Mortgage Group in Jersey City. We are licensed in 8 states, and have been in business since 2003. I enjoy your work on CNBC and just wanted to offer my two cents on what seems to be available in the mortgage market place.

As you know, many lenders that had previously played in the Alt A space (loans that are above conforming limits, stated income, ect) have either pulled out of the space (Chase, Wells Fargo) or have gone out of business all together (too many to mention!). However, 100% financing and stated income deals do exist, though they are harder to originate.

Fannie Mae is still offering no money down deals for purchases. Credit needs to be in the high 600s, and borrowers are required to buy mortgage insurance. As of last week, 30yr rates for such programs were in the mid 6s.

Stated income programs are still out there as well, but except for one lender that I know of, all of the programs for those that are not self-employed, have vanished. Citi has a stated program available for 2 family investment properties up to a 80% loan to value, as long as the borrower is not taking any cash out of the property.

Hope this helps clarify what is available these days. The market is definitely challenging. Many deals that would have gotten done 6 months ago are no longer possible, but many people who should be getting loans are still getting them. Those w/ poor credit, or few assets, will most likely need to stay on the sidelines until they become stronger candidates.
Thanks,
Rich

Richard C. Bouchner
Principal
Commodore Mortgage Group Ltd.
"The Right Loan at the Best Rate"
One Exchange Place, 9th Floor
Jersey City, NJ 07302
direct: 201.830.1801
direct: 646.825.5734
cell: 917.627.3459
toll free: 888.604.7400 ext 1801
fax: 201.434.7601
www.CommodoreMortgage.com

Fed Surprises with Deepest Cut since 1984

The Federal Reserve surprised everyone Tuesday with an emergency intersession rate cut of .75%, the deepest cut in the Fed Funds Rate since 1984. The Fed Governors are acting in direct response to recent reports that the country is on the brink of recession.
If you have credit cards, auto loans, HELOCs, or an Adjustable Rate Mortgage, the Fed's decision to cut this key interest rate is great news. For long-term mortgage rates however, this could signal the beginning of the end for the lowest 30-year home loan rate borrowers have experienced since 2005.

Let's look at the impact of a few recent Fed Funds Rate cuts and the corresponding impact to home loan rates to see what this could mean for you:



Period Fed Funds Rate Cut Impact to Home Loan Rates
January to June 2001 Down 2.25% Rose 0.10%
October to December 2001 Down 0.75% Rose 0.45%
May to August 2003 Down 0.25% Rose 0.78%

Rates are predicted to be cut again when the Federal Reserve meets at the end of this month. Many believe Tuesday's action was taken because of a dramatic downturn in the stock market, where the Dow dropped 464 points, the worst single day drop since September 11, 2001. Since the Fed's announcement, the Dow has recovered much of those losses but volatility is likely to remain a consistent theme throughout the week.

If you are waiting for long-term mortgage rates to fall further from here, don't count on it. Your best chance to lock in the lowest mortgage rates since 2005 is now. Getting your application in process will allow you to capture a rate near all time lows and, with many experts predicting home values could continue to decline, waiting could kill your chance to capture a great rate if your home doesn't appraise.

This is an unprecedented market and things are moving fast. Regardless of your current mortgage, please give me a call so that we can review your current financial situation in light of these market movements.

Call today to discuss how I may assist you. Not calling today could cost you tens of thousands of dollars in the next few years. Don't let this happen. I look forward to hearing from you. 201.830.1801.

Lehman exiting wholesale channel....

Lehman exiting from the wholesale channel is a big blow for the Alt A marketplace. They had been one of the last Alt A players standing. They had many niche products particularly for HNW borrowers. Earlier this week Chase pulled most of their ALT A products and Wells has been out of the market for some time as well. Any deal that is is not a Freddie, Fannie, FHA or very clean jumbo is not going to get done. The exiting of these lenders will make a rebound in the housing market and the economy very hard to come by....

Thoughts on Paulson

Joe:

Just felt the need to comment on one of your reports this morning where you mentioned that Secretary Paulson is contemplating offering relief to high credit borrowers who are falling behind on their mortgage payments. While I understand the philosophy behind his plan, it bothers me on two levels:

1) As a homeowner w/ strong credit and an adjustable rate mortgage on my 2nd home in CT, I recently paid a lender $2,000 to obtain a new 10yr interest only ARM ay 5.5%. My old loan was a 5yr balloon at 3.75%. If Paulson’s plan in enacted, I feel as though I am being penalized for paying my debts on time and not defaulting on my obligations.

2) As the owner of a mortgage brokerage, a large part of my business plan for 2008 focused on capturing the refi opportunity being offered by the billions in dollars of ARMs that are due to adjust. The mortgage arena is tough enough as it is…never mind that the Federal government is now contemplating bailing out mortgagors who had no complaints when they were able to purchase their dream home or take cash out to consolidate their debts. Why not loosen Fannie and Freddie guidelines to allow these high credit folks to refi? This would at least assure that the investors who purchased the original paper receive the duration that they have built into their portfolio models as well create revenue for the mortgage related firms that still manage to exist outside of the NYC real estate marketplace. Maybe not a PC solution, but more in line of what I had hoped for from an ex-Wall Streeter.

I feel badly for those that are currently struggling, but the government needs to steer clear of solutions that create moral hazard for borrowers. Owning a home is, believe it or not, a privilege, not a right.

Best,
Rich Bouchner

Fed Staff Recommends Tighter Curbs on Subprime Loans

Nothing like driving by looking in the rear view mirror...



By Craig Torres and Alison Vekshin

Dec. 18 (Bloomberg) -- Federal Reserve staff recommended that policy makers issue new restrictions on subprime mortgages, from a ban on low-documentation loans to limiting penalties for borrowers who prepay their debts.

The rule proposal, which the Board of Governors will vote on later today, follows months of public comment by Congress and consumer advocates, who urged the Fed to toughen consumer protections. Finance-industry officials warned that a crackdown would curtail lending in the midst of the housing recession.

``Mortgage-market discipline has in some cases broken down and the incentives to follow prudent lending procedures have, at times, eroded,'' Fed Chairman Ben S. Bernanke said in a statement. The proposed new rules ``were carefully crafted'' to deter ``improper lending'' without ``unduly restricting mortgage credit availability,'' he said.

The proposed changes are the product of the central bank's biggest regulatory initiative since Bernanke took office in February 2006. The Fed chief is aiming to preserve the Fed's consumer-protection role after Democratic lawmakers blamed it for lax oversight and introduced legislation to set rules for mortgage lenders.

The Fed proposed tightening restrictions on so-called pre- payment penalties, requiring the escrow of taxes and insurance, and banning loans made without verification of income or assets. Lenders would be responsible for determining whether their customers can afford a loan after the initial interest rate resets.

Message to Consumers
``We want consumers to make decisions about home mortgage options confidently, with assurance that unscrupulous home mortgage practices will not be tolerated,'' Bernanke said in his prepared comments. ``Unfair and deceptive acts and practices hurt not just borrowers and their families, but entire communities, and, indeed, the economy as a whole.''

Bernanke pledged to lawmakers in July that he'd propose new mortgage rules to ``address specific practices that are unfair or deceptive.'' The Board of Governors was considering the rules at a meeting today in Washington.

The Fed staff also went beyond its initial scope of consideration, and recommended new disclosure rules aimed at mortgage brokers. The staff recommended prohibiting lenders from paying brokers fees in excess of what the borrower agreed the broker should receive. The proposal bars coercion of appraisers, and defines seven advertising practices as misleading or deceptive.

Rebuke From Congress
Congressional leaders repeatedly rebuked the Fed this year for failing to curb the lending abuses that contributed to soaring subprime-mortgage foreclosures. At a June 13 hearing, House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, threatened to strip the central bank of its authority to write consumer-protection rules if it didn't act.

Subprime loans are usually made to people with poor or incomplete credit histories. Delinquency rates on subprime loans reached 16.3 percent in the third quarter, from 14.8 percent the previous three months.

Lending standards at banks have tightened even for their best customers, causing mortgage borrowing to slow to the weakest pace in nine years in the third quarter, according to Fed figures.

Housing Starts Decline
Housing figures today showed builders broke ground on the fewest new homes in 14 years last month as sales dropped. Housing starts fell 3.7 percent from October, to a 1.187 million annual rate, the Commerce Department said in Washington. The inventory of unsold single-family homes in October climbed to 10.5 months' supply, the highest since July 1985.

``We always lock the barn door after the horse has gone,'' said David Wyss, chief economist at Standard & Poor's, New York. Fed officials are hoping to ``restore confidence in this category'' of mortgages so lenders ``will start making these loans again,'' he said.

The Fed has cut its benchmark interest rate by 1 percentage point since September in an effort to ``forestall'' risks that the housing slump and credit-market strains will tip the economy into recession. The Bush administration this month negotiated a freeze of up to five years on some subprime mortgage rates.

Fed's Authority
The Fed has rule-writing power over all financial institutions for disclosures and preventing abuse, while it shares enforcement authority with other agencies and states.
The Fed's actions coincide with efforts in Congress to stem foreclosures and protect consumers from future mortgage-lending abuses.

The House of Representatives last month passed legislation sponsored by Frank that would require lenders to ensure borrowers are issued loans they can afford to repay. It would also strengthen oversight of mortgage brokers.

Democratic Senator Christopher Dodd of Connecticut, who chairs the Senate Banking Committee, introduced similar legislation last week.

Congress last week also gave final approval to legislation that would expand the ability of the Federal Housing Administration to insure mortgages for more subprime borrowers, sending it to President George W. Bush for his signature.

Mortgage Market Disruptions Short-Lived According To NAR

Optimistic or realistic: That is the question.


The National Association of Realtors (NAR) issued its monthly forecast for the housing industry on September 11, offering hope that the current problems in the market will merely postpone an expected recovery in existing home sales until some point in 2008.

Lawrence Yun, senior economist for NAR said that unusual disruptions are dampening the outlook for home sales, notably for August and September. "There's been an unusual hit to home sales, starting in March when subprime problems emerged and more recently when problems spread to jumbo loans, with many potential buyers on the sidelines.
"However, the jumbo loan market is now beginning to settle, and FHA insured loans are helping to fill the subprime vacuum. The volume of existing home sales this year will be better than 2002, which was the second year of the housing boom."

The report forecast that existing home sales will bottom out at 5.92 million this year and then recover to a level of 6.27 million in 2008. Both of these projections are lower than the 6.48 million in existing home sales achieved in 2006. New home sales are expected to total 801,000 this year and 741,000 in 2008, much lower than the 1.05 million sales achieved last year.
Yun said that "A sharp production pullback by homebuilders deep into 2008 is a healthy trend that will help trim down housing inventory." Housing starts of all sizes including multi-family projects are expected to total 1.37 million units this year and 1.26 million next year. The total in 2006 was 1.80 million units.

When it comes to prices, Yun said that the median price of existing homes will probably lose 1.7 percent to $218,200 in 2007 and then rise 2.2 percent next year to $223,000 while new home prices will drop 2.2 percent to $241,000 in 2007 and then increase to a median of $245,100 in 2008.

According to Yun, "The mortgage markets will calm further in the months ahead, but it's important to underscore the fact that conventional loans - the vast majority of available financing - are available to creditworthy borrowers. Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment."
It is notable that, while Yun went on to discuss other economic indicators such as employment and the Gross Domestic Product, his forecast did not mention the number of projected foreclosures on the market. With some estimates of homes in foreclosure rising as high as 2 million homes over the next year or so, one would expect that NAR would take note and account for the potential impact of this in its forecast.