The end of the 2/28

Looks like the old sub-prime favorite, the 2 yr adjustable is going away. Because of the public outcry and the resulting Senate involvement, it is now impossible for lenders to offer a 2yr ARM. The upside for the consumer is that they will now have the opportunity to stay in their sub prime loans longer. The downside is that they will have slightly higher start rates on their loans. I think what we are now seeing is a natural selection taking place in the residential lending space. Many homeowners who are losing their homes probably never should have been homeowners in the first place. Where does this all leave us? Most likely with a softening housing market as there are now fewer qualified borrowers on the market...so prices will drop, meaning that in a couple of years, if people can actually save 10% for a down payment and have a decent FICO score, they can buy a house and maybe actually make the payments (remember, no more nasty 2 yr adjustables, and prices will be lower), which means that the nations housing market should then continue along its merry little way....See, like Mom always said...just open your wideand take your medicine...

It Still Makes Sense to Buy vs Rent

Nearly a full third of households are still renting...but if you are one of them, you could be paying a hefty price. Additionally, the children of the baby boomer generation are close to or at the home buying age, but these "echo boomers" could mistakenly decide to put off the purchase of a home because of all the noise about a "bubble" in home prices.

Is there a "bubble"? The simple answer is "no". Even if interest rates move a bit higher, it won't be enough to cause a nationwide slide in home prices. The key to a healthy housing market is the job market. If the payment on a new home might be slightly higher due to increased interest rates, it generally won't stop someone from purchasing the home of their dreams...but if they feel their job is in jeopardy, it might be enough to stop them from making a move. So with the currently low levels of unemployment and the beefy gains in job creations, it looks like the housing market will remain vibrant. Although it will be difficult to sustain the double-digit gains that much of the country has seen, price declines are highly unlikely. Expect a more moderate rate of appreciation, perhaps closer to the historical 6-7% range, which is still very good.
It is important to note that housing tends to be localized. So if the job market in your area is weak, housing prices could under perform the rest of the country.

But this talk of a housing bubble has been going on for a few years now, and those who were unfortunately victimized by continuing to rent instead of purchasing a home are painfully mulling over their missed opportunity. But is it too late? Even with the more moderate levels of appreciation expected…procrastinating on that home purchase could cost you a bundle.
Let's look at an example. If you are paying rent at $1,500 per month and your landlord increases your payment by a modest 5% each year, you would wind up paying just about $100,000 over a 5-year period! Worse yet, after forking over $100,000, you still would have nothing to show for it.

And speaking of having nothing to show for it - how about any improvements you might make to a rental property? It's not uncommon for renters to freshen up the paint, install new light fixtures or plant some nice flowers outside. But guess what…all your efforts, labor and the benefit of that improvement belong to the landlord, not to you.

With the extensive variety of programs to help buyers obtain a mortgage with little to even zero down payment, the very same money could have been used towards home ownership. Even using a standard 30-year fixed program, a mortgage of $300,000 could be obtained with a total monthly mortgage payment - including property taxes and insurance - of around $2,200. Assuming a 25% tax bracket, this would be equivalent to the average amount spent on rent during the same period after your tax benefit.

And the benefits of home ownership are quite considerable. Because the mortgage is being paid down each month, equity is being built. After 5-years, the $300,000 mortgage would be reduced to $279,000, adding $21,000 to your net worth. Home appreciation can add an even bigger chunk. If your home appreciates at a modest 5% per year, the value of a $300,000 home would increase to $383,000 after 5-years. Subtract the remaining mortgage of $279,000 and you have a whopping $104,000 of additional net worth! Even if the appreciation level were at 3.5% or half the historical norm, the result would be $77,000 of additional net worth.
But if laying out the initial increase in monthly payment and having to wait for your tax benefit to show up next April is a tough nut to crack, the IRS wants to help. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck so you can handle the new mortgage payment more comfortably throughout the year. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.
Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the effect a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.
Don't be victimized by the bubble hype. Buying a home is a big step, but it is almost always one in the right direction. Please feel free to contact Commodore Mortgage Group at 201.830.1801 to learn more.

Treasuries Rise on Bernanke Forecasts, Subprime Mortgage Woes

The 10yr is challenging 5.00% again...


By Elizabeth Stanton and Daniel Kruger

Federal Reserve Chairman Ben S. Bernanke
July 18 (Bloomberg) -- Treasuries rose, pushing the benchmark 10-year note's yield below 5 percent, after Federal Reserve Chairman Ben S. Bernanke predicted inflation will recede and said housing market weakness may slow the economy.
The yield earlier rose as high as 5.06 percent on speculation Bernanke would emphasize the potential for inflation to accelerate. The Fed trimmed its forecasts for economic growth, and an index linked to the lowest-rated securities backed by subprime mortgages fell to a record.
``It's friendlier testimony than people expected,'' said Irene Tse, co-head of U.S. interest rates trading in New York at Goldman, Sachs & Co., one of the 21 primary U.S. government securities dealers that underwrite Treasury auctions. ``His view on inflation is somewhat moderated,'' and there is ``much larger emphasis'' on housing and subprime mortgages.
The benchmark 10-year note's yield fell almost 4 basis points, or 0.04 percentage point, to 5.01 percent at 4:05 p.m. in New York, according to Cantor Fitzgerald LP. The yield, which moves inversely to price, touched 4.99 percent, the lowest in a week. The price of 4 1/2 percent notes maturing in May 2017 rose 1/4, or $2.50 per $1,000 face amount, to 96 2/32.
Bernanke, in comments to the House Financial Services Committee today, said core inflation, which excludes food and energy prices, ``may be a better gauge than overall inflation of underlying inflation trends.'' Core inflation has slowed since February, while overall inflation has accelerated.
Fed Growth View
``This trend we've seen of core inflation abating and gradually diminishing is extremely constructive for intermediate and long-term interest rates,'' said Chris Molumphy, who oversees $150 billion as chief investment officer for fixed income at San Mateo, California-based Franklin Templeton Investments.
Labor Department data released today showed core prices rose 2.2 percent in June from a year earlier, the same rate as in May. Core inflation was 2.9 percent in September, the highest in 10 years. Including food and energy, prices rose 2.7 percent from a year earlier, more than forecast.
Federal Reserve policy makers left the target rate for overnight lending between banks unchanged for an eighth straight time on June 28, saying the potential for accelerating inflation was the biggest economic risk.
Bernanke said the Fed trimmed its forecast for U.S. economic growth this year to a range of 2.25 percent to 2.5 percent, from 2.5 percent to 3 percent, because of a slowdown in homebuilding. The forecast for next year was trimmed to 2.5 percent to 2.75 percent, from 2.75 percent to 3 percent.
A Commerce Department report released today showed permit issuance for new home construction slowed last month more than forecast to the lowest level in a decade, suggesting a recovery from the housing slump may not be quick.
Senate Testimony
Bernanke is scheduled to appear before the Senate Banking Committee tomorrow at 9:30 a.m. Washington time. The Fed chairman presents the central bank's outlook to lawmakers twice a year in February and July before taking their questions. Traditionally the prepared remarks are identical.
His last two semiannual testimonies also triggered Treasury market rallies. Ten-year note yields fell 7 basis points on Feb. 14 after he said ``inflation pressures are beginning to diminish.'' Last July 19, he said the Fed had to be mindful of ``the possible future effects of previous policy actions,'' triggering a drop of 8 basis points in the 10-year yield.
The yield is at the low end of its range over the past six weeks as losses in securities backed by subprime mortgages fueled demand for the safety of U.S. government debt.
Bear Stearns Losses
Bear Stearns Cos. yesterday told investors in two failed hedge funds it managed that their capital had been wiped out by ``unprecedented declines'' in the subprime mortgage-backed market. The ABX index linked to 20 subprime mortgage-backed securities rated BBB- and created in the second half of 2006 dropped 4.5 percent to 43 today, according to Deutsche Bank AG. It has fallen more than 50 percent since it started trading in January.
Bernanke said conditions in the subprime mortgage market ``have deteriorated significantly,'' reflecting the higher delinquency rates. Still, ``financing activity in the bond and business loan markets has remained fairly brisk,'' he said.
Treasuries that offer protection against inflation by indexing their principal to consumer prices outperformed regular Treasuries as consumer prices rose more than forecast last month. Prices increased 0.2 percent in June, compared with the median forecast of 0.1 percent among 78 economists polled by Bloomberg News.
`Not as Charming'
The yield on 10-year inflation-protected Treasuries declined more than 5 basis points to 2.64 percent. The gap between its yield and the comparable regular 10-year yield, investors' expectation of the average inflation rate over the life of the securities, increased to 2.43 percent, the highest in almost a month.
``The inflation outlook is not as charming as people like to think,'' said Gang Hu, head of inflation trading in New York at Deutsche Bank AG. Gains were limited because the government plans to sell 20-year inflation-linked bonds in an auction next week, he said.

Who Knew?

Who knew that this sub prime mess would have benfitted A paper loans? S&P downgraded $12 billion in sub prime mortgage bonds today, and a huge flight to quality resulted. The 10 yr rallied, and rates dropped from 5.15 to 5.02...which is huge. Glad to see something positive has come from the sub prime meltdown!

The Subprime Meltdown: A Hot Summer Issue

The real estate market typically heats up during the summer months. This year, however, with the subprime correction in full swing, the National Association of REALTORS® is predicting a slight pullback in speculative buyers that could lead to a downshift in the entire real estate market. For a lot of homeowners, this just means home prices are normalizing after an amazing run up over the last few years. However, for many Adjustable Rate Mortgage (ARM) holders and borrowers with potential credit issues, this summer cool off could spell disaster.

It's all over the news: more than half of last year's top 25 mortgage companies have either reported serious losses, been sold off to other companies, or filed for bankruptcy! This has resulted in a tightening of lending standards and underwriting guidelines which has and will continue to impact the real estate market for some time. In fact, bond expert William H. Gross predicts that the fallout from the subprime collapse will likely affect the housing outlook for years to come. When asked how many borrowers would be impacted by changing guidelines and tightening credit standards, Bill Dallas, mortgage industry icon and former CEO of Ownit Mortgage Solutions, estimated "anywhere from 10% to 40%," adding, "the coming shift in available products will be huge." This could impact anyone seeking financing, not just throughout the summer season, but throughout the next 12 to 18 months as well. How has this happened? And how does this affect your mortgage?Over the last few years, credit standards were loosened considerably as home prices surged to record levels. This meant that many borrowers who normally would not have qualified to purchase or refinance their homes could suddenly and easily obtain greater financing than ever before. In addition, because home values appreciated so quickly throughout this time, even borrowers with serious credit deficiencies could obtain 100% financing without ever having to document their income. However, as the market changed, homes prices began to contract and interest rates began to rise. This resulted in more and more subprime loans falling into default, and a wave of foreclosures exposed subprime investors to serious risk. Suddenly, the Wall Street bankers who purchased the loans sent them back, and the subprime lenders paid the price. As a result, credit standards tightened, underwriting guidelines changed, and subprime mortgage products dwindled. Current or potential borrowers who qualify for a purchase or refinance product today may not even be able to do so in the future.

It's important to note that a certain reluctance to offer credit is a normal, and often predictable, response to changes in the real estate market. Like an economic pendulum, the availability of credit swings back and forth over time, as hot markets flame and cool markets wane. This back-and-forth "movement" is the most basic characteristic of the cyclical nature of any market. At the height of the recent real estate boom, this pendulum clearly favored consumers, offering more credit options than ever before, thanks to lax guidelines and an inordinate increase in the use of subprime products.

Today, as the market turns and the pendulum swings back to the more conservative side, it does so with a lot of force! What should you do now?If you or someone you know has a subprime loan, especially an ARM or a hybrid ARM about to reset to a higher rate, you need to speak with a mortgage professional right away. With loan guidelines and credit requirements tightening so heavily, and property values still declining in many neighborhoods, you may not even qualify for a refinance if you wait too long and the pendulum passes you by. Even if your mortgage has a pre-payment penalty, it may be less expensive to absorb the penalty now and refinance into a more affordable or stable mortgage.

Fixed rate programs are approaching eighteen-month lows. Remember, if you have an ARM, your loan will reset. When it does, can you handle a 50% or 100% increase in your monthly payment? Do you know what your margin is? If not, invest an hour with your mortgage professional and find out all of your options. Don't let foreclosure sneak up on you. Take the necessary steps this summer to protect your biggest investment. For anyone considering purchasing a new home this summer, schedule a credit review right away. With the right credit score, buyers can take advantage of the increased inventories and lower prices available in many markets. Don't let the summer selling season pass you by.

If you have any questions, call 201.830.1800 for a free consultation. Together, we will make sure that you're taking advantage of every opportunity available to address your changing financial goals and needs!

Leter to Clients - Interest Rate Update

June 22, 2007

Dear Valued CMG Client,

When inflation fears recently led central banks in New Zealand and Europe to suddenly increase their short-term interest rates, the repercussions were immediate. Interest rates soared around the globe - especially in the US. According to the Chicago Tribune, mortgage interest rates have reached their highest levels in nearly a year! In fact, Freddie Mac recently reported the fifth consecutive week of rate increases across the board since May 15th.


If you or someone you know is considering a new home purchase or refinance in the next 12 months, I urge you to investigate all available options now instead of waiting any longer. Yes, it's true; mortgage interest rates are currently under 7.00%, but they may not remain there for long. As history has demonstrated, a rapid rise in interest rates is sometimes a precursor to even higher rates in the coming months. In 1993, interest rates on a 30-year fixed rate mortgage jumped from 6.69% to 8.23% in just five months. With this latest surge in interest rates, can you really afford to wait any longer?


Remember, mortgage rates are based on mortgage-backed securities, which investors buy and sell like stocks on the stock market. If returns are more attractive in other countries and markets, investors and their capital will follow - and rates will likely increase. It's that simple. Combine this with the present turmoil of the post subprime housing market, and it really does make sense to at least consider all of your available options now. Honestly, if this sudden surge in interest rates was the only sign of a changing market, I wouldn't waste your time. But, growing concern about inflation and how the Federal Reserve might respond, combined with increases in housing inventories, decreases in home values in many neighborhoods, and the tightening of credit standards and guidelines is just too much evidence to ignore.


While no one can predict exactly what will happen, including me, experts in the bond arena have expressed concerns that rates will continue to increase throughout the rest of the year. Some believe that the Federal Reserve will be forced to raise interest rates prior to year's end. This would increase interest rates for existing Home Equity loans, credit card loans, and potentially existing ARMs. Find out how these and other changes could affect your financial situation.
Please contact your CMG Mortgage Consultant at 201.830.1800 today for your no cost, no obligation analysis of your current mortgage position to see if we can save you money and protect you from a potential increase in monthly payments.

Sincerely,
Rich
Richard C. Bouchner Principal

My response to Austan Goolsbee's NYTime artice

http://www.nytimes.com/2007/03/29/business/29scene.html?ex=1332820800&en=5c1f69d5b118d63d&ei=5124&partner=permalink&exprod=permalink

Professor Goolsbee:

Hallelujah on your article in today's Times. As an owner of mortgage brokerage, and an MBA from Vanderbilt, I am writing to let you know how much I agree w/ your point of view. Our economy works best when people have free will to decide how to deploy their capital. I never heared a politician belly ache during the housing boom about the increase in first time home buyers. I realize that no doc and no income verification loans may have allowed some homebuyers to qualify for properties that they really couldn't afford, but nobody put a gun to these peoples' heads and said, "you must buy this house!!"
Thank you for writing this article....it is always nice to hear a voice of reason rise above the din of the masses....
Best,
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: 201.434.7622
toll free: 888.604.7400
fax: 201.434.7601
www.CommodoreMortgage.com