Foreign Investment Leaving?

Start Getting Ready To Buy!

If you haven’t figured out that now is a great time to buy, than you haven’t been paying much attention to where interest rates are, and where home values are.  Foreclosures are starting to rear their ugly head, and this will cause opportunity for low purchase prices.  I am currently in escrow on two investment properties (shortsales) because I believe that it doesn’t get much better than now, to buy and build.  Let’s look at what’s happening in the market today…and what the future may hold in store. 

Earlier in the week, the stock market took a nose dive.  General Motors reported a $39 Billion loss for the third quarter.  Keep in mind that GM formerly held GMAC which was their financing company who did a lot of loans these past few years. 

China Moving $$$ OUT of the US

Remember that I have mentioned numerous times in my article that foreign investment in our mortgage-backed securities is what has kept our long term (30 year fixed) interest rates so low the past decade or so?  Well, this last week China indicated that they would be moving their investments away from the US Dollar.  “We will favor stronger currencies over weaker ones, and will readjust accordingly.  The US Dollar is losing its status as the world currency.”  So, China will start to sell off their US holdings including Mortgage Bonds.  Also, their participation in purchasing new Mortgage Bonds will continue to hurt Bonds, pressuring their yield (and therefore interest rates) higher.  A good time to buy? 

Oil Is Just Too Expensive

Oil is touching on $100 per barrel.  This is inflationary and remember that inflation is interest rate’s worst enemy.  What really saved us last week was that we bounced off of the 50-day moving average.  Remember that these averages cause trends in bond values and therefore interest rates…so the 50-day moving average (or that trend) was a level of support for interest rates because markets don’t like to shy away from trends…they follow them!  

10-Year Treasury Yield Throws Off Unprepared Mortgage Professionals

Interesting to note this week that the yield on the 10-year Treasury Note and the yield on Mortgage-Backed Securities were moving in opposite directions…so if you were working with someone that really didn’t understand how interest rates worked, you could have ended up paying for it in your interest rate. 

Initial Jobless Claims were reported at 317,000, however, the market anticipated 325,000.  Of importance was the fact that the Bank of England (BOE) and the European Central Bank (ECB) announced their monetary policy this week.  They both decided to leave their overnight rates where they were.  This is important because foreign yields on bonds have a direct impact on investments in our bonds. 

Foreign Investors Shying from US

The first test of auctioning our Treasury Bonds didn’t fair so well this week.  This is something that we’ll continue to keep our eyes on. 

Wachovia Corp. announced a $1.1 Billion loss on CDO’s.  Collarteralized Debt Obligations are the fancy-shnancy critically calculated investment bundles that included included mortgage backed securities that are losing value with each passing mini-second.

Retail Sales numbers will be coming out soon, however, the markets are moving on speculation because WalMart reported strong earnings.  WalMart is always watched by the market, just because as the nation’s largest retail chain, it would make sense that if they had strong earnings, than the nation should follow suit.  Remember, also, that when Retail Sales come in strongly, than the stock market would do well, taking money out of bonds, or mortgage backed securities.  So, buy, buy, buy!  Values are down and rates are low…but with all of this information in your pocket, how long will rates remain low?  Until next week…

Rates Still Higher

The Fannie Mae Foundation is the largest purchaser of real estate loans  in the  United States. 

If you meet their guidelines, than you qualify for the lowest interested rates and more flexible products than other loans because lending institutions can sell these loans to the foundation, freeing up more money for them to lend to more home owners and buyers.  The foundation has recently pledged $20 Billion toward loosening these guidelines to assist homeowners in refinancing that currently may be in a tight financial hardship in an effort to help prevent foreclosure and bankruptcy. 

As you may have been reading in the media, many homebuyers in the past few years, purchased mortgages that could not be sold to Fannie Mae and therefore, were put into sub-prime loans that enabled them to buy for reasons like bad credit, high monthly expenses compared to monthly income (debt ratios), extremely flexible underwriting requirements, almost no documentation to support claims on an application, and high loans values compared to the purchase price.  These types of loans are generally fixed for a very short period of time, and then start adjusting with a high profit margin to the bank over an index that can make payments difficult for a client. Generally refinancing or selling to get out of that financial hardship are the homeowner’s only options.   If they are unable to refinance or the home doesn’t’ sell, their sub-prime loan will adjust to higher interest rates with their payments adjusting dramatically, as a result. 

While values in our area have remained relatively stable, values throughout the nation have steadily declined, causing many homeowners to not have the equity to refinance out of these high interest loans.  Banks generally want to finance a percentage of the value of the home.  Some of these loan balances have surpassed the value of the home itself and many people unfortunately have been forced into such a financial hardship, that they have had to either walk away from their home, causing a foreclosure, or simply file for bankruptcy protection on their other personal financial responsibilities. 

What’s Fannie Mae doing to help with this situation? 

The $20 Billion has been set aside to aide the refinance of borrowers in this undesirable situation.  By encouraging full documentation; Fannie Mae has determined that allowing higher debt ratios, not requiring an appraisal on the subject property, allowing minimal amounts of liquid assets (cash) in saving institutions, and increasing the term or time in which a borrower has to pay the loan off (40 year terms), will help homeowners stay in their homes and help alleviate the financial hardship.  This will save lending institutions, homeowners, tax payers, and consumers billions of more dollars on foreclosures and bankruptcies alone.  Fannie Mae will be choosing four lending institutions to handle these requests.  Access Real Estate Lending, of course, has access to these options now! 

For those of you not in the sub-prime market, the stock market is still doing quite well.  Not helping matters was Tuesday’s Consumer Confidence Report coming in hotter than expect at 108.  We just can’t get through this negative downtrend that we’ve been experiencing.  This Friday, we have two big reports coming out; the Jobs Report and the Core Personal Consumption Expenditure (PCE) Index.  These two reports would have to really be tame to turn this current market around.  But, how quickly the market can change…Until next week…