My New Blog

My last blog, a week or so ago, began by focusing on interest rate indicators that tell us the mortgage market, indeed all financial markets, continue unsettled and that the Fed’s various initiatives have so far had limited favorable impact. Unease is therefore likely to continue later on. Yves Smith (http://www.nakedcapitalism.com/2008/04/credit-crunch-is-dead-long-live-credit.html) summarizes:

Perhaps I am inflexible and unable to adapt to new information, but I don't see what has been accomplished beyond kicking the can down the road three to nine months.

Nor do I.

So where are we as to today’s mortgage market? It continues tight but those with good credit who can document their income and assets will have no problem. Anything Fannie Mae or Freddie Mac will buy, including Alt-A type and the new “conforming jumbo” loans, can be done. Also, the FHA and VA routinely do what the conventional market considers to be sub-prime. We’ve done a lot of them recently. You can still borrow at or under 6.0% (note rate, APR is higher) on a conventional, conforming 30-Year Fixed Rate loan. Just be prepared to document your income and assets.

I’ve always been interested in understanding what lies behind what we see today, how we got where we are and were it’s likely to lead. Everyone seems to have an answer to these sorts of questions but few really do. One who has good, factual answers to what’s happened to the American family over the past generation is Elizabeth Warren. Here’s her recent YouTube presentation. She has a tendency to “talk down” to the audience, as do all academics, but she does use plain English and has come up with powerful insights. You will be rewarded for your time.

The Coming Collapse of the Middle Class

http://www.youtube.com/watch?v=akVL7QY0S8A

For those of you who are confused by the swirling “inflation versus deflation” debate, as I often am, I offer the following by Mike “Mish” Shedlock, that I think is very good. Those of us who buy groceries and fill up the tank know that inflation is more of a problem than our government will admit. Yet debt is deflating. We have, I think, both, StagFlation.

Feel free to post a comment or send me an e-mail if you wish to discuss any of this. Thanks.

H. F. Pete Nelson

Senior Loan Originator

License #510-LO-34002

PNelson@NormandyMortgage.com

(206) 890-6815

LIBOR is the London InterBank Offer Rate, the interest rate at which banks lend to one another. The TED Spread is the difference between 3-month US Treasury rates and EuroDollar rates (http://en.wikipedia.org/wiki/TED_spread). The TED Spread has widened considerably since the current credit crisis began last August. In recent days, it has been alleged that the banks that report the data on which the LIBOR index is based were understating their numbers in order to lower their borrowing costs. Today there is reaction.

Money-Market Rates May Rise on Threat of Libor Ban http://www.bloomberg.com/apps/news?pid=20601068&sid=auHuzk67W6Mg&refer=economy

My sarcastic comment is that LIBOR will get reliable but the TED will Spread …

And now the Bank of England follows the Fed …

It is understood that the Treasury about to finalise a scheme under which the Bank would allow lenders to swap their mortgage-backed assets for government bonds rather than cash. Lenders would be able to use the gilts as collateral for loans from other banks. It is hoped that the move will ease the seizure in the credit markets and lead to a drop in mortgage rates for homeowners.

Bank close to agreeing plan to end drought in funding for mortgages http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article3761200.ece

The Main Stream Media is not good with analyzing implications, which is to say that for every action there is an equal and opposite reaction. With the Fed now lending to Primary Dealers and exchanging Treasuries for (more questionable) Mortgage Backed Securities, the market is provided with a temporary palliative that degrades the US Treasury’s own credit rating. This is Moral Hazard in action. Mr. Volcker’s recent comments were spot on (http://calculatedrisk.blogspot.com/2008/04/volcker-video.html).

Transitioning now from interest rates to inflation, here is Chris Puplava’s long-term CPI graph taken from the Market WrapUp yesterday, a thread that is posted daily on Freedom4Um. I much favor multi-decade looks. Note the regularity and the higher highs and higher lows. We are currently much higher on the inflation curve than is shown on the graph, however, due to the understatement of the US Government’s numbers. Real CPI is at or above 10%.

http://www.financialsense.com/Market/cpuplava/2008/images/0416.h28.gif

Here’s the distortion:

http://www.financialsense.com/fsu/editorials/willie/2008/images/0416.h4.jpg

This is the functional equivalent of clipping coins, of stealing. The latter graph comes from Jim Willie’s article:

http://www.financialsense.com/fsu/editorials/willie/2008/0416.html

Yet the New York Times says:

“A credible case can be made that inflation is behaving as expected in a recession and starting to moderate,” Bernard Baumohl of the Economic Outlook Group wrote in a research note. “The healing process has begun.”

U.S. Inflation Appears to Be Retreating http://www.nytimes.com/2008/04/17/business/17econ.html?_r=1&ref=todayspaper&oref=slogin

Well, nonsense. Houses may deflate but demand and supply for food and energy are out-of-whack and will remain so for quite some time, if not indefinitely – there are too many people throughout the world competing for bread and gasoline.

And, finally, I’ve wondered for months how JPMorgan Chase, the bank with the largest derivatives book, had been able to avoid reporting massive losses. We see now that they are not exempt …

Double Take: JPMorgan Quietly Raising $6 Billion http://www.housingwire.com/2008/04/16/double-take-jpmorgan-quietly-raising-6-billion/

My thoughts for the day, Thursday, April 17^th. These views are mine and do not represent those of the management or ownership of Normandy Mortgage. However, if you found this commentary to be worth your time and would like to have a Loan Originator “on your side” that can analyze the daily mortgage market equally as well as the world economy, or if you would simply like to discuss the above, please give me a call.

With Best Wishes,

H. F. Pete Nelson

Senior Loan Originator

License #510-LO-34002

PNelson@NormandyMortgage.com

(206) 890-6815

There is a new Mortgage Loan Originator Licensing Law operative in WA this year and I would like to tell you about it. Also, there are ongoing efforts to blame the mortgage brokers for the current “subprime mess”. I would like to rebut that.

The Always Sensationalist Media, abetted by our esteemed Federal Reserve Chairman, have charged that the mortgage brokers are responsible for current subprime difficulties. This is nonsense. While brokers originate approximately 60% of the mortgage volume in this country, we do not underwrite loans, as charged by Mr. Bernanke; which is to say, we do not make credit decisions. My clients know this, as I have had to irritate more than a few of them by insisting you find some piece of paper wanted by the lender before they would lend. Why do we originate most of the mortgage loans? Because 1) we save you money, and 2) we are very service-oriented.

The newly effective Mortgage Loan Originator Licensing Law is relevant because it underlines our credibility. We now must adhere to a regimen of State-imposed standards. This is a good thing, one which I had hoped the State would adopt almost since I entered this business 12 years ago. Some 15,000 people have applied for a mortgage Loan Originator’s License. An estimated 3,000 have passed the State exam. I am one of them. It is also required that we take 2 Continuing Education classes each year and that this year 1 of those classes be Ethics. I have taken both classes. The initial license application must be accompanied by a set of fingerprints and is subjected to a background check. If the applicant has committed a felony within the past 7 years, the application is denied. I am proud to tell you that I am a Licensed WA Mortgage Loan Originator and that my License Number is 510-LO-34002.

H. F. Pete Nelson

Sr. Loan Originator

License #510-LO-34002

For those with average-to-good credit and reasonable equity or some money down, the “conforming” mortgage market remains liquid and competitive. 30-Year Fixed Rate mortgages can be done in the 6.0% range (with standard loan fees) and Jumbo loans, i.e. loan amounts over $417K, are in the 7.0% range. APR is of course in both cases higher. Sub-prime money is also available but it is scarce and expensive. “Stated Income” and 2nd mortgages are, however, harder to do across the board. But while mortgage markets are tight, those with good credit who can document their income will have no problem. Anything Fannie Mae or Freddie Mac will buy, including Alt-A type loans, can be done. And the FHA and VA routinely do what the conventional market considers to be sub-prime.

Interesting times, but the sky has not yet fallen.

H. F. Pete Nelson

Sr. Loan Originator

License #510-LO-34002

May 29th

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