MARKET UPDATE
Where the Opportunities Are for Originators Now
 Ronald Reagan used to love to tell the story about a father who had two young sons: one was constantly worried and saw the danger or downside in everything; his other son was a perpetual sunny optimist. At Christmas time, the father decided to try an experiment. He gave his first son a beautiful and expensive Cartier watch. For his second son, he gift-wrapped a box with a pile of horse manure inside.On Christmas Morning, the boys opened their presents. The first son looked at his beautiful new watch and immediately worried that if he wore it, it would either get broken or someone would steal it.
The second son opened his box of horse poop, became delirious with excitement, and started running around the yard, looking behind bushes and trees. “Son, what are you doing?’ asked the father. And the boy (who could barely contain his joy) said, “Dad! This is fantastic!! There’s got to be a pony around here somewhere!!!”
Let’s Have a Look at the “Horse-Poop” of Current Economic News. Because There’s Got to Be a Pony Around Here Somewhere.
 Mortgage Rates Moving in One Direction – Up. Earlier this year, the Federal Reserve stepped up debt purchases in an effort to drive down rates, but yields on 10-year Treasury bonds, which mortgage rates closely track, have risen recently amid concerns of rising inflation, according to the Wall St. Journal.
US lurching towards debt explosion with long-term interest rates on course to double. In a 2003 paper, Thomas Laubach, then the US Federal Reserve’s senior economist, calculated the impact on long-term interest rates of rising fiscal deficits and soaring national debt. Applying his assumptions to the recent spike in the US fiscal deficit and national  debt, the UK Telegraph suggests that long-term interest rates will double from current levels. And that’s before we factor in the Obama administration’s plans for health care “reform” and the Cap & Trade “Energy” bill. As of June 16th, the yield on the 10-year Treasury was 3.67%. As you know, as Treasury yields rise, bond yields will have to increase in order to compete. Bottom Line: The long-term picture for mortgage interest rates looks worse, not better.
 Weakness in Mortgage Refinancing. Not surprisingly, then, the Mortgage Bankers Association cut its forecast of home-mortgage lending this year by 27% because of declining prospects for a continued boom (or even a mini-boom) in refinancing.The rise in rates has choked off new refinance originations, but analysts believe it could spur more potential buyers to close transactions amid concerns that rates will keep going up. According to the Mortgage Bankers Association weekly survey. refinance applications fell to 46.4% of all mortgage applications. That means the number of new purchase applications exceeded refi apps.
Meanwhile, the MBA said the volume of refinancing under the Obama administration's Home Affordable Refinance Program so far has been "very low."
Increased Loss Mitigation Failing to Keep Pace with Defaults, Foreclosures. The Federal Housing Finance Agency reported on June 30th that Fannie Mae and Freddie Mac significantly stepped up their foreclosure prevention activities in the first quarter of 2009. But according to Inside Mortgage Finance, those efforts failed to keep pace with both the jump in serious delinquencies and foreclosures started with GSE mortgages during the three-month period. The latest FHFA numbers show that completed actions to prevent foreclosure – including loan modifications – rose to 86,600 at the GSEs. But those numbers were dwarfed by the rise in 60 days or more delinquent loans (173,700) and the huge jump in foreclosures started on Fannie/Freddie loans in the first quarter (243,800).
 Rising Unemployment Making Foreclosure Reductions More Difficult. The Wall St. Journal reported on June 26th that rising unemployment is complicating the Obama administration's effort to reduce foreclosures and stabilize the housing market.The Obama program provides financial incentives to mortgage-servicing companies and investors to reduce mortgage-related payments to 31% of monthly income, but many borrowers don't have sufficient income to qualify for a loan modification under the plan. One counseling agency reported that 45% of the more than 900 borrowers who sought help would fall into that category even if their interest rate were dropped to 2% and their loan term were extended to 40 years. Many of those unqualified borrowers suffered job losses or a reduction in income. Roughly 27% of borrowers who called the mortgage industry's national "Hope Hotline" in the second quarter of 2009 cited unemployment as the primary or secondary reason for their mortgage problems, triple the rate in the second quarter of 2008.
In the meantime, there are signs the overall mortgage-delinquency problem is getting worse. The percentage of mortgage loans that were at least 30 days past due but not yet in foreclosure climbed to a record 8.49% in May, up from 8.08% in April and 5.66% a year earlier, according to LPS Applied Analytics.
Distressed Properties Now Account for Two-Thirds of Home Sales. An ongoing flood of mortgage defaults and foreclosures is dramatically changing the home sale landscape in the U.S. According to preliminary results from a new nationwide survey of housing conditions sponsored by Inside Mortgage Finance, nearly two-thirds of all home sale transactions now involve some sort of distressed properties.
OK, Enough Horse Poop – Where’s the Pony?
 Whenever market conditions change, those changes create “winners” and “losers” – people who benefit from the changes and people who suffer negative consequences from them.You and I are in no position to control market conditions. What we can do is pay attention to them and adapt accordingly. So when conditions change, your primary job as a mortgage originator is to identify the potential winners and find a way to help them take advantage of those changes. Secondarily, you may also be able to help the potential losers in this scenario to mitigate the effects of the change on them.
Who are the winners and losers in the current market environment?
Interest rates are still low – for now – taken in historical context. But there is evidence that consumers who are considering a home purchase are now feeling a greater sense of urgency because of concerns that mortgage interest rates are headed upwards.
In addition, the first-time homebuyer tax credit is set to expire on November 30th of this year. There are proposals in Congress to extend that deadline, and even to expand the size of the tax credit. Personally, I wouldn’t be surprised if it passes and is signed into law, but that hasn’t happened yet and it is by no means a sure thing.
Finally, home prices continue to move downward. The latest numbers suggest that the rate of decline in prices may be slowing, and some of the more optimistic analysts are saying that we’re nearing the bottom of the price slide. However, there is no indication that the foreclosure tsunami has ended. As the numbers I reviewed above show, distressed properties currently make up about two-thirds of all the homes being sold. That is huge, and there’s no question that this exerts downward pressure on home prices.
Add to that the fact that there are almost a quarter of a million new foreclosures in the pipeline, and another 174,000 homeowners who are 60+ days delinquent, and you have a recipe for a continued very strong Buyers Market for the foreseeable future.
The first-time buyers you want are people who have good income, good credit (at least 620+), and sufficient savings to make the required FHA down payment. I have developed lead generation tools to help you find these people, marketing tools to get them to respond to you, and sales tools and pipeline management systems to help you close their transactions. If this is a market that appeals to you, fill out the contact form below, and I will give you a free hour of coaching so we can talk in detail about my ideas for finding and closing first-time buyer transactions.
The investors you would want to target are small and beginning investors who don’t plan to pay cash for their acquisitions. I have developed lead generation tools to help you find these people, marketing tools to get them to respond to you, and sales tools to help you close transactions. If this is a market that appeals to you, fill out the contact form below, and I will give you a free hour of coaching so we can talk in detail about my ideas for finding and closing investor transactions.
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