Desert Shores Undressed

Las Vegas Mortgage Rates

What does it mean when the Fed cuts rates?

The Federal Reserve Board controls the federal funds rate. The Fed has the power to raise or lower the federal funds target rate and this can influence the market for shorter-term securities. The Fed funds rate is the rate banks charge other banks for overnight loans. This can stimulate the economy. A lower Fed Funds rate means that banks are more willing to borrow money to keep their reserves at the mandated level. Banks lend more, businesses expand, home loans are cheaper (primarily short-term mortgage loans), the housing market improves, and homeowners take out home equity loans (since the prime rate typically goes down).The Fed may raise the rate to keep inflation in check, to slow the economy or it may lower the rate to stimulate the economy. By cutting like they did today they are trying to stimulate the economy.

Las Vegas Real Estate

The stock market seems to be in free fall these days and this is good for mortgage rates. I wrote a post on August 9th (click here) talking about the problems in the sub prime loan market. I mentioned that weakness in the stock market can help mortgage interest rates since investors tend to adopt a flight to quality strategy.

The article  mentioned the possibility of  the Dow Jones Industrial Average reurning to the 11,000 area. The chart above shows that we are now approaching the 12,000 mark and there is a threat that it may go lower. You’ll note in the next chart (the 10-year Treasury Note yield) that rates have been moving down in simpathy with the stock market.

Remember that the rate on the 30 year fixed mortgage tends to mirror the movement in the 10-year Treasury Note yield. It is my belief that investors have been pricing in a rather large 3/4 point cut in the fed funds rate later this month.

What strategy should you be considering?

The markets may well bounce and hold these levels and if this occurs funds will start to move out of bonds and back into stocks. The market may  continue to dive; another  1,000 points  can come very quickly.  Here again when a bottom is put in, people will move back into stocks. Eventually mortgage rates are going to stop going down.

It is time to prepare yourself in advance of the event. Get yourself pre-approved and start looking for that house now! If you are thinking about a refinance get started now!   

I was working at UBS as a financial advisor in 2000. At that time technology stocks were selling at incredible multiples. That is not the case today. I think we may be getting closer to a bottom and this could mean that mortgage rates may go higher in a few months.

Never hurts to get ahead of the game.

Give me a call at 702-351-7912.

Las Vegas Real Estate - Time to Buy!

TODAY’S THIRTY YEAR FIXED RATE MORTGAGE (Conforming Loan)

5.5% NOTE RATE 5.655% APR (Purchase Loans)

TODAY’S FIFTEEN YEAR FIXED RATE MORTGAGE (Conforming Loan)

4.875% NOTE RATE 5.03% APR (Purchase Loans)

TODAY’S THIRTY YEAR FIXED RATE JUMBO MORTGAGE

(Loans greater than $417,000)

6.5% NOTE RATE 6.655% APR (Purchase Loans)

The rate on the 30 Year Fixed Rate Mortgagee is based on minimum 680 credit score

and a 620 credit score for a 15 Year Fixed Rate Mortgage

20% Down is required for the above rates

Other restrictions may apply.

A conforming loan is when the loan is $417,00 or less. Rates and fees are subject to change without notice.

First United Mortgage is an Equal Housing Lender

Mark V Clawson, Loan Officer

First United Mortgage

702-921-1800

8678 W. Spring Mountain Road, Suite 130

Las Vegas, NV 89117

Ph: 702-351-7912 email markvclawson@gmail.com

Mortgage rates are coming down fast and this is a time to consider purchasing a new home in Las Vegas.  Many of you purchased homes 5-10 years ago and still have great equity gains even with the market’s deterioration.  This may be a great time to move up to a bigger home.

You can still buy with less than 20% down but the rates will be higher. It just makes sense to get pre approved and find out what you can afford.

Fannie Mae has great zero down programs for first time home buyers. The rates can be very attractive but you need to have the ability to document your income and have some reserve funds.  Additionally,  you need to know whether the  property is Fannie Mae eligible for this type of program. I can help you determine whether this is the case or not.  

The 10 Year Treasury Note Yield is the lowest that we have seen in since March of 2004. There is a high correlation between the 10 Year Treasury Note yield and mortgage rates, meaning that this is the time to act. 

Not only are prices lower but rates are lower and that works in your favor.  

Reverse Mortgages and Your Home

First of all, you have to look at where you are in your life. You may have the means to restructure your assets and avoid the use of a reverse mortgage. There are many things to consider and it is important to take your time before you jump.

That being the case, to qualify for a reverse mortgage  you need to be 62 years of age. Your home needs to be your principal residence, and it should be free and clear or have a small mortgage that can be paid off with the proceeds from the reverse mortgage.  You have to make sure that your property meets the standards set by HUD and you will need to need to discuss the program with a HUD approved counselor.

I think the counselling program makes a lot of sense, you need to know what you are doing and feel comfortable.  

I have been referencing the HUD program because I think it makes more sense than a privately insured reverse mortgage.  The HECM Reverse Mortgage loans (HUD program loans) generally provide the largest loan advances of any reverse mortgage. They also give you the most choices in how the loan is paid to you and you can use the money for any purpose. They can be costly, but HECMs are generally less expensive than privately-insured reverse mortgages. Other reverse mortgage may have smaller fees, but they generally have higher interest rates which means less money to you.

Many retirees are cash poor and home rich. The idea behind a reverse mortgage is unlocking the value in your home. Your payments of principal have created an equity pool that you can access.

A reverse mortgage is not an inexpensive loan. That is why it is important to review all of your other options. If those other  options are not available then it can make sense.  The loan fees are based on the maximum credit limit for the HUD lending area for the government Home Equity Conversion Mortgage (HECM). This means that you may be paying fees on a loan amount that is higher than your actual  loan. It is important to have a trusted advisor who you can count on to give you a fair loan fee. 

 The loan also has an up-front mortgage insurance fee of 2% of the maximum lending limit. This mortgage insurance insures you that you will continue to receive payments even if your mortgage lender were to go out of business.  You then have your normal costs of the  appraisal, escrow, title fees, etc., and you get the idea. 

While the costs seem high, the insurance on these loans are more for borrower protection than any other loan the government insures. This insurance protects the borrowers in two ways. First,  if a lender ever goes out of business or fails to pay a borrower in a timely manner for any reason, HUD steps in and makes certain that the borrower receives a steady stream of payments. As you read about lenders going out of business, with a HUD insured loan, you never have to worry about whether or not your payments will be made to you. Also, HUD will insure that the borrower will never owe more than the property is worth regardless of how much money the borrower receives over the years, how much interest accrues,  or what property values do in the future. Everyone hopes that values will continue to go up, but if the values should fall, the senior borrower and their heirs will never owe more than the property is worth.

There is an article entitled Top 10 Things You Should Know If Your Interested in a Reverse Mortgage on my menu bar or you can just  click here. This should answer most of your questions. Though I do realize that everybody is an individual and their circumstances will be different.

What is mportant to know is that I am willing to work with you in any way that I can. I pride myself in being a trusted advisor and if this program doesn’t make sense for you I will let you know. This is all about helping people and finding some peace in life.   

Mark Clawson - 702-351-7912 - markvclawson@gmail.com

Mortgage Rate Alert

This is a very important post for anyone looking to buy a home or refinance a mortgage. As you can see the 10 Year Treasury Note yield is in a free fall.  When the 10 Year Note yield drops this is good for mortgage rates. My guess, based on technical data, is that rates won’t go much lower. My target on the 10 Year Note yield  had been 3.9% and we are there. It is a possibliity that we could see the Treasury Note Yield test the 3.7% range.

What is curious is that the 30-year fixed rate mortgage has dropped about a half a percent in the last couple of days without a corresponding drop in the 10 year Treasury Note yield. I’ve been asking myself why?

Mortgage rates have not been dropping, until recently, even though rates on the 10 Year Treasury Note yield have been falling considerably. My guess is that investors are coming back into the prime mortgage market and feeling more secure now that the Government is talking about helping those borrowers in the sub prime market that are dragging the economy lower.

Less risk in the prime mortgage market means lower rates.

All I know is that last week the 30 Year Fixed rate mortgage was being quoted at 6.125% with an APR of 6.396% now we are seeing 5.5% with an APR of 5.671% and this is a dramatic change.

The stock market is still in turmoil and with the possibility of a recession it would not surprise me if the Dow Jones tests the recent low of 12,750. Should we break that number it could get very ugly. Be cautious,  protect your assets.

On the Oil Market I would suggest that this recent weakness may continue, a break below $89 would suggest that oil could drop to $80. Better than $100!

I love to hear comments and hope that you will pass them my way.

Hoping that you are having a great time getting ready for the Holdiay Season.  

Undressing the Financial Markets

In writing this particular post I have drawn from my considerable experience in the Financial Services Industry. This is an industry that I worked in for over 25 years. As many of you know I am currently a licensed mortgage loan officer in the States of Nevada and Washington and this article is something that I feel very strongly about.

So, what’s going on with our economy and the financial markets? Hard to believe that oil is pushing $100 dollars and that gold is over $800. With the U S economy visibly shaken by the mortgage markets you would think that oil prices would be heading down. However, the U. S. Economy is no longer the big dog in the world. China and India are growing and their demand for oil continues to increase. The world economy is actually doing better than ours.

The dollar has been in a free fall since 2002 when the index stood near 120. Currently, it is trading at about 75. The Canadian dollar is now worth more than the U.S. dollar for the first time in 50 years. The British pound is over $2 and the Euro which in 2001 was at .85 to the dollar is now around $1.46 to the dollar.

Now there is concern that the Chinese and the Japanese may purchase less of our Treasury securities. I doubt that we will see the Chinese abandon our securities and sell them since they own so much of our debt. They can only harm themselves by doing so. They need our trade and technology. However, it is disconcerting to find ourselves in this situation; we seem to be losing control of our destiny.

Free trade can be great but you need to have an even playing field and that is clearly not the case with many of our trade agreements. We have been running up huge trade deficits and the decline in the value of the dollar can make that even worse if we are not allowed to sell our products overseas in a competitive environment.

Our products and services are much more affordable to the world with a lower dollar. I just hope that we have a business plan in place to recognize whether in fact free trade is actually happening. (Laissez-faire does not mean that you can assume everything will be okay)

The “American Spirit” seems to be lost in greed. There seems to be too much power in too few hands. Let’s look at the mortgage market and collateralized debt obligations as an example of this greed; this is reminiscent of Michael Milliken’s high yield junk bond fiasco at Drexel Burnham Lambert.

Let’s suppose that I have $2 billion worth of mortgage loans. This package of loans has both prime and sub prime loans. Banks, insurance companies, and pension funds are not allowed to invest in non-investment grade bonds (sub-prime loans) since they are risky investments.

Let’s say that I repackage these loans selling $1.6 billion in loans, however, I pledge all $2 billion. The securities are now over-collateralized. Now the rating agencies, which get a fee, come in. They view this over-collateralization as a positive and they rate the bonds as AAA. So, here we are in a situation where low quality mortgages can be more easily sold. Packaging sub-prime loans like this was done by many of our larger financial institutions. Who does this favor? Who has it hurt? The power of greed is not a pretty thing to see.

We can also ask the question as to why after 30 years since the previous oil crisis have we done so little? Instead of new technology we get the SUV. Great it saved our automobile industry, but at what cost.

Thinking about the past or the future will do little to help the situation. We need to focus on the present and what we can do to turn this country’s economy around.

We may have to raise interest rates to attract investment in the U.S. (our Treasury Securities) and this can and will hurt us in the pocketbook.

It should be noted that Alan Greenspan has recently made comments that the 10 Year Treasury Note yield may need to be increased to 8% or higher to offset future inflation (right now the yield is at 4.3%). His reasoning is that inflation will be a major problem due to high oil prices, the increasing cost of imports from countries like China, and the decreasing effect of Globalization.

Remember, we moved our manufacturing facilities abroad in order to take advantage of cheap labor. Now Greenspan is saying that the flow of cheap labor from the farm to the city will eventually lessen and that the consequence of that will be higher labor costs.

We seem to lack foresight. This instant gratification society that we have looks for profits at any cost without considering the costs of our actions.

It has been said that the U.S. has triple the Saudi oil reserves in oil shale. Some of the environmental issues associated with oil shale are getting handled with new technology. You can view the article from Fortune magazine on the internet just Google Fortune and Oil Shale. We need to accelerate many aspects of what is good for the environment at the same time, but we may have to sacrifice in the present to create some excitement about this country and the great resources that we have.

We can’t be spending trillions of dollars on wars. We have to work together. We are all part of this thing called humanity. Perhaps, it’s time to work with the rest of the world instead of continually pressing the issue as to who is right and who is wrong. Tolerance and acceptance of others values, whether we like it or not is the key to a world in peace. There is always that 5% who ruins it for everyone else, but why is it that the other 95% just choose to sit on their hands. It does not mean that we have to be in conflict with each other it just means that we have to work together for the good of humanity.

So we have problems. How do we stop the oil producing nations and the exporting nations, with trade surpluses, like China, from buying up real assets in the United States? How do we provide for the coming retirement of the baby-boomers? If we just continue to print money to cover our deficits we could be in for more problems, especially if other nations desire less of our currency. We are at a juncture where we can no longer just hope that things will get better. We need to accept some of the cost in the present so that we can overcome the problems that we are currently facing.

In the short term, I expect that mortgage rates will stay pretty much the same with a slight bias to the downside if the market continues to be hit. I know that there are many saying that the world economy will help our corporations. They say that price to earnings ratios are too low and that a large drop in the markets is not in the cards. However, this just feels different to me and I think that we may have a real problem with the financial markets. This is especially true given the “traders of the world”. Look what they have done to the oil markets.

Maybe, a hit to the market will push investors into investments that are creative, like oil shale, solar power and electric or fuel cell technology.

The last time the market tanked investors moved aggressively into real estate maybe this time it will force investors into creating a better world and a better living for the people of this country.

What I am saying is that we need to make our voices heard. We need to hear our politicians respond to these types of issues. They may not have all the answers but dialogue will help us find the answers.

The Fed Finally Cuts the Fed Funds Rate

The Federal Reserve cut the fed funds rate on Tuesday for the first time in four years. The cut was a half a percent and was a little more than people anticipated. I believe that the half point cut to 4.75% was necessary in order to make a statement. Once again the stock market took off and I just don’t see this as sustainable. The Fed is worried about the economy and the housing market and this just doesn’t seem to bode well for  the markets.The Fed has been typically slow in responding to changes in the economy.  The stock market crash in 2000 had been in place for over nine months before the Fed woke up and started to cut rates. What a rate cut means to the consumer is that credit card rates, auto loans, and rates of certificates of deposit will decline slightly. Commercial Banks lowered the Prime Rate to 7.75% from 8.25% and this will help businesses and consumers. Home Equity loans are tied to the Prime Rate.The mortgage market may see some relief on the short end, but I expect little help in reducing the rate on a typical thirty year fixed rate mortgage. You can see in the chart below that the 10 Year Treasury Note yield has actually risen since the Fed announcement.

A Conversation About the Current Real Estate Market

In my last article, concerning the mortgage market and rates, I indicated that we might see the yield on the 10 year Treasury note trade between 4.6% and 4.9%. Remember, the direction of the 10 year Note yield is often a reflection of where 30 year fixed rate mortgages are heading. At this writing, the yield has fallen below 4.6%. The rate on a 30 year fixed rate mortgage (conforming……more on this later) is currently around 6.25%. Prior to the debacle in the sub prime market and capital markets, such a downward move in the 10 year Treasury note yield, would have translated into a rate that would be lower than what we are currently seeing. So, with the perceived risks in the mortgage market, rates are just not falling like they would have in the past. Investors still perceive more risk in the mortgage market and they want higher returns on their money.The sub prime woes are starting to impact other sectors of mortgage lending. When we talk about conforming loans that means that we are looking to Fannie Mae or Freddie Mac. Their current guidelines, on conforming loans, limits mortgage loans at $417,000. So, if you buy a home for $521,500 and put down 20% your loan amount is $417,000 and your loan is conforming. Anything above a $417,000 loan is non-conforming and you have to look beyond Fannie Mae and Freddie Mac for a loan.The problem is that investors in the capital market that buy mortgage backed securities are gun shy right now for mortgages other than conforming, that are backed by housing agencies such as Fannie Mae, Freddie Mac or Ginnie Mae.Given the troubles in the sub prime sector, investor appetite for all types of mortgage loans not guaranteed by the above agencies, has dropped off significantly. Lenders had been able to move the risk of jumbo loans by selling them to investors. However, these investors have been burned by the sub prime market and they have become very picky and as a result they are demanding higher returns.Countrywide Financial has said that they are now focusing on making loans that can be guaranteed by Fannie Mae or Freddie Mac. Other lenders have tightened their borrowing guidelines. They may want the borrower to fully document their incomes and assets even though they have great credit and they are making a large down payment. With the lack of investor demand, banks that are still making jumbo loans (over $417,000) are charging higher rates as dictated by the capital markets.There is a psychological impact going on here and it is affecting certain high-priced real estate markets. Times of uncertainty tend to push people into delaying purchase decisions. Some people may be waiting to see if conforming limits will be increased. They are just waiting to see what will happen and how it might affect their home buying decision. All of this is going to start to put more downwards pressure on the real estate market should the lending environment remain tight. In California, the median home price is well above $500,000 and jumbo mortgages make up over 40% of all mortgages issued. In San Francisco, the median priced home is $1.1 million.Here is a look at the 10 Year Treasury Note yield. The trend is still down (the red line) and we are testing the lows of March:

Mini-Panic in Stocks - Good for Mortgage Rates?

The stock market came slightly unglued today, dropping 387 points to 13,270, as an announcement by BNP Paribas raised concerns about a widening problem in the U.S. Credit markets. The European Central Bank and the Federal Reserve added a combined $154 billion into temporary banking reserves. There is a concern about credit availablity and bad sub-prime mortgages. It seems as though there is growing evidence that the sub prime lending problems are starting to work there way into the general economy both here and abroard. The $130 billion injected by the ECB is the largest ever. “This is a mini-panic,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., “All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer.” There is some talk that the Fed may cut rates at their next meeting. I would suggest that the Dow Jones Industrial average could easily find itself back to 11,000 if this “mini-panic” continues. On the technical side, a point and figure chart could confirm that zone, however, the Dow would need to fall below 13,100 and stay below that number.

On the Mortgage front this news is good for mortgage rates since there is flight to quality issue when the stock markets are in turmoil. The 10-Year Treasury note yield has an influence on where mortgage rates are heading. The chart below indicates (by the red trend line) that the yield is still in an uptrend. However, the recent failure to get above 4.9% would indicate that  we may see a trading range between 4.6% and 4.9%.

Remember that even if the Fed were to cut rates, it will have the greatest impact on short term rates. When the Fed started and continued to raise rates, 30 year fixed rate mortgages were pretty much unchanged. A rate cut could start to bring short term mortgage rates down and this can make home ownership more affordable.