Feb 15: In which MSA is my county, and rates slightly better ahead of the 3-day weekend

February 15th, 2008 · No Comments


After having dug to a depth of 10 feet last year, New York scientists found traces of copper wire dating back 100 years and came to the conclusion that their ancestors already had a telephone network more than 100 years ago.
Not to be outdone by the New Yorkers, in the weeks that followed, California scientists dug to a depth of 20 feet, and shortly after, headlines in the LA Times newspaper read: “California archaeologists have found traces of 200 year old copper wire and have concluded that their ancestors already had an advanced high-tech communications network a hundred years earlier than the New Yorkers.”
One week later, ‘The Daily Advertiser’, a local newspaper in New Orleans reported the following: “After digging as deep as 30 feet in rice fields near Forked Island, Boudreaux, a self-taught archaeologist, reported that he found absolutely nothing. Boudreaux has therefore concluded that 300 years ago, Louisiana had already gone wireless.”

Speaking of different areas of the country, most people think in terms of country, state, county, town, street, even zip code. But “MSA”? The new conforming loan limits discuss Metropolitan Statistical Areas. For the complete list, which also shows the counties included in each MSA, visit http://www.census.gov/population/www/estimates/metro_general/2006/List1.txt Remember that OFHEO, to the best of my knowledge, has not ruled on whether or not ARM loans are included, nor 2-4 units, nor IO loans. And therefore neither have Freddie Mac or Fannie Mae, and therefore neither have any investors.

“Median”: the middle number in a given sequence of numbers. (4 is the median of 1, 3, 4, 80, 90). Speaking of MSA’s, here in California, the median income (half below, half above) was $64,563 in 2006. The top county – Marin – had a median income of $99,713. So it would appear that, to take advantage of the new limits, loan agents will be focusing on borrowers with much higher incomes than the median. In a full doc scenario, with reasonable debt-to-income levels, a borrower earning $100k per year may not qualify for a $700k loan. Perhaps an income, under the most generic of underwriting & borrower criteria, of something above $125k would be needed to get a DU approval for the new loan amounts.

Doug Duncan, chief economist for the Mortgage Bankers Association, says it will take lenders three to six months to make technical changes so their systems can process the larger loans. And after that, Wall Street investors still must determine the risk of buying these bigger loans. Doesn’t that put us into 2009? So interest rates might not come down as much as some hope, Duncan cautioned. “On balance (the stimulus package) is a plus,” he says, “but I would not expect immediate or dramatic change in the near term.”

What’s the big deal with FHA loans? Currently the FHA program has no declining value adjustments at the government level, has low down payment and loan to values as high as 97%, cash out refinances allowed to 85%, rate and tern refinances to 97%, total down payment can be a gift, no credit score requirements, no income limits or sales price restrictions, FHA loans are assumable, seller concessions may be as high as 6%, no cash reserves required, non-occupying borrowers are allowed with blended ratios (SFR only), non taxable income (including child support) may be grossed up, and bankruptcies allowed after 2 years. We’ll see if investors continue allowing all of these with $729 loan amounts, of if they add “overlays” to restrict underwriting.

Reverse mortgage origination continues to expand. Overall industry volumes have started off at a fast pace, as endorsements jumped to 9,957 units in January 2008, up 24% over December 2007! Consulting businesses have sprung up to help originators take advantage of reverse mortgage originations, such as www.reverseconsulting.com. Given the complexity of the process, it is not for the fainthearted – the Gray Panthers are a forced to be reckoned with!

Rates shot up yesterday in spite of Bernanke’s promise to continue lowering rates in order to keep the economy out of recession. So suddenly prices went down and rates up on inflation risks due to cheaper money! It helped ARM prices relative to 30-yr fixed rates, as the yield curve steepened to 2004 levels. We are, however, seeing a bit of a bounce this morning with the 10-yr yield back below 3.80% and mortgages better than yesterday afternoon’s prices by roughly .125. The only news out ahead of the holiday weekend will be the February Empire Manufacturing Index, expected -2.5 points decline to 6.5, and the Import Price Index, expected + 0.5% increase, bringing the year-on-year metric to +12.7%, mostly due to oil. This would be the highest mark for that metric since 1985.

Rob Chrisman

Tags: Commentary · Mortgage Market

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