Pre-Boston conference: Know anyone with a HELOC? Oh, and we’re not in a recession anymore!

May 2nd, 2008 · No Comments


With the Prime Rate down to 5.0% at banks, what does that do for borrowers and their HELOC’s? Well, assuming that a borrower still has a HELOC, and equity, some might be searching their database for clients where it makes financial sense to use their 2nd to pay down their 1st. One top NL agent said, “Most clients are trying to fix as much as possible and don’t trust that rates will stay low. Those guys are watching the economic stimulus carefully.” Another leading agent affirmed, “Most of the HELOC’s we have done are 80/10/10 for purchase clients, and only encountered one client who has thought about using his 2nd to pay off his 1st. If my own first wasn’t at 4.875%, I would probably do this with my own loan!”

Got some extra money? How about buying some mortgages, changing the terms, and selling them at a profit? Get in line….Investors of all sizes are buying loans for pennies on the dollar lenders who want them off their books. By paying less than face value for the mortgages, the new holders can modify loan terms, including shrinking the amount owed, and still make money. Legislators and regulators are hoping to encourage wide use of this model, and want lenders and investors in mortgage bonds to mark down what borrowers owe and then provide them with lower-cost loans. Check it out - LA Times.

Chase improved their price adjustments applied to the base price for the government rates for FHA. Nice!

I don’t know a tremendous amount about corporate finance, but this doesn’t sound great. In a story from Reuters, Bank of America stated that in their purchase of Countrywide, “…there was no assurance any of the mortgage lender’s outstanding debt would be redeemed, assumed or guaranteed,” Bank of America said Countrywide had outstanding debt of about $97 billion at year end, including Federal Home Loan Bank advances to Countrywide Bank of about $48 billion, which it expects will remain outstanding until repaid by Countrywide Bank, in the filing with the SEC. The bank said it was examining options to dispose of the remaining Countrywide indebtedness, including redeeming, assuming or guaranteeing some or all of this debt or allowing it to remain outstanding as obligations of Countrywide.

What recession? Not only is GDP still positive, but today’s April payroll report, expected -75k, only showed a drop in Non-farm payroll of 20k, stronger than expected. The Unemployment Rate moved from 5.1% down to 5.0%, although Hourly Earnings were -.1%. During the last recessionary period, the US Unemployment Rate hit 6.3% five years ago. Did it move the markets? You bet: mortgage prices are worse between .250-.5, and the 10-yr yield shot up into the mid-3.80’s.

Speaking of how many of us feel in the mortgage business. See ya’ in Boston!

A man walked into a cafe, went to the bar and ordered a beer.
“Certainly, Sir, that’ll be one cent.”
“One Cent?” the man thought.
He glanced at the menu and asked, “How much for a nice juicy steak and a bottle of wine?”
“A nickel,” the barman replied.
“A nickel?” exclaimed the man. “Where’s the guy who owns this place?”
The bartender replied, “Upstairs, with my wife.”
The man asked, “What’s he doing upstairs with your wife?”
The bartender replied, “The same thing I’m doing to his business down here.”


Tags: Commentary · Mortgage Market

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