Interest Rates Recover, but Will They Hold

This mornings we are up 8 ticks on the day in the mortgage backed securities market, a somewhat surprising jump considering we are moving into a long holiday weekend and we saw such a strong sell off yesterday. Not that I am complaining. I'm happy to see our market up, leading to lower interest rates; the question is will these gains hold throughout the day?


I am skeptical, but have not seen any information today that indicates these gains are not sustainable. At this point in time the fate of our market is in the hands of its counterparts, namely the stock market.

Yesterday's losses can be attributed to the gains seen in the equities market. The influx in capital into the short term markets essentially derived from the sell off in the long term markets. The winds of this give and take relationship however have changed this morning and we are seeing investors move into the long term markets. This suggests that the sell off yesterday has brought our market to a lower level investors interpret as a "bargain." If these gains hold, come next Tuesday we may return to recent highs and the low rates all are looking forward to. With that said, I would not count on things playing out this way. Pay close attention to Tuesday's trading. It will be a telling day.

All things considered I anticipate we will make back about half the losses we experienced yesterday.

Rate Reprice Worse...

As anticipated we have just received a reprice for the worse... Below is a current rate sheet demonstrating updated pricing for prime borrowers.

All things considered our market does seem to have found its bottom for the day, and as you can see on this rate sheet the 30 year fixed is currently priced worse than I had anticipated in my last post - currently 4.625% is the new par rate... Let's hope the market holds here.

Two Days of Consolidation Lead to a Sell Off

What goes up, must comes down... This is the unfortunate truth we are experiencing this morning in the mortgage backed securities market. To the left is a graph that illustrates that last five day of trading was primarily investors consolidating which has lead to this sell off. Opening interest rates are still very attractive, 4.375% at par for prime borrowers, however I am anticipating a reprice for the worse very soon. I anticipate we will see 4.5% become our par rate by the end of the trading day.

It should be mentioned these losses could be curbed by a strong 7 year treasury auction that is set to go off later today. However I anticipate this sell off is a safety play. Investors are essentially preparing for the long weekend, pulling money out of the markets until they return Tuesday at which time they will re-evaluate.

Long and short, flight to safety is a smart play right now, as they withdraw from the market, borrowers still have an opportunity to lock. Something I am recommending. Lock now and enjoy Memorial day weekend not having to think about market movement.

Rates Inch Higher

Yesterday's afternoon rally in the stock market, has lead to slightly higher interest rates this morning as the mortgage backed securities market lost a little ground and is trading a little lower today. The 10 year treasury yield has also increased, currently trading at 3.24.

All things considered these losses are acceptable. All gravy with no potatoes leads to a stomach ache. It is important to have see the market tested, and minor sell offs are healthy. Minor regressions such as this one demonstrate to investors current support levels. During minor sell offs when it becomes apparent that there is support at the current levels, often times we see investors begin to buy. Up and down, up and down... it's a cycle.

Moving forward we do have a 5 year treasury auction set for today. Yesterday's two year was received well, but could have been better. This longer term instrument has more bearing on our market, so it will be interesting to see how it is received, particularly by overseas indirect bidders. If you are looking to lock an interest rate soon, I recommend paying close attention to this auction. Should we see a strong indirect bid the mortgage backed securities market should benefit. If it is not received well, I am anticipating this sell off will continue - the degree and speed of which would be determined by the auction as well as any rally we may see in the stock market.

Stocks Fall Under 10,000 Rates Improve

As the stock market falls to the lowest point in 2010, and as of this writing stands below 10,000, the long term markets as usual are the beneficiary. Currently the mortgage backed securities market is up 7 ticks, leading us towards better pricing yet again. Currently conforming interest rates are around 4.375%, which is as low as they have been without paying an up front cost for the rate. Jumbo conforming products are around 4.75%.

Considering what is driving these gains it appears as though these rates will remain available for the next couple of days. Gosh it was hard writing that last sentence.... I believe this, but must instill upon you how quickly these rates can and will disappear when the market shifts. To put things in perspective, a single firesale could raise offered rates as much as a half point. With that said considering the trend, if you are 30 days outside of closing and you are a bit of a risk taker, floating into a 15 day lock may pay off. Should the mortgage backed securities market continue to post gains rates will continue to improve, moving lower.


In other news there is a treasury auction today, it will be interesting to see how it is received. My expectations are high, there should be a strong indirect (foreign) bid, which will add further appeal to our market.

Zero Gains Means Worse Pricing

A zero gain day... we are at equilibrium... expect slightly worse pricing on tomorrows opening rate sheet. I expect tomorrow will prove to be much more interesting.

Sideways Today

It may be a little early to call the day in trading, but all indicators suggest that today is going to be a sideways day that will be relatively anti-climatic. Despite the treasury yield falling to what may be the lowest in history (something I am researching), our market is flat showing only a two point gain.

Considering the stock market is all over the place, the DOW starting down 100 now up around 25, it seems long term investors interested in the mortgage backed securities market are sidelined today waiting to see what if the current levels are sustainable moving into the weekend. True the trading desks are closed on the weekend, but that does not mean the headlines stop rolling.

There is talk that the European union is close to a final resolution for Greece... should Europe stabilize over the weekend it will be interesting to see if that compromises our markets. Point in fact the dollar has done very well against other currencies over the last week or so. Should Europe stabilize we may see a surge in the Euro against the dollar which would hurt the market. The treasury yields would likely begin to rise which would bring down our market forcing interest rates up....


Right now the formula is one day at a time with no days wasted. We're are ready to discuss options with those who are still wondering if now really is the opportunity they have been waiting for.

Breakout of Range... WOW

What a beautiful day in our market... the recent newly established range that we have been happy with we just broke through to new highs leading to yet again the lowest rates of the year.

With that said I do foresee a retraction either in the afternoon hours or during tomorrow's trading. This will most likely be a result of simple profit taking moving into the weekend. If you are looking to close soon, locking this morning is as opposed to this afternoon or tomorrow will probably result in better pricing should our market experience the sell off I am anticipating.

Let me be clear. The sell off I am anticipating is simply profit taking, current market factors do support our current trading levels, so unless new headlines hit the wire changing investor sentiment, a sell of would not be the end of the world, and Monday could bring more gains.

Let's take a look at today's graph:


Pay particular attention to the arrows I have drawn in... notice the green arrows grow in length and degree of ascent while red arrows shorten and flatten... This suggests bulls have taken control of our market overpowering the bears which is what has ultimately what lead to this breakout.

If you have been on the fence waiting for rates to come down, now would be the time to take action. All things considered currently it takes about 30 days to fund a home loan, start to finish. A prime borrow with a 20% equity position currently qualifies for a rate of 4.375% on a 30 year fixed paying a rebate of .100.

To put things in perspective we are close to the lowest rates in history.

Afternoon Will Bring Better Pricing

Yesterday we ended the day on year highs. It makes sense then that today would begin with profit-taking and a sell of, which it did leading our market about 8 ticks down. Consequently, this morning's opening rate sheets do not represent the highs we were looking forward to. With that said, since the sell off, our market has bounced back to the highs we were so excited about last night.

What does all of this mean for rates... it means if you are looking to lock it would make sense to hold off until this afternoon when your lender issues new rate sheets that have priced in these gains, leading to better pricing and ultimately a lower rate. These rate sheets will be published throughout the day moving forward... if you like what is on the newly published rate sheet I highly recommend locking. These gains are fueled on the falling treasury yield. Should the treasury yield begin to rise, our market will suffer. Currently there is more to lose floating than there is to gain. Lock.


I think it is clear, our market is incredibly volatile, with the bulls and bears wrestling for final word. It will not take much weight to swing us into a sell off, evidenced this morning... it will take a significant event to force our market higher (leading to lower rates)... Country's are collapsing right now so this could happen, and let's not forget about the Iceland volcano threatening European business as usual. With that said, I am not prepared to base my decision on a cataclysmic event. Are you?

"V" is for Volatility, "V" is for Victory

Well, it has been a wild ride... up and down, up and down, seems to be the trading pattern... today is no exception.... yesterday we reached year highs only to lose all gained ground and finish 1 tick down on the day. Today, we're back at highs for the year.

Let's take a look:


Of particular interest and what is primarily helping our market reach these new highs is the the 10 year treasury yield. Represented by the yellow graph, 3.50 is an excellent level for us to remain under. Currently we are around 3.38, which is amazingly low.

The low yield is due to investors flocking to our treasuries looking for security.

If lenders have not repriced for the better yet today they should, and if they don't they are hedging. Tomorrow mornings rate sheets should lead to lower rates. It will be interesting to see how the market opens... if we open with gains, expect the best pricing of the year to come sometime tomorrow. If you're think about locking it makes sense.

Tax Credit Extended for Armed Forces

Question: Did the Federal Tax Credit for new home purchases expire on April 30, 2010 this year?

Yes and No...

The Federal Tax Credit did expire for the vast majority of us, but for some it has actually been extended. The extension requires the homebuyer to be in contract by April 30 2011 and closed by June 30 2011. So who exactly can still take advantage of this credit? Members of our armed forces, foreign service members, and members of the intelligence community.

The thought behind this move is based on the fact that many have been and are currently posted overseas making it next to impossible for them to take advantage of the initial tax credit offering. Considering their service is in the name of our Country, this seems like a very reasonable extension.

"Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and if married the individuals spouse) who serves on a qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec 31, 2008, and ending before May 1, 2010."

This tax credit is only available on primary residences and offers 8,000 dollars for first time home buyers and 6,500 for repeat buyers similar to the expanded offering of the original credit. It should be noted a first time home buyer is anyone that has not owned a home for the last three years.

Needless to say this provides a significant opportunity for many members returning from Iraq and Afghanistan.

To the members of our Armed Forces, thank you all for your service

Rates Move Higher In Afternoon Trading

When it comes to interest rates the day is never over, and worse pricing is just an updated rate sheet away. Unfortunately those updated rate sheets came from just about every lender this afternoon as our market turned south in the wake or a rising 10 year treasury yield. Below is a snapshot of our market that highlights these points.

The Mortgage Backed Securities Market in green on the top, and the 10 year treasury in yellow below.


All things considered we are still trading within the new range, and we had to see a retraction at some point in time. It will be interesting to see how the market will open tomorrow.

Best Rates of 2010!

Nothing but good news today as the Mortgage Backed Securities market soars into highs of 2010. These recent gains in the Mortgage Backed Securities market have lead to lower interest rates for consumers. Not to put too fine a point on it but we are now at highs of the year which will lead to the lowest offered rates of 2010. This is due to an inverse relationship between the MBS market and offered rates. When the MBS market goes up, interest rates for home loans will go down, conversely when the Mortgage Backed Securities market goes down, interest rates go up for consumers.

Below you will see a 6 month graph of our market.


As you can see we have been enjoying a sharp upward trend over the last 6 weeks leading to these lower rates. Many looking at this graph may feel as though these gains are sustainable and this trend will continue. Although we may enjoy further gains, currently I do not think our market can go very much higher (leading to lower rates), and, at least for now, have entered a new range. Before we move on to the next graph, let me point out the red arrows that I included at the end of March (you may have to enlarge by clicking). These arrows represent the Fed exiting the MBS market after infusing 1.25 trillion over two years. This downtrend demonstrates just how quickly our market can correct itself. Be careful waiting for rates to move much lower.

Now let's set that thought aside for a moment and look at another graph, this a one month snapshot of our market.


This graph represents how I believe our market will settle after the market digests these recent gains, namely a new range slightly higher from our last. This will lead to lower offered rates as long as we stay inside this new range or breakout above it (which I think is unlikely)... all things considered this is great news for people in the finance markets looking to secure long term debt on a low fixed rate.

If this is you I recommend you contacting us immediately so we can begin discussing your options moving forward.

New Range Establishing - Good News For Interest Rates

There is really only one way to start off this post and its with a graph:

As you can see I've put some notes on this one... The long graph is a month snapshot, which you can clearly see has a nice upward trend leading us to lower rates. The green horizontal arrow at the top is the current peak of the market. I have identified this as the high because it is the high of the year (let me remind you high points on this graph represent the lowest rates of the year). The blue lines suggest a new range of trading which is clearly above resent levels leading us to better rates.

Finally the small graph in the top left hand corner is the last five days trading. I included this because it demonstrates roll this month and a clean recovery back to current trading levels. We will discuss roll in detail in another post, but essentially it is when traded notes move into the next month - May turns to June in this instance.

So are these rates likely to hold? I think so, at least in the short term. There is major news in the markets today that have lead short term equities markets lower (Dow is down over 200 right now) while people rush into long term markets forcing our market up and treasury yields -a main competitor - down. All things considered its a good day in the market for home loan interest rates.

Moving into Monday weekend news will be watched closely primarily for resolution in international markets. Assuming no resolution, Monday should support today's gains that I already expect to hold.

If you have any particular questions or need assistance with home financing in CA, we would be happy to answer your questions. Visit our website where you will find all our contact information.

Rates Looking to Establish New Range

After an uncommonly slow and boring day for of trading yesterday, today we are off to the races with our market already showing signs of serious volatility as it tries to establish a new range of trading. But before we get into the nitty and the gritty we need to back up quickly and discuss the boring trading day. I'll be brief...

Yesterday despite the low action (which was actually kind of nice for a change) was a big day. The reason being, there was a 10 year treasury auction which is ur direct competitor and market indicator. In addition roll occurred, which is a post in and of itself - the jist is, May coupons rolled into June coupons, so May no longer traded and we started to trade June. Why is this significant, June was a full 12 ticks below May, which is not uncommon - futures typically trade slightly lower. Usual roll days result in gains as the note returns to levels close to closing levels of the previous months close. We didn't yesterday.

In fact yesterday was flat and horizontal, evidenced by the opening of the graph you will see below. Fortunately, today gains have returned which will bring lower rates, and it appears as though the breakout we experienced during the peak of the Greek panic may actually hold. What would this mean.... these lower rates would be here to stay at least for a short while. If this does happen, we would be setting a new range, that would lead to slightly higher peaks from time to time bringing even lower rates, albeit these lower rates will need to be caught very quickly due to bounces off the new resistances levels of the range.

Let's take a look at the graph:


Consider this with the graph below a long term 1 month graph of the same note demonstrating the upward trend leading us into new ranges.

All things considered this is good news. Let's hope the trend continues.

If you have been holding off on a refinance waiting for rates to come back down this is your opportunity we would be happy to discuss your personal options in detail without obligation. Visit our website and complete on online application or give us a call.

First Time Homebuyer Tax Credit Extended for Armed Forces

That 8,000 dollar tax credit has now expired, available only for those currently in contract and set to close before June 30 of this year....

Well, sort of.... for most this is true, for our Armed Forces, this tax credit has been extended until April 30, 2011. So who exactly will qualify for this extension. The government defines "qualified service members" as a member of the uniformed services of the military, a member of the foreign service, or a member of the intelligence community.

The reason for this extension is simple, it would be unfair for these people serving and protecting our Country overseas from missing out on this incentive due to their station. The extension provides them the opportunity to take advantage of this credit which they could not do otherwise.

To take advantage of this the borrower must file for it on their federal income tax returns, utilizing IRS form 5405.

Rates Hold

It has been a wild ride if you've been keeping a close eye on interest rates. Last week the fate of Greece was still in question raising questions about the fate of the rest of Europe brought interest rates down to the lowest levels we have seen all year, but the following day, the markets recovered, bring rates back up slightly. Now with Greece the happy recipient of close to 1 trillion dollars - that's 1,000,000,000,000 - the markets have returned, at least for the time being, to their status quo - or so it would seem.

The long term markets are in fact supporting higher trading levels then they have recently. Why? Clearly this due to investor apprehension. The Greek bailout, my have stopped the riots, but it's a band aid, and we needed stitches.

Hence the new support levels in our market. Below is a snapshot of our current market. It is important to understand high points on this green graph represent low interest rates (there is more money in the market so the cost to borrow is reduced). Despite the recent fall, over all we are up in the year which has led to lower interest rates for those looking to refinance or purchase a new home.
This graph is a short term two day snapshot of our market... the point of this graph is to demonstrate just how volatile our market is right now. Below you will see a one month graph of the same note being traded which represents the climb we have made leading to the lower interest rates. Will this trend continue? We sure hope so, but realistically other market indicators suggest this is a bubble and the true trend is downward leading interest rates up.
Why? Look at the state of these agencies... Fannie Mae has asked for another 9 billion dollars along with Freddie Mac, also looking for 9 billion from our government. This burden suggests an inherent weakness in the MBS market which if investors begin to question will start pulling out bringing rates up. Couple this with the concern over inflation, and it's clear these low rates are not sustainable. The lesson. Now would be the time to lock in your rate.

Greece rescued at our Expense

That's right the rescue of Greece has come at a cost to all borrowers... rates are up this morning on the headline news that Greece has been bailed out, however investors have not left our market as quickly as some might have thought they would. Currently down 5 ticks in the secondary market, all in all we are still up since trading in long term markets caught fire last week under Greece's misfortune.

Why? Point in fact Greece may have received a bailout, but the dominoes are still lined up and the wind is still blowing. Despite short term equities markets jumping quickly, investors have not left the long term markets entirely because they are not entirely convinced that this problem has been solved. It is this underlying apprehension that is currently supporting our market otherwise we would have seen larger losses and rates would have risen even further.

All things considered, with this development, the short term trend (over the next couple of days) suggests we will see rates climb slightly after which it is anyone's guess. Okay, guess may be too strong a word, we will need additional and current news to determine how the market will behave moving on.

My advise right now is lock your rate if you are happy with the rates currently offered. Right now the risk of floating in attempt to secure a lower rate than what is offered does not justify the benefit of the lower rate. Chances are rates go up for here, not down. If you did not lock last week in hopes that rates would come even lower, don't kick yourself, cut your losses and lock your interest rate in now.

Any specific questions, you are welcome to contact us with your particular questions.

Tale of two markets

I will keep this post short and sweet....when you were a kid you either loved or hated the rollercoaster and inevitably when you rode one, your opposite tended to sit next to, or behind you. To use the analogy, the overall market is the rollercoaster and you and your opposite are the bond and equity markets respectively. While one of you is having the time of his/her life, the other is coming to terms with a miserable experience.

To say stocks this week haven't worn the dunce hat would be an understatement. At one point yesterday(Thursday), the Djia was down over 1000 pts trading at levels under 10,000 while the bond market was skyrocketing in price(remember price and yield are inverse). The movement was so great that even some of the major news outlets were reporting that it may have been a glitch. Alas that was not the case. It appears it was more of a spasmatic reaction to investor gauge of the market, think Greece and Company...(PIIGS). While my stock portfolio looks like the aftermath of the Bikini Island atoll tests, Interest rates on offer have approached those lows we spoke about earlier in the week. Needless to say this author is a bag of mixed emotions.

I said earlier this week that all eyes were on Friday(today) with Non Farms Payroll information released(thank you Europe for proving me wrong). As it turns out, this was a real non-event in terms of affecting the market. The results were better than expected, but until the EU enacts a firm policy in response to the growing crisis of confidence, equity markets are going to stay deflated with bonds staying the favorite investment vehicle. See below for the breakdown of numbers.

Best Rates in 2010

Today we saw gains (that ultimately retracted) that brought us into new territory this year saw the MBS market rallied hard on Greece's misfortune. As investors scrambled to protect and shore up any losses their portfolios were exposed to, the long term markets were swan among ducks... and the Mortgage Backed Securities market was singing a beautiful song.

Currently up 9 ticks on the day, at one point in time today saw gains as high as 22 ticks. Ultimately it was the treasury yield rising that grounded our market, regardless, by no means is anything resolved as of now so this roller coaster will be returning to the station and departing tomorrow morning early - 5am Pacific Standard time...

Can't say I will be up for opening bell, but I do plan on keeping a firm eye on the markets.

For those of you looking for the bottom line... currently the 30 year fixed mortgage rate is around 4.625% here in CA for prime borrowers with an solid equity position looking to borrow on their primary residence. Anyone that missed the refinance train last year and has been waiting for rates to drop, now would be the time. Carpe diem.

Thank you Greece!

And Americans thought it was just a Hollywood movie (sic)..... As Greece plunged further into chaos today brought on by the socialist and union movements demanding their fair share(?) and striking of all things (no one mentioned they dont have any money left), the world investors have taken note. With the EU teetering on collapse from exposure to the debacle, we have seen a massive swing in flight to safety. Already Greece's sovereign debt needs to be bailed out, and like dominos, the rest of Europe seems poised to fall as well.

The U.S. Treasury market is seeing a renaissance of sorts. Currently the yields on the 10 Yr bond have fallen to 3.5%(at the start of April they were at 4%)!! Not long ago, traders were remarking that with the exit of the the FED from Mortgage Backed Securities Bond market, it would be inevitable to see rising interest rates. Not the case! The fact that a unionized country like Greece would default was never in the books. What a headline! It would seem that the implicit guarantee of the U.S. government to back their own debt has brought the investors rushing for a slice of safety. The dilemma in Greece has the propensity to spill into their neighboring countries as well. Already Greek Unions are striking in Athens and burning buildings with live people inside...this is not good for them or the E.U., but it definately bodes for interest in U.S. Treasury's. The problems of civil unrest in Greece will only exacerbate the situation in the coming days. Granted the gains will probably be short lived, but currently we are seeing the highs of the market since the start of the year! It may not be politically correct to say this, but if you are in the mortgage market right now....."LOCK and load"! Stay tuned.

(Good)Market spasms!

I made a call yesterday that we should expect to see quite a lot of volatility...keep expecting to lose some more hair! Today we are seeing the stock lever in effect. Stocks are down, while interest rate prices are up(remember price and yield are inversely related, so as the prices go up, rates go down). It appears as if there is more flight to safety...in this case everyone is rushing to buy U.S. denominated assets.


Why one may ask? It may have to do with the fact that the Euro has hit its 1yr low...Greece and the rest of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) are certainly weighing heavy on investors decision to pull monies out of the equity markets and buy U.S. Treasury's. We have also broken a unwritten line of resistance in the S&P of 1200.. Moving forward, stocks will need the labor market to improve in order to extend a rally.


What does this all mean? Market rates are favorable! With the problems overseas we have seen money pumped into U.S. treasury's which has dragged yields down. Mortgage rates have been benefited as a result. We have settled into a nice range over the past weeks time. Barring any "out of expectation" results from the economic news on tap this week(non-farms payroll is Friday and is the biggie!) or any major political or economic headline (think Greece or Goldman Sachs), we should enjoy a nice couple days of very competitive rates. The next release is today, 10am est...Pending Home Sales and Factory Order. Stay tuned

Loan Originators Retire Under New Regulations

Ever hear of the SAFE Act - or NMLS? If you have you are either in the industry or ahead of the curb, if not I assure you this will not be the last thing you read about this new Act and the organization responsible for managing originators.

The SAFE Act was legislation that passed at the peak of the housing market in July of 2008 around the time when government officials recognized the fact that the housing market was in serious trouble (TARP passed only 6 months later). The SAFE Act requires all loan originators to be licensed if they want to continue originating loans in the future. The NMLS or National Mortgage Licensing Service is the entity that has been charged with monitoring and tracking originator licensing.

By no means am I arguing against licensing requirements for loan officers, unfortunately like so many ill-conceived plans our government rolls out with, the implementation of the SAFE Act and the governing authority, the NMLS, or more concerned with collecting revenue than properly regulating loan originators.

As a licensed broker I was required to have a BA and complete 8 specific real estate courses, submit to fingerprints for a federal background check, take and pass a 200 question test, and submit 45 hours of continuing education every four years to keep my broker's license active. The CA Department of Real Estate was the governing authority that issued my current license under which I could originate loans. As a broker if I was to hire another loan originator they would be required to be licensed under the Department of Real Estate meaning they would have had to complete the same type of testing and certifications I went through ensuring a certain knowledge base moving into their new profession.

Other originating licenses namely a CFL license issued by the Department of Corporations does not require such effort. On the contrary a CFL license can be obtained simply by providing proof that the entity looking for licensing has a strong enough asset position, and has filed the required paperwork. Once the license is issued the entity could hire anyone off the street to employ as a loan officer with limited or no training.

The new SAFE Act and the NMLS unfortunately throw all originators into the same bucket. So even though I am a licensed broker that has taken and passed testing and class specific to real estate, I am required to complete all of the same requirements under the SAFE Act that loan originators operating under a CFL license are required to complete. Brokers and licensed agents through the DRE are now required to hold and maintain two licenses, while the CFL entities are finally required to have a license.

I am very happy that CFL originators are required to be licensed - it's about time... but beyond that, the new SAFE Act does nothing but create a new revenue stream for the State and this quasi-government entity (far as I can tell they are the only game in town - and according to them a private company - aren't monopoly's illegal - that's right government granted monopolies are okay... wonder who you had to know to get that contract).

The new testing and licensing requirements come to a final cost of 650 dollars per person (to be licensed in CA - it would cost much more if you get licensed in additional States and assuming you pass the tests the first time through - if you fail you must pay again to retest) which does not take into account annual premiums that will be due. This is a cost that will put many business out of business because the cost to license employees is simply too high. If I employe five processors (which must be licensed under this legislation) that's more than 5000 dollars I have to come up with just to stay in compliance and keep them licensed.

What does this cost cover - testing both State and Federal (I already passed a real estate test), federal background check and finger printing (already required by the DRE and on record - but still must complete again at additional expense) and processing (whatever that means). Did I mention all loan originators are required to submit what is called an MU4 form which they must complete and include a detailed history of employment and residency dating back ten years with no gaps... employment history fine - but they have no business tracking the addresses where I have lived. I assume the 60 dollar processing fee is used to electronically store my personal information (talk about a target for identity thieves).

This SAFE Act has face value, and I support licensing all CFL originators, and can even understand those currently licensed by the DRE having to demonstrate their DRE license is currently active and in good standing, but the implementation of this Act and the governing body (NMLS) has something to be said. They do not address the problem and will simply result in less originators, and less competition and the higher cost to remain licensed to originate loans will result in higher costs for consumers.

Essentially this will result in small businesses closing their doors. With small businesses leaving the market, it will mean more market share for the large firms - and we all know that a consumer is an account number at their local bank nothing more. I fear what this legislation will do to our industry. When all is said and done this is simply a tax on originators.

A heads up for the week.

Expect volatility! We have a rash of economic information coming out this week which will certainly influence interest rates. There will be positioning in the coming days as investors slog through the information that will be on release shortly. With the Greece situation behind us(theoretically there is a bailout in place, provided austerity measures are undertaken), the flight to risk that we saw occurring last week will surely subside. Last Friday, rates closed at the highs of the market since the FED stopped purchasing MBS! On top of the economic releases (manufacturing and labor market data, with the big one Friday) we have a Treasury debt supply announcement for the 3's 10's and 30's on Thursday, as well as the April MBS prepayment rate factors report later that evening. All in all, if we range within expectations we shouldn't see too much movement in rates, but with the nature of the world right now, it wouldn't be far fetched to think maybe another headline, whether political or economic, could kick rates higher. Stay hyper-tuned in.

How Financial Reform Will Effect Home Loan Financing

This is the question on many of my client's minds these days as financial reform seems to be the flavor of the week. The question remains, what will this reform mean to home loan financing? Today we answer this question. Well, we'll try to answer it... needless to say until a bill is passed it is difficult to say how that bill will effect our market. With that said, the fundamentals we can discuss because regardless of the type of reform they are trying implement, we can be sure that regulation will lead to increased expenditures, a stiffened market with less options and a too big to fail mentality.

Let me be clear financial reform will lead to higher costs which will be passed on directly to the consumer. This means higher closing costs and a higher rate of interest. Why? Because there will be a cost associated with remaining in compliance. Companies will not take this cost off of their bottom line, instead they will increase fees across the board to make up for the additional costs incurred. That means consumers will be responsible for paying for this reform.

In addition the programs offered will become limited because the bill limits the types of programs that can be offered to consumers. Less options ultimately means higher cost. If you cannot tailor the program to fit your specific goals because that program is no longer available to you, you will be forced to settle on a program that does not address or solve your problem as efficiently.

This reform will reduce the number of lenders offering financing. The too big to fail mentality is supported in this bill and small companies will be put out of business should this reform pass. With their exiting the market it will mean less competition - those banks remaining will be able to charge higher fees free from small competitors undercutting their price structure. Unchallenged and unchecked there is nothing to stop this from happening, leaving only major conglomerates left to service home loan financing.

Innovation will be lost in the ruse of regulation. More regulation will hinder new financing products from being introduced into the marketplace. New programs are not necessarily the enemy and innovation should be encouraged, not snuffed out.

Finally this does not encourage banks to be less risky with their deposits. On the contrary, if anything it encourages risk because it sets up a backstop that the majors will know they can rely on should they get themselves into a pinch. The golden egg being a bailout pool that banks can draw from should they get themselves into more trouble. This is suppose to be a good thing because the pool will be funded by the banks themselves not taxpayers. But if we think about it, the banks will increase the cost of business so this pool is still coming from taxpayers - it just is not coming in the form of tax dollars collected by the IRS, instead the banks will collect the money for the IRS from us to establish this pool.

This reform is not a good idea for home financing. It will limit programs, while increase the cost of closing and rates offered. I am not suggesting that we do not need reform, I am simply saying the reform currently written is not the right solution and should not be supported.