WARNING….. A CHALLENGE, KNOWLEDGE, FUN AND PRIZES BELOW…….. I Challenge YOU To Read…. A Million Dollar Challenge!
Have a blessed week….. We are here for you… call us at 972-278-3400 or email us at ldavidson@servicefirstmtg.com. Linda
An Important Read……. A Million Dollar Challenge!
In today’s difficult real estate and mortgage lending world I think it’s key to understand that partnerships are critical. I have great working partnerships with a fantastic group of realtors and I think it’s really important to know and trust the person you’re working with. That goes both ways.
In the years past, if the buyer had a pulse, very likely there was a loan out there for them. It became much less important for us to work with key players and partners on our team. I think today more than ever is not the time to be handing out three business cards and telling buyers to check out a bunch of lenders. I really think you need one go-to lender- and I hope that it is us! I think it’s important that the lender you choose to work with has demonstrated a level of professionalism and trust with you. It is also important for your buyers’ benefit that they have a wide array of lending products available, that they’re experts at underwriting, especially FHA loans, which can be a little more time-consuming, experts with credit repair and I think it’s key to be local and accountable. You want to have access to and a personal relationship with the lender you have partnered with. I think that’s key and my most enjoyable moments with clients and working with real estate agents are from those key partnerships we’ve built over the years.
So here is how we are going to do it and the tools to get it done…….
Over the next 140 days, I have a challenge…. And it is A Million Dollar Challenge. I have a challenge to work in partnership with you to put 125 First Time Home Buyers in a home of their own. Where does the $1,000,000 come from? Taking the $8000 Tax Credit and multiplying it by 125 Families equals One Million Dollars!
First Things to Know
So, who is the typical first-time home buyer today? Over the last several years, this person has changed from what we thought was typical. They are younger and making more money than they were in the past few years.
This individual is someone who has just entered his or her 30’s, has a household income of just over $60,000, typically has funds for a down payment of roughly 4% and is ready to buy.
More importantly, they represent over 50% of all home buyers today both in recent sales -- and are projected to buy throughout the rest of the year. In fact, first-time home buyers represent over 53% of all people expecting to purchase a home in the second half of this year.
The clock is ticking on both low rates and the availability of tax credits for first-time home buyers. The first date to remember is November 30. For any first time home buyer who wants to take advantage of this incentive, he or she must close before December. As we progress, you will want to make sure you have all contracts written by no later than the end of October.
The second date to remember is December 31. Unless the Fed decides to alter its current plan for buying mortgage-backed securities and bonds, it is very easy to predict that rates will rise. To what extent is unknown, of course, but it is conceivable that rates could return to the mid 6% - and even 7% would not be out of the question. As we already addressed, increasing interest rates can have more of an impact to affordability than hoping that prices will decline even further.
Bottom line, the time to act is NOW, NOT LATER. For all of us, today could seem like the “the good old days” as we progress into 2010 and beyond!
In order to completely unlock the value that lies before you, we need to embrace first-time home buyers with a vengeance. This market is ripe for the taking and one tremendous benefit with this segment is that all of these people have friends that are in the same position. Referral opportunities are tremendous here.
The second thing that you want to do is partner with a professional such as The Davidson Group. When I say partner with a professional, it needs to be someone who is well-versed not only in programs that appeal to the first time home buyers but also has the tools and knowledge at his or her disposal to build confidence in the client to stay the course. We must assist with structuring loan programs that will not only get them in the home but do so at a competitive rate and costs. Our knowledge and expertise (did you know that every person on The Davidson Group has their FHA underwriting certification?).
Now that we have the first two components in place, we need to get the word out to the community to make them aware that we are their resource to get it done. Seminars, proper use of ads, websites and listings all will be essential to accomplish this.
If we do all of this and act quickly, all of us will benefit from increased sales and more closings.
Everyone wins here. When we reach our goal, we will help 125 families achieve the dream of home ownership. As a nice little bonus, since we do work for money, we will also generate potentially $1. 5 Million in commissions assuming an average sales price of $200,000 on both sides.
The community we live in benefits with increased sales helping to stabilize values, sellers benefit by moving property, and buyers become happy neighbors.
Finally, keep in mind that, if we need to, we can also negotiate for concessions on the selling price to help buyers even more. Everyone wins!
One thing we do need to do in order to accomplish this is to help consumers know about the importance of buying now. There is an education component here that we need to address. One thing that we all know about that a sizable portion of the general public does not, is that the $8,000 tax credit is available and how it works. We need to drive this point home. $8,000 is a lot of money, and there is one thing I think you should be aware of. If I were to ask you, of buyers who are eligible for the credit, what percentage would you say is aware of this free money?
100%?
90%?
75%?
Only about 50% of all eligible buyers are aware that this credit exists! If they do not know it exists, they certainly do not know of its pending deadline. Less than 20% of the first time home buyers planning on buying a home were aware of it and planned to utilize it. Put another way, and this is what excites me about this opportunity, over 80% were not aware of the credit or planned to use it to buy a house - 80%! This is who we need to appeal to, to inform and educate and engage! And, this is where we will make our money.
T
hey say the difference between a dream and a goal is a deadline. Well, we have one. It’s not self-imposed, and it is very real. November 30, 2009. The clock is ticking and it is time to move!
So…. Let’s Get Started!!!!!!!!!!!!!!
First- Getting The “Know-How”
I have designed a three- hour “boot camp” for our realtor partners. For your convenience, we are offering this class at two different dates/ times:
Ø Tuesday 7/21 from 1-4 PM (RSVP Needed 972-278-3400 or ldavidson@servicefirstmtg.com)
Ø Wednesday 7/29 from 9 AM- 12 noon (RSVP Needed 972-278-3400 or ldavidson@servicefirstmtg.com)
In this fast-pace, “everything you need to know boot camp” we will cover:
Hour One- The Top 10 Things You Need To Know About 1) Foreclosures 2) HUD Homes 3) Short Sales
Hour Two- The Top 10 Things You Need To Know About 1) Databasing 2) Time Management 3) Credit Optimization
Hour Three- The Top 10 Things You Need To Know About 1) FHA 2) USDA 3) VA
PLUS…. The Top 10 Ideas to Market On A Budget
PLUS… Marketing materials that you can immediately implement!
Second- FTHB Classes For Your Buyers!
We will be offering FTHB classes in the month of August (with a “back to school theme”) that you can bring your clients (and come with them) so that they are educated on the process. Stay tune for dates (they will be in the evening and weekends)
Third- Marketing Material
We will be providing for you each week specific marketing tips and offers of marketing materials market update so be sure you are reading each one!
We will also be offering some fun “prizes”….. so the first one (just to see who is reading this)….IS…… the first two people who email me at ldavidson@servicefirstmtg.com with the word “I Love This Challenge!”, I will send 100 First Class Stamps to use for your marketing of the $8000 Tax Credit!
Stay Tune for More Fun and Prizes.
Be sure to RSVP for the Knowledge Boot Camp ……. And let’s take on the Million Dollar Challenge Together!
Have a blessed week….. We are here for you… call us at 972-278-3400 or email us at ldavidson@servicefirstmtg.com. Linda
Linda Davidson, Senior Loan Officer, Certified FHA Underwriter
Service First Mortgage
972-278-3400 office
972-497-6452 fax
1-866-963-3777 Toll Free
http://www.davidsongroup.net/
The Davidson Group
Ranking 7th Nationally in FHA/VA Units Closed!
Ranking 17th Team in the Nation in Total Purchase Units Closed!
Ranking #45th Team in the Industry for Total Units!
Voted #1 Area Mortgage Team For The Past 12 Years
We ARE The Mortgage Experts!
****Thanks to the American Recovery and Reinvestment Act signed into law on February 17th, FIRST TIME HOME BUYERS are now eligible for a tax credit up to $8000 if they buy a home between January 1st, 2009 and December 1st, 2009. This is an exciting opportunity. Don't miss a chance to buy a house and get cash back! Referrals are always welcomed and considered the greatest compliment.****
Your Lender for Purchase, Refinances, and Reverse Mortgages Lending!!
Wednesday, July 15, 2009
Monday, January 21, 2008
January 21 2007- USDA (Yes, Like the beef) Mortgages- Did You Knows; Weekly Update; The History of Mortgage- Part 2
The financial markets also appear to be a bit confused of late, with some mixed data on the health and future of the economy causing continued volatility in both Stocks and Bonds. While there was plenty of mid-week action, home loan rates ended just slightly higher for the week overall. For more about the market report for this week and last week, see below.
USDA Did You Know?
Did you know that you can roll in the closing cost into the loan of a USDA loan without increasing the sales price as long as the house appraises for the increased loan amount.
Example:
· Sales Price is $140,000
· Closing Cost are $7000
· Loan amount (without upfront MI) can be $147,000 (as long as the house appraises for $147,000) and still keep the sales price of the home at $140,000.
This is especially great for your buyers purchasing short sales or foreclosures in which the seller and /or bank is not willing to pay closing cost, but there is enough value in appraisal to roll in the closing cost and prepaids.
Other facts about USDA
No Down Payment to Qualified Borrowers
No Monthly Mortgage Insurance
Seller can pay UNLIMITED toward closing costs and prepaids (or roll into loan as long as house appraises)
$0 Move-In Possible for Qualified Borrowers
No Cash Reserve Requirements
Does NOT have to be a First Time Home Buyer
Must Purchase in an Eligible Rural Area*
If we can be of assistance to you or your buyers in this program, simply call us at 972-278-3400. I am one of the only two loan officers in North Texas on the USDA advisory board- we know this product well! Let us know when we can be of assistance.
See History of Mortgages-Part 2 and The Market Report below.
Linda Davidson, Senior Loan Officer, DE Underwriter
Service First Mortgage
972-278-3400 office
972-497-6452 fax
1-877-278-SFMC ext 253 toll free
www.davidsongroup.net
The Davidson Group- The Home Buying Experts!
Ranked #4th Nationally in FHA/VA Purchase Units Closed!
Ranked 68th Team in the Nation in Total Purchase Units Closed!
Voted #1 Area Mortgage Team For The Past 10 Years
Your Lender for Purchase, Refinances, Reverse Mortgages and Commercial Lending!!
History of Mortgages- Part 2
Last week we started the series- The History of Mortgages. If you missed Part I, email me and I will be glad to resend it. Below you will find Part 2. I find the history of mortgages extremely interesting- it is amazing to see how far we have gone, yet how history also keeps repeating itself. I hope that you are enjoying the series.
In 1938, the government chartered the National Mortgage Association to create the earliest secondary market, or purchaser of these loans, from banks, who were still not eager to hold this type of debt. Later that same year, the NMA became The Federal National Mortgage Association, or Fannie Mae. At this time, FNMA was wholly owned by the federal government.
By the end of the 1930’s, war was brewing in Europe. Hitler’s rise to power and the subsequent attack on Pearl Harbor by the Japanese embroiled America in war. A very traumatic period in the nation’s history ensued as most eligible American men went off to serve in the armed forces. Industry shifted all resources to the creation of goods needed to support the war machine. Huge numbers of women went to work in factories while men were off in Europe or the South Pacific fighting.
On June 6, 1944, the Allied forces launched an attack on the beaches of Normandy, France. The war in Europe ended 11 months later in May of 1945. After this turning point in the European theater of war, men started to return home. Four months after that, the Japanese surrendered.
Postponed marriages took place in record numbers as the men came home from the war. As the economy tried to adjust to the postwar changes, the Baby Boom began. In 1944, The Serviceman’s Readjustment Act had passed. The federal government again stepped in, and this time created the Veterans Administration’s program for home buyers, the zero-down-payment GI loan. This allowed returning servicemen to purchase a home, and it allowed them to do it without a down payment.
After the war, everything was in short supply including cash for a down payment. This program created a surge in home building which increased jobs and helped shift the nation from a wartime to a post war-economy. The federal government guaranteed mortgage loans made to veterans. Basically it worked like this: if the bank made the mortgage loan and the veteran didn’t make the payments, the VA stepped in and made up both the arrears payments and the costs to foreclose on the veteran.
Many of the suburbs across America with 3-bedroom ranch-style homes and 2-bedroom Cape Cod expansion attics were the result of the GI Bill.
There were drawbacks to either of the above types of mortgages. Both FHA and VA placed limits on the price of home that could be purchased with these mortgages. Additionally, if you weren’t a veteran, you couldn’t use a VA-guaranteed mortgage. Banks and savings-and-loan associations filled the void and continued to lend mortgage money to individuals who were not in a position to take advantage of FHA or VA loans.
Banks were limited to lending money from depositors’ funds. The banks had a responsibility to create a return for their depositors. Since funds were limited, the interest rate charged on loans had to be enough to pay interest to depositors and also to pay for the day-to-day operations of the banks. Other types of loans often yielded higher rates of return. Additionally, mortgages were for much longer duration than other types of loans. Banks had to consider the long-term outlook. If rates of return to depositors increased and all of their money was tied up in mortgage loans at lower rates, there would be insufficient cash flow to the bank.
A new source of money had to be found to offer people affordable mortgages. The answer came from the securitization of loans, transforming them into bonds that could be sold on the bond market. In 1968, the Federal National Mortgage Association, “Fannie Mae,” was partitioned into two entities. A new entity, the Government National Mortgage Association, “Ginnie Mae,” was created and continued to be wholly owned by the government, while Fannie Mae became a private corporation.
Fannie Mae’s charter was amended to allow it to purchase private conventional mortgages and to create mortgage-backed securities, or MBS, which could be sold to investors on Wall Street. Fannie Mae continues to be known as a GSE, or government-sponsored enterprise, and it sets the (underwriting) guidelines that loans must meet in order for them to be pooled into mortgage-backed securities or bonds and sold on Wall Street.
Fannie Mae is an investor that buys loans individually or in pools, from bankers and mortgage bankers. The monies to buy the loans come from private investors who are interested in a secure, long-term investment. Mortgages, as an investment, have historically had a low rate of risk. Pension funds, looking for a long-term safe rate of return, often invest in mortgage-backed securities as part of their portfolio. Insurance companies also invest in mortgage-backed securities so that they have money to pay claims. By setting underwriting guidelines that are consistent for all of the loans in the pools, Fannie Mae is able to assure investors that their risk has been minimized. The securitization of loans opened up an endless source of money or cash flow and completely transformed the lending landscape from what it had previously been. Money was now available all across America and in seemingly limitless amounts.
Stay tuned next week for Part 3 as we talk about the changes that happened in 1960s.
Market Report
Last Week in Review
"WHO ARE YOU? WHO, WHO, WHO, WHO?" When Pete Townshend and The Who penned this song back in 1978, they probably never imagined that it would come to mind during a Fed Chairman's testimony to the House Budget Committee. But sure enough - one of the Representatives questioning Fed Chair Ben Bernanke actually mistook him for Treasury Secretary Paulson...and apologized by telling Bernanke that she got him "confused with the other one." Great reminder to keep an eye on what our elected officials are telling us during this particularly important year, as they might just have their facts a bit confused.
The financial markets also appear to be a bit confused of late, with some mixed data on the health and future of the economy causing continued volatility in both Stocks and Bonds. While there was plenty of mid-week action, home loan rates ended just slightly higher for the week overall.
The Stock market has gotten hammered lower since the beginning of the year, and last week was no exception. But when Stocks move lower, money can flow over into Bonds, helping home loan rates improve. What caused last week's action was a combination of terrible earnings reports from Citigroup and Merrill Lynch; higher inflation numbers indicated in the Consumer Price Index; lower than anticipated Retail Sales; a weak report from the Philadelphia Fed showing a sharp contraction in manufacturing activity; and a Housing Starts and Building Permits report showing the worst levels of starts and permits in about 16 years.
But bear this in mind...the slowdown in new home construction is actually not bad news, as overbuilding has helped to create a glut of inventory in the real estate market. Less inventory coming on the market is actually a real positive as the housing market continues to settle. And with home loan rates at multi-year lows, now may be the time to act on that home purchase or refinance.
YOU'VE HEARD OF SOCIAL NETWORKING SITES...BUT HAVE YOU HEARD OF SOCIAL LENDING SITES? INSTEAD OF JUST DONATING MONEY, LEARN HOW YOU CAN HELP INDIVIDUALS AND SMALL ENTREPRENEURS ACROSS THE GLOBE...AND MAYBE EVEN TEACH YOUR KIDS A VALUABLE LESSON ALONG THE WAY.
Forecast for the Week
After a jam packed economic news calendar last week, the week ahead has very little scheduled economic reports in store, with only Existing Home Sales and Initial Jobless Claims coming on Thursday.
But when the economic calendar slows down, the technical signals can take center stage. Remembering that as Bond prices move higher, home loan rates move lower, the chart below shows how Bond prices have moved higher for the last several months, causing home loan rates to move lower.
Yet notice how Bond prices are hitting an overhead "ceiling"...which may just drive them back lower. Unless other financial news arrives for the week that helps Bonds move higher - it appears that Bonds may just make a turn lower, causing home loan rates to worsen.
The Mortgage Market View...
You've heard of social networking sites like MySpace and FaceBook...but have you heard of social lending sites?
Over the past few years, several websites have sprung up that combine features of the omnipresent social networking sites, and commerce sites like eBay. These sites allow individuals to become either a borrower from or a lender to the online community. The website collects basic financial information from would be borrowers, as well as the intended purpose for the money. The site then posts a short profile of the borrower, so that other members of the community can choose to lend money to them or not.
The very first created was www.Prosper.com, which allows individuals to borrow and lend small amounts of money, for any variety of purposes. Recent posts include families wanting to start a small business and a father seeking to pay off his son's medical bills...you can see their pictures and read their stories. The maximum loan amount is $25,000 - and lenders can borrow as little as $50 towards someone's total desired loan amount, and determine what rate they are willing to lend at based on the individuals credit standing and risk profile. Prosper encourages lenders to fund small amounts towards many individuals loans, to help minimize risk of default. Why consider it? Although risk of default is certainly a potential - because these are generally individuals unable to borrow via more traditional methods - it is quite a learning experience, and the rate of return will be higher than via a traditional savings account.
Another similar site is www.Zopa.com - also a social lending site, but with a few key differences. If a borrower request is approved, Zopa funds it directly, raising funds by offering Certificates of Deposit (CD) to be purchased with attractive rates of return. If you purchase a CD, you are required to choose at least one borrower request to sponsor. By sponsoring a borrower you marginally reduce the interest rate earned on your CD, which in turn is used to reduce the rate that the borrower is paying. Best of all, your money and your rate of return is guaranteed and insured.
Perhaps the most intriguing of the social lending sites, www.Kiva.org is a blend of charitable giving and online lending. This site specializes in very small loans made to individuals in third world countries. The loans requests and photos are fascinating...who knew that a cow could be purchased for only $500, or that you could literally purchase tons of coffee and cocoa for $1000? The downside to Kiva is that the loan is not repaid with interest, and because it is a loan and not a charitable contribution, it is not tax deductible. But the upside - helping those in developing countries create and expand their businesses, provide for their families and improve their countries economy as a whole - well, this offers a substantial rate of return, just of a different type.
And consider getting your kids involved. Parents can use sites like these to help instill a sense of giving back, as well as a broader view of the economic world. Start with a small amount of money, and let them decide who to lend it to and why. When the loan is repaid, turn around and lend it again. It's never too early to get kids involved in the process of understanding money, lending, and the world around them as a whole.
Let us know when we can be of assistance to your clients. To call us, simply dial 972-278-3400. Have a blessed week! Linda
Linda Davidson, Senior Loan Officer, DE Underwriter
Service First Mortgage
972-278-3400 office
972-497-6452 fax
1-877-278-SFMC ext 253 toll free
www.davidsongroup.net
The Davidson Group- The Home Buying Experts!
Ranked #4th Nationally in FHA/VA Purchase Units Closed!
Ranked 68th Team in the Nation in Total Purchase Units Closed!
Voted #1 Area Mortgage Team For The Past 10 Years
Your Lender for Purchase, Refinances, Reverse Mortgages and Commercial Lending!!
USDA Did You Know?
Did you know that you can roll in the closing cost into the loan of a USDA loan without increasing the sales price as long as the house appraises for the increased loan amount.
Example:
· Sales Price is $140,000
· Closing Cost are $7000
· Loan amount (without upfront MI) can be $147,000 (as long as the house appraises for $147,000) and still keep the sales price of the home at $140,000.
This is especially great for your buyers purchasing short sales or foreclosures in which the seller and /or bank is not willing to pay closing cost, but there is enough value in appraisal to roll in the closing cost and prepaids.
Other facts about USDA
No Down Payment to Qualified Borrowers
No Monthly Mortgage Insurance
Seller can pay UNLIMITED toward closing costs and prepaids (or roll into loan as long as house appraises)
$0 Move-In Possible for Qualified Borrowers
No Cash Reserve Requirements
Does NOT have to be a First Time Home Buyer
Must Purchase in an Eligible Rural Area*
If we can be of assistance to you or your buyers in this program, simply call us at 972-278-3400. I am one of the only two loan officers in North Texas on the USDA advisory board- we know this product well! Let us know when we can be of assistance.
See History of Mortgages-Part 2 and The Market Report below.
Linda Davidson, Senior Loan Officer, DE Underwriter
Service First Mortgage
972-278-3400 office
972-497-6452 fax
1-877-278-SFMC ext 253 toll free
www.davidsongroup.net
The Davidson Group- The Home Buying Experts!
Ranked #4th Nationally in FHA/VA Purchase Units Closed!
Ranked 68th Team in the Nation in Total Purchase Units Closed!
Voted #1 Area Mortgage Team For The Past 10 Years
Your Lender for Purchase, Refinances, Reverse Mortgages and Commercial Lending!!
History of Mortgages- Part 2
Last week we started the series- The History of Mortgages. If you missed Part I, email me and I will be glad to resend it. Below you will find Part 2. I find the history of mortgages extremely interesting- it is amazing to see how far we have gone, yet how history also keeps repeating itself. I hope that you are enjoying the series.
In 1938, the government chartered the National Mortgage Association to create the earliest secondary market, or purchaser of these loans, from banks, who were still not eager to hold this type of debt. Later that same year, the NMA became The Federal National Mortgage Association, or Fannie Mae. At this time, FNMA was wholly owned by the federal government.
By the end of the 1930’s, war was brewing in Europe. Hitler’s rise to power and the subsequent attack on Pearl Harbor by the Japanese embroiled America in war. A very traumatic period in the nation’s history ensued as most eligible American men went off to serve in the armed forces. Industry shifted all resources to the creation of goods needed to support the war machine. Huge numbers of women went to work in factories while men were off in Europe or the South Pacific fighting.
On June 6, 1944, the Allied forces launched an attack on the beaches of Normandy, France. The war in Europe ended 11 months later in May of 1945. After this turning point in the European theater of war, men started to return home. Four months after that, the Japanese surrendered.
Postponed marriages took place in record numbers as the men came home from the war. As the economy tried to adjust to the postwar changes, the Baby Boom began. In 1944, The Serviceman’s Readjustment Act had passed. The federal government again stepped in, and this time created the Veterans Administration’s program for home buyers, the zero-down-payment GI loan. This allowed returning servicemen to purchase a home, and it allowed them to do it without a down payment.
After the war, everything was in short supply including cash for a down payment. This program created a surge in home building which increased jobs and helped shift the nation from a wartime to a post war-economy. The federal government guaranteed mortgage loans made to veterans. Basically it worked like this: if the bank made the mortgage loan and the veteran didn’t make the payments, the VA stepped in and made up both the arrears payments and the costs to foreclose on the veteran.
Many of the suburbs across America with 3-bedroom ranch-style homes and 2-bedroom Cape Cod expansion attics were the result of the GI Bill.
There were drawbacks to either of the above types of mortgages. Both FHA and VA placed limits on the price of home that could be purchased with these mortgages. Additionally, if you weren’t a veteran, you couldn’t use a VA-guaranteed mortgage. Banks and savings-and-loan associations filled the void and continued to lend mortgage money to individuals who were not in a position to take advantage of FHA or VA loans.
Banks were limited to lending money from depositors’ funds. The banks had a responsibility to create a return for their depositors. Since funds were limited, the interest rate charged on loans had to be enough to pay interest to depositors and also to pay for the day-to-day operations of the banks. Other types of loans often yielded higher rates of return. Additionally, mortgages were for much longer duration than other types of loans. Banks had to consider the long-term outlook. If rates of return to depositors increased and all of their money was tied up in mortgage loans at lower rates, there would be insufficient cash flow to the bank.
A new source of money had to be found to offer people affordable mortgages. The answer came from the securitization of loans, transforming them into bonds that could be sold on the bond market. In 1968, the Federal National Mortgage Association, “Fannie Mae,” was partitioned into two entities. A new entity, the Government National Mortgage Association, “Ginnie Mae,” was created and continued to be wholly owned by the government, while Fannie Mae became a private corporation.
Fannie Mae’s charter was amended to allow it to purchase private conventional mortgages and to create mortgage-backed securities, or MBS, which could be sold to investors on Wall Street. Fannie Mae continues to be known as a GSE, or government-sponsored enterprise, and it sets the (underwriting) guidelines that loans must meet in order for them to be pooled into mortgage-backed securities or bonds and sold on Wall Street.
Fannie Mae is an investor that buys loans individually or in pools, from bankers and mortgage bankers. The monies to buy the loans come from private investors who are interested in a secure, long-term investment. Mortgages, as an investment, have historically had a low rate of risk. Pension funds, looking for a long-term safe rate of return, often invest in mortgage-backed securities as part of their portfolio. Insurance companies also invest in mortgage-backed securities so that they have money to pay claims. By setting underwriting guidelines that are consistent for all of the loans in the pools, Fannie Mae is able to assure investors that their risk has been minimized. The securitization of loans opened up an endless source of money or cash flow and completely transformed the lending landscape from what it had previously been. Money was now available all across America and in seemingly limitless amounts.
Stay tuned next week for Part 3 as we talk about the changes that happened in 1960s.
Market Report
Last Week in Review
"WHO ARE YOU? WHO, WHO, WHO, WHO?" When Pete Townshend and The Who penned this song back in 1978, they probably never imagined that it would come to mind during a Fed Chairman's testimony to the House Budget Committee. But sure enough - one of the Representatives questioning Fed Chair Ben Bernanke actually mistook him for Treasury Secretary Paulson...and apologized by telling Bernanke that she got him "confused with the other one." Great reminder to keep an eye on what our elected officials are telling us during this particularly important year, as they might just have their facts a bit confused.
The financial markets also appear to be a bit confused of late, with some mixed data on the health and future of the economy causing continued volatility in both Stocks and Bonds. While there was plenty of mid-week action, home loan rates ended just slightly higher for the week overall.
The Stock market has gotten hammered lower since the beginning of the year, and last week was no exception. But when Stocks move lower, money can flow over into Bonds, helping home loan rates improve. What caused last week's action was a combination of terrible earnings reports from Citigroup and Merrill Lynch; higher inflation numbers indicated in the Consumer Price Index; lower than anticipated Retail Sales; a weak report from the Philadelphia Fed showing a sharp contraction in manufacturing activity; and a Housing Starts and Building Permits report showing the worst levels of starts and permits in about 16 years.
But bear this in mind...the slowdown in new home construction is actually not bad news, as overbuilding has helped to create a glut of inventory in the real estate market. Less inventory coming on the market is actually a real positive as the housing market continues to settle. And with home loan rates at multi-year lows, now may be the time to act on that home purchase or refinance.
YOU'VE HEARD OF SOCIAL NETWORKING SITES...BUT HAVE YOU HEARD OF SOCIAL LENDING SITES? INSTEAD OF JUST DONATING MONEY, LEARN HOW YOU CAN HELP INDIVIDUALS AND SMALL ENTREPRENEURS ACROSS THE GLOBE...AND MAYBE EVEN TEACH YOUR KIDS A VALUABLE LESSON ALONG THE WAY.
Forecast for the Week
After a jam packed economic news calendar last week, the week ahead has very little scheduled economic reports in store, with only Existing Home Sales and Initial Jobless Claims coming on Thursday.
But when the economic calendar slows down, the technical signals can take center stage. Remembering that as Bond prices move higher, home loan rates move lower, the chart below shows how Bond prices have moved higher for the last several months, causing home loan rates to move lower.
Yet notice how Bond prices are hitting an overhead "ceiling"...which may just drive them back lower. Unless other financial news arrives for the week that helps Bonds move higher - it appears that Bonds may just make a turn lower, causing home loan rates to worsen.
The Mortgage Market View...
You've heard of social networking sites like MySpace and FaceBook...but have you heard of social lending sites?
Over the past few years, several websites have sprung up that combine features of the omnipresent social networking sites, and commerce sites like eBay. These sites allow individuals to become either a borrower from or a lender to the online community. The website collects basic financial information from would be borrowers, as well as the intended purpose for the money. The site then posts a short profile of the borrower, so that other members of the community can choose to lend money to them or not.
The very first created was www.Prosper.com, which allows individuals to borrow and lend small amounts of money, for any variety of purposes. Recent posts include families wanting to start a small business and a father seeking to pay off his son's medical bills...you can see their pictures and read their stories. The maximum loan amount is $25,000 - and lenders can borrow as little as $50 towards someone's total desired loan amount, and determine what rate they are willing to lend at based on the individuals credit standing and risk profile. Prosper encourages lenders to fund small amounts towards many individuals loans, to help minimize risk of default. Why consider it? Although risk of default is certainly a potential - because these are generally individuals unable to borrow via more traditional methods - it is quite a learning experience, and the rate of return will be higher than via a traditional savings account.
Another similar site is www.Zopa.com - also a social lending site, but with a few key differences. If a borrower request is approved, Zopa funds it directly, raising funds by offering Certificates of Deposit (CD) to be purchased with attractive rates of return. If you purchase a CD, you are required to choose at least one borrower request to sponsor. By sponsoring a borrower you marginally reduce the interest rate earned on your CD, which in turn is used to reduce the rate that the borrower is paying. Best of all, your money and your rate of return is guaranteed and insured.
Perhaps the most intriguing of the social lending sites, www.Kiva.org is a blend of charitable giving and online lending. This site specializes in very small loans made to individuals in third world countries. The loans requests and photos are fascinating...who knew that a cow could be purchased for only $500, or that you could literally purchase tons of coffee and cocoa for $1000? The downside to Kiva is that the loan is not repaid with interest, and because it is a loan and not a charitable contribution, it is not tax deductible. But the upside - helping those in developing countries create and expand their businesses, provide for their families and improve their countries economy as a whole - well, this offers a substantial rate of return, just of a different type.
And consider getting your kids involved. Parents can use sites like these to help instill a sense of giving back, as well as a broader view of the economic world. Start with a small amount of money, and let them decide who to lend it to and why. When the loan is repaid, turn around and lend it again. It's never too early to get kids involved in the process of understanding money, lending, and the world around them as a whole.
Let us know when we can be of assistance to your clients. To call us, simply dial 972-278-3400. Have a blessed week! Linda
Linda Davidson, Senior Loan Officer, DE Underwriter
Service First Mortgage
972-278-3400 office
972-497-6452 fax
1-877-278-SFMC ext 253 toll free
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