Pacor Mortgage brings you RatePulse, the video series that gives you the inside scoop on this week’s movers and shakers in the mortgage industry.

Pacor Mortgage brings you RatePulse, the video series that gives you the inside scoop on this week’s movers and shakers in the mortgage industry.

Today’s payroll flop — only 20,000 real jobs created in May — will take some time to settle all the way in. Immediately: 10-year T-notes are 3.22% (from 3.36% yesterday and 3.99% six weeks ago), and mortgages below 5.00%. The payroll report has confirmation: new unemployment has held high for five months; May retail sales look soggy (“same-store” data); auto sales flubbed in May; and housing shows every sign of a serious fade, post-tax credit. Purchase applications have hit a 13-year low; the unemployed do not apply, nor do the underwater, and the few, the brave who think they are qualified often find themselves in the “rejected” pile.

In days ahead, the entire recovery camp from government to stock-pushers has more than explaining to do. It must change its mind.

All in one furball: How can mortgage rates be so low, and home prices so low, affordability the best ever measured, yet housing defies recovery? One unifying answer: credit. Not enough, and wildly too tight.

The credit dearth is perfectly rational. At default rates like these, nobody knows what new loan is safe to make, and underwriting has been overtaken by hand-shaking, eye-glazed panic. The horrifying conundrum: new loans will inevitably produce new losses, yet without enough new loans, losses on existing ones will be greatly higher.

Underwriting rules should be based on prior loss experience. That is, any borrower characteristic that generates an outsized loss rate should be excluded. Example: credit score below a certain threshold. Early in the present disaster, in 2007 Fannie and Freddie (the “GSEs”) began proper re-calibration of underwriting, withdrawing their portion of the credit ease that led to the bubble.

In stage two, 2008 defaults surging further, the GSEs began to throw defensible exceptions out with the bathwater. No matter how big your down payment, no matter how much money you have, or how good your credit, or work experience, income underwriting will be 1040-or-the-highway. No exceptions. Hysterical blindness.

In 2009 stage three, unemployment drove some defaults to a hundred times prior worst case, and impossible to tell if an underwriting flaw caused a default, or the 75-year-record recession. GSEs began to issue rules having little to do with actual risk, tightening for the sake of tightening. The thunder of doors slamming on empty barns. The 2009 classic: if you have disputed a credit report item, the GSEs will block your closing until you prove that your dispute did not hide a debt outstanding. You prove.

Mortgage haiku: Every borrower looks like a concealed IED to people fried by PTSD.

New for 2010, Fannie’s Loan Quality Initiative demands a credit report re-run immediately before closing. Yes, once in a while a borrower will be found to have blown himself up by buying a new frig and washer-dryer on credit. Many, many, more times we’ll get a mistaken report, or an ambiguity, or an argument that will delay or kill closing. What’s the likely ratio of defaults prevented versus useless meddling? One to one hundred? One to one thousand? Ten thousand?

Nobody knows. Sounds tough, so do it. Another: under LQI, some creep is going to check to see if you really moved into your new primary residence. True, it is fraud to fail to do so, and misrepresented rental properties have much higher rates of default. However, heaven defend the poor souls who let sellers stay an extra month, or who engage a house-sitter while travelling, or who want to renovate before moving in. No power on or off planet will protect the new owner who has taken down part of the house to add-on and add value. The ratio of loss-prevention to pointless intrusion and punishment of technical offense?

The GSEs have turned sensible and predictable mortgage closing into a field of open manholes, new ones popping open at each step. This effort at mortgage perfection — instead of rational, actuarial management of loss — has thinned the pool of eligible borrowers to the point that housing cannot recover. Not in time for the economy.

by: Lou Barnes

Pacor Mortgage brings you RatePulse, the video series that gives you the inside scoop on this week’s movers and shakers in the mortgage industry.

RatePulse is a weekly video series provided by your Pacor Mortgage representative to explain the movers and shakers that will affect the mortgage industry this week.

Pacor Mortgage brings you the weekly RatePulse video, giving you the information you need to know the ins and outs of the mortgage market this week!

So the European debt crisis is taking a toll on the markets. In fact we have quite a few things happening but all roads are leading to the same place. Thirty year fixed rates are below 5% and fifteen year rates are below 4.25%. If you have not explored your mortgage options lately, it is time to do so. It may be the last great opportunity before the market turns.

So yes, though it is far more difficult to get a mortgage approved than it has been over the years, it is worth the effort. For folks who have a mortgage at 5.75% on a $200K balance, you could save $150 per month with a straight refinance. For folks with a tight budget, get this done and save.

For those whose income is more stable, move to the fifteen year loan. One of the big problems for many is the damage that the market inflicted on retirement accounts and plans. You can change the equation by cutting your term. Gain control over your financial planning by making sure that you can retire in fifteen years without a mortgage payment. Rates are so attractive that you may only experience a small increase in payment but gain hundreds of thousands in payments you don’t have to make.

Drop what you are doing right now and pick up the phone or email the loan officer whose name appears on the screen. They will be able to help you determine the hard numbers for yourself.
Make a winning decision in today’s market. With thirty year fixed rates around 5%, this one is easy.

So the European debt crisis is taking a toll on the markets. In fact we have quite a few things happening but all roads are leading to the same place. Thirty year fixed rates are below 5% and fifteen year rates are below 4.25%. If you have not explored your mortgage options lately, it is time to do so. It may be the last great opportunity before the market turns.

So yes, though it is far more difficult to get a mortgage approved than it has been over the years, it is worth the effort. For folks who have a mortgage at 5.75% on a $200K balance, you could save $150 per month with a straight refinance. For folks with a tight budget, get this done and save.

For those whose income is more stable, move to the fifteen year loan. One of the big problems for many is the damage that the market inflicted on retirement accounts and plans. You can change the equation by cutting your term. Gain control over your financial planning by making sure that you can retire in fifteen years without a mortgage payment. Rates are so attractive that you may only experience a small increase in payment but gain hundreds of thousands in payments you don’t have to make.

Drop what you are doing right now and pick up the phone or email the loan officer whose name appears on the screen. They will be able to help you determine the hard numbers for yourself.
Make a winning decision in today’s market. With thirty year fixed rates around 5%, this one is easy.

Pacor Mortgage brings you RatePulse.