Homestead mailing list

["Lisa K. V. Perry" <lkvp AT floydva.net>]

Gene GeRue wrote:

> I forgot to respond to Don's main point, the effect of fewer refinances. 
> But note that Lisa's numbers indicate modest diminishment in mortgage aps. 
> Lisa, do you have the numbers on refi's specifically, separated out of all 
> mortgage apps?
>  
Here's the rest of that report:

> The four week moving average for the seasonally-adjusted Market Index 
> is down 1.2 percent to 681.2 from 689.5. The four week moving average 
> is down 0.2 percent to 468.4 from 469.4 for the Purchase Index while 
> this average is down 2.6 percent to 1918.5 from 1970.1 for the 
> Refinance Index.
>
> The refinance share of mortgage activity decreased to 41.7 percent of 
> total applications from 43.6 percent the previous week. The 
> adjustable-rate mortgage (ARM) share of activity increased to 31.6 
> percent of total applications from 29.4 percent the previous week.
Refi's have only been 25 to 33% of my business for two years whereas 
they used to be at least 50%.  This varies from brokerage to brokerage 
but is a general rule of thumb--to stay in business.  Believe it or not, 
I'm now doing a refi for someone who has an 11.4% rate for a 15 year 
term.  She has extenuating circumstances which will not allow her to get 
a market rate, but trading a 6.5% fixed for 10 years will save her 3.5 
years (she's 18 months into the 15 year loan and the payment is about 
the same due to shorter amortization.)  Even when you factor in the 
closing costs, she will save a bundle.

> The average contract interest rate for 30-year fixed-rate mortgages 
> increased to 6.31 percent from 6.21 percent on week earlier, with 
> points increasing to 1.37 from 1.27 (including the origination fee) 
> for 80 percent loan-to-value (LTV) ratio loans.
>
> The average contract interest rate for 15-year fixed-rate mortgages 
> increased to 5.85 percent from 5.75 percent, with points increasing to 
> 1.36 from 1.27 (including the origination fee) for 80 percent LTV loans.
>
> The average contract interest rate for one-year ARMs increased to 5.45 
> percent from 5.39 percent one week earlier, with points decreasing to 
> 0.96 from 0.99 (including the origination fee) for 80 percent LTV loans.
I'm amazed that ARMs (adjustable rate mortgages) loans are increasing.  
Most ARM loans keep the same rate for two years and adjust up to 2% at 
the end of the two-year period.  If rates are higher in two years--or as 
they are now for those who did  an ARM loan two years ago and are now at 
the first adjustment--things will be quite interesting.  I've only done 
just one three-year ARM loan for a boomer retired couple (in their 50's) 
who were taking their money out of the stock market and paying off the 
ARM in three years.  They figured it was safer to be mortgage-free then 
it was to speculate on the stock market in today's world.  I envy them.  
I ran into them this summer in a local gas station, they were in line to 
get an ice cream and we caught up.  They were were about half-way 
through to becoming mortgage free at that point and still enthusiastic 
about their decision. 

> John Foltz, the managing broker for Realty Executives in Phoenix, with whom 
> I am associated until I formally pull the plug, gave us a report on a 
> meeting he attended run by Alan Greenspan awhile back. 
Oh to be a fly on the wall in that meeting!  Three degrees of 
separation, I know someone who knows someone who sat in a room with Alan 
Greenspan.  All the scuttlebutt I've read says Ben Bernanke, the newly 
appointed Fed Chairman, is very much like Greenspan except that Bernanke 
believes in targeting inflation to a specific numerical goal, which 
Greenspan opposes (below).

http://quote.bloomberg.com/apps/news?pid=10000006&sid=a8IefX.WEjG8&refer=home

> At a hearing before the Joint Economic Committee on Oct. 20, Bernanke 
> said deficit spending when the country is at war and recovering from 
> natural disasters is ``not an unreasonable approach'' and suggested 
> the economy might suffer if Congress doesn't make permanent the tax 
> cuts passed in Bush's first term.
>
> ``It is very important for him to be seen as independent, and not as 
> part and parcel of any administration,'' said Senator Paul Sarbanes, 
> the ranking Democrat on the Senate Banking Committee. Sarbanes said he 
> wanted to explore Bernanke's preference for a numerical inflation 
> goal, which Greenspan opposes.
And these two final paragraphs from the same article:

> Some members of Congress say the Fed should stop raising rates. ``They 
> should have stopped maybe two increases ago,'' Kentucky Republican 
> Senator Jim Bunning said in an interview. Bunning said he will vote 
> against Bernanke because as a Fed governor, he never proved his 
> independence from Greenspan.
>
> Bernanke must manage politics inside the Fed as well. Some influential 
> governors, such as Donald Kohn and Roger Ferguson Jr., are opposed to 
> a numerically defined inflation goal. Still, Bernanke will probably 
> foster more open debate as he works toward a consensus on such issues.

> What Greenspan wanted to know was what refi money was being spent on. Foltz's report was 
> most interesting. What I took from it was that even the top dog at the Fed 
> is not sure of what is going on with the economy; he is constantly 
> gathering info on current conditions. What I have subsequently concluded is 
> that consumer confidence and consumer spending are the keys to whether the 
> economy is strong or weak. The nuts and bolts of the economy matter, but 
> what we consumers do is the fuel of the economic machine.
>
>  
Absolutely.  Add to the mix that personal savings accounts for the 
average American (not on this list) is at an all-time historical low, 
our national debts are at all-time high's (or darn close to it), we have 
one natural disaster after another which ultimately costs the taxpayers 
and most Americans are mortgaged to the hilt.  We are at a new point in 
history, never before have people saved so little and owed so much on 
mortgages (compared to appraised value) and other debt. 

more interesting information from analyst John Mauldin's Thoughts from 
the Frontline site:

http://frontlinethoughts.com/article.asp?id=mwo102805

> It is unlikely we will see many changes in Fed policy, at least his 
> first year. Bernanke has written at length that the Fed should set 
> specific inflation targets. Greenspan likes soft targets. But for all 
> intents and purposes, the Fed has had a target of 1-2% for the core 
> rate. Bernanke would not change that. Maybe, over a long time we get 
> to more explicit targets, but not next year.
>
> Secondly, Bernanke has advocated a more open Fed policy. I think we 
> will see a more transparent Fed, and this is a good thing.
>
> But Greenspan does not hand Bernanke an easy job. There are serious 
> imbalances that will have to be dealt with over the coming years. 
> There is no housing bubble, Bernanke tells us this week. Yet the 
> markets and buyers in certain cities will be the ultimate judge. 
> Certainly, there are signs the housing market is slowing. The number 
> of housing sales has been gradually slowing and the number of homes 
> for sale, especially in some overheated markets, is rising. The 
> average price paid for a home is dropping. As mortgage rates rise, 
> this will make housing less affordable. It also means that cash out 
> financing is going to be more difficult.
>
> A Slower Muddle Through Economy
>
> We see today that GDP for the third quarter is estimated to be a very 
> healthy 3.8%. Greenspan is leaving while things look good. But Bill 
> Gross suggests that things might not look good for long. Writing this 
> week:
>
> "Typically an economic slowdown occurs 18 months after the beginning 
> of an upward move in 5-year rates, and this cycle appears to be no 
> exception with industrial production and service-related indicators 
> having peaked nearly a year ago. _We are due for what appears to be a 
> 2% or less GDP growth rate in 2006, a rate sure to stop the Fed and to 
> induce eventual ease at some point later in the year_. It will likely 
> be Bernanke's first policy shift and an indicator of his willingness 
> to address the Fed's dual mandate of inflation targeting _and_ 
> economic growth."