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Economic & Mortgage Update

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Blog by Doug Ingersoll | October 28th, 2014

From local economist Elliott Pollack and his Monday Morning Quarterback article at ArizonaEconomy.com:

"With the exception of single family housing, the economic news continues to be good.  As we've discussed before, there are several reasons for Arizona's weak housing market.  Some of the major problems included: (1) slower rates of moving in the U.S. as a whole, (2) high numbers of mortgage holders who have little or no equity in their homes, (3) people who are "locked out" because of a foreclosure or short sale, (4) still relatively high unemployment rates, (5) millennials postponing marriage and children as well as many who still live at home with Mom and Dad, (6) the lingering effects of S.B. 1070 and (7) FINANCING.  Anyone who has tried to get a mortgage over the past few years knows that it is challenging.  There is more paperwork.  Automated underwriting standards make it difficult for self-employed, commissioned sales people and affluent retirees.  There are lower debt to income ratios, longer lockout periods and higher down payment requirements.  The list goes on and on. 

One of the major problems we haven't yet addressed has been "put-backs".  A put-back is when Freddie or Fannie decides that a mortgage was not properly underwritten and, therefore, requires the underwriting bank to take the mortgage back and give Freddie/Fannie their money back.  These put-backs have been used to such an extent that underwriters have significantly tougher standards for loans than was normal in the 80's-2000.   The government backed agencies have been forcing put-backs on mortgages that were underwritten up to 10 years ago.  That's simply ridiculous.  No one can know what will happen that far in the future.  And the incentives are for underwriting institutions to be extremely tough on potential borrowers. 

Now, the government is saying it will change the standards to 3 years and will allow the underwriting institution to correct errors that are paperwork oriented.   Such a change hopefully will ease the burden on banks and allow them to be more reasonable on potential borrowers.  That could be a big deal for home builders.  It would not solve the entire problem.  That will take years.  But, it's a great start."

“Government is not a solution to our problem government is the problem.” Ronald Reagan

Mortgage update from Stuart Crawford at V.I.P. Mortgage:

"After a couple of highly volatile weeks, there were few price swings in mortgage rates last week.  With no major surprises in the economic data and little new information from central bank officials, mortgage rates ended nearly unchanged from the prior week.
One reason that mortgage rates remain near the best levels of the year is low inflation.  The Consumer Price Index (CPI) report released, the most widely followed monthly inflation indicator, was just 1.7% higher than one year ago.  This was well below the Fed's target level of 2.0%.  A separate indicator, the PCE price index, which is also closely watched by Fed officials has revealed even lower levels of inflation.  There is little pressure on the Fed to tighten monetary policy with inflation at these levels (remember, “tightening” monetary policy means increasing rates).

The housing market data released showed improvement.  Existing Home Sales posted a modest increase in September to the best levels of the year, while inventories of existing homes for sale dropped a bit.  September New Home Sales saw a slight increase from downwardly revised August levels, bringing them to the highs for the year as well.

The big story this week will be the Fed meeting on Wednesday.  Investors are seeking information about the timing of the first fed funds rate hike."

Stuart can be reached at 602.710.8975