NHLA Blog

For those of you who consider me far too 'glass is half empty,' here's a little bright side to the near 1000-point drop in the Dow yesterday: Investors fled to the 10 year Treasury, driving the yield way down and pulling down the rate on the 30-year fixed mortgage right along with it.

The yield came up a bit, but at one point yesterday you could get a 30-year fixed rate mortgage for 4.5 percent with no points. How's that for housing stimulus?? So was it just a blip on the radar? Not necessarily.

"More than anything, it means mortgage rates will stay close to the 5 percent mark a bit longer than was forecast a week or so ago," says Greg McBride of Bankrate.com. He admits it's probably a temporary blip, but "mortgage spreads are widening because bond investors are nervous about anything that doesn't carry a U.S. government guarantee." If the situation in Greece were to become a global contagion, he adds, that could keep U.S. mortgage rates down.

We saw a big run up in mortgage purchase applications last week, toward the end of the home buyer tax credit, but refinances were down. This move in the 30-year could juice both those readings in next week's survey. Of course it's temporary, but so much of the housing market now is based on consumer confidence, so if this temporary blip eases the expected-falloff from the end of the tax credit, that would be an unexpected bonus.

We found a list of interesting data points that convincingly portray an economy that is moving in the right direction… written by James Altucher of the NY Post on 4/20/10. His list included 25 data points, but we recapped the most widely watched worth noting…

1. Retail sales are up 10% year over year and most retailers increased earnings guidance for the next quarter..
2. Weekly jobless claims have dropped to 480k from 643k this time last year.
3. Railroad traffic is up 16% and at the highest levels since the recession began.
4. JP Morgan Chase, Bank of America, and Citi all announced that loan delinquencies were decreasing and Chase announced plans to hire 9,000 people.
5. UPS shipments saw the first year over year increase since 2007.
6. Sharp increase M&A activity where acquirers are using cash rather than stock to buy companies.
7. Auto sales are spiking and Ford reported the best monthly sales in 25 years.
8. ISM non-manufacturing index had the highest percentage increase in 5 years.
9. Employers added 162k jobs in March- the biggest gain in 4 years.
10. March consumer spending had its fastest increase in 3 years.
11. Intel, a barometer of the entire tech sector, saw its earnings quadruple from a year ago and had their best ever earnings for that period ever.

The SAFE Mortgage Licensing Act is designed to enhance consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators and for the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) to establish and maintain a nationwide mortgage licensing system and registry for the residential mortgage industry.

As you may be aware, the SAFE Act was passed in 2008 as part of a response to the financial crisis. President Bush signed it in July of 2008, as part of the Housing and Economic Recovery Act. The SAFE Act mandates specific education and proficiency examinations for all mortgage loan originators in the country. 2010 is the transition year, as all states move to the national standards.

NMLS stands for the Nationwide Mortgage Licensing System and is the technology arm of Conference of State Banking Commissioners, the body charged with implementation of the SAFE Act.

Under the new requirements, depending on the state where an originator is licensed, he/she MAY need to complete a 20-hr pre-license course and a state law course. This is dependent on the state and whether it has had previous pre-license or continuing education requirements. Please check your state on the map for specifics about a given state and its requirements. Your state will have an effective date after which all new licensees must take the 20-hr pre-license course.

Nearly ALL originators must pass 2 exams: a national exam and an exam on state law. You need to pass the national exam only once but need to pass a state exam for each state where you are licensed.

Securing an FHA mortgage is about to get more expensive.

In its official announcement, Fannie Mae says the updates minimize long-term lending risks. If that's the case, this won't be the last guideline change Fannie Mae makes -- especially with loans defaulting at an above-normal clip.

The immediate changes are major. The first pertains to credit scores.

Effective December 13, 2009, the bulk of Fannie Mae's loans require a 620 credit score minimum. There are very few exceptions.

A second relates to loans with private mortgage insurance.

Homeowners whose loan-to-value exceeds 80 percent now have a choice:

1. Pay higher mortgage insurance premiums month-after-month
2. Pay a one-time fee paid at closing to compensate for higher risk

Both options result in higher consumer loan costs.

A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.

In no case whatsoever may debt-to-income exceed 50 percent.

There are other changes, too, including the elimination of seldom-used mortgage products and additional risk-based fees for "expanded level" mortgage approvals. These updates affect just a small part of the population.

So, home prices are rebounding, mortgage rates are low, and -- for 5 more months at least -- there's a federal tax credit for qualified buyers. You don't have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.

Considering bonds? Keep an eye on interest rates

By: Jim Larkin, CFP^®, CRPC^®

A low appetite for risk and lingering uncertainty about the health of the stock market has many consumers weighing the pros and cons of bonds and other fixed income investments. If you’re looking to invest in these steady return options, here are a few things you should keep in mind.

Bonds vs. Stocks

Under normal economic conditions, stocks tend to outperform bonds over long periods of time. This makes them an attractive option for risk-tolerant investors who can handle seeing their assets fluctuate with the ups and downs of the stock market. Contrarily, bonds are fixed; barring a default or other unusual event, bond investors receive their principal plus the assigned interest at the time of maturation.

Exceptions to the rule exist. In periods of severe economic volatility, bond interest rates can yield higher returns than stocks. Until the stock market began to rally in the second half of 2009, the decade prior generally proved more favorable to bonds than stocks. This fact, coupled with a sense of uncertainty about the market, has driven some investors to recalibrate their portfolios’ bonds to stocks ratio.

But, now that it appears we are on the road to economic recovery, will bonds continue to generate higher returns going forward? Nobody can say for certain, but the low interest rate environment may be an obstacle that stands in the way of superior bond market performance in the years to come.

Interest rates and prices – an inverse relationship

An important fact to keep in mind is that bond prices are affected by the direction of interest rates. When interest rates decline, bonds increase in price. When interest rates rise, bond prices fall. Returns for bondholders typically rise in an environment where interest rates are declining, a trend that has worked to the benefit of bond investors in the past decade.

Why do interest rates affect bond prices? Consider this simplified example: Suppose you invest in a bond from an issuer for $1,000 and it pays 4% interest. That amounts to $40 in annual income from the bond. If, one month later, the same issuer offers a $1,000 bond with a 5% interest rate, you could buy the same bond and receive an annual income of $50. In that case, the original bond you purchased that pays only $40 in income is no longer worth $1,000. To match the current market yield of 5%, a buyer would only offer $800 for your older bond to achieve a comparable yield based on the $40 annual income payout. That represents a 20% loss of investment principal.

Of course, if you hold the bond until it matures, the issuer is obligated to repay the entire face value of the bond, in this example, $1,000. Then again, if you wish to sell it in the secondary market prior to maturity, the bond has lost value (unless the interest rate environment has changed enough in your favor to compensate.)

Today’s low interest rate environment

Keeping in mind how interest rate movements affect bonds, consider the state of interest rates in today’s market. They are at relatively low levels on an historic basis.

For example, one of the benchmark measures of the bond market, the 10-year U.S. Treasury note, had a yield of 3.4% (as of October 30, 2009). At the end of 1999, the same maturity government issue yielded 6.3%.

The yield on the 10-year Treasury note has rarely dipped under 3%, and typically is much higher. In fact, in the fall of 1981, 10-year Treasury note yields soared above 15%. The note of caution for investors is that long-term interest rates may not have much room to decline from current levels, limiting the potential upside for bond values.

The greater risk in the current environment is that interest rates will rise, depressing values of existing bonds. If that occurs, it could have a detrimental impact on your bond portfolio. One way to measure interest rate risk in a bond mutual fund is to look at the fund’s duration. The longer the duration, the more it is affected by changes in interest rates. That can work to your advantage in a declining interest rate environment, but will have a negative impact on your returns if rates move higher.

Historically, interest rates have tended to move higher in periods of an economic recovery. This is important to bear in mind as you consider putting your money in bonds. If the economy continues to build steam, you may need to temper your expectations about future returns on your fixed-income portfolio.

Jim Larkin, CFP^®, CRPC^®

Financial Advisor

CERTIFIED FINANCIAL PLANNER™ practitioner

Ameriprise Financial Services, Inc.

1308 Village Creek Drive | Suite 2000 | Plano, TX 75093

Bus: 469.865.1050 | Fax: 469.865.1010

E-mail: James.k.larkin@ampf.com

Website: www.ameripriseadvisors.com/james.k.larkin

####

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

There are risks associated with fixed income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities.

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.

©2009 Ameriprise Financial, Inc. All rights reserved.

File # 93139

(12/09)

This communication is published in the United States for residents of Texas, Louisiana, Arizona, Colorado, Florida only; and this advisor is licensed only in the states of Texas, Louisiana, Arizona, Colorado, Florida.

Disclosed for the 1st time, 'damage points' taken off for late payments

Borrowers already knew that late payments hurt their credit scores, but for the first time, they now know the extent of that damage.

Did you max out your credit card? Expect a credit score drop of 10 to 45 points. Declare bankruptcy? Your score will plummet by up to 240 points, and your odds of getting credit will nosedive with it.

The "damage points" data, unveiled recently by FICO, are part of the most revealing glimpse into the firm's once-secret -- and still mysterious -- credit scoring model. The new information discloses how many points borrowers' scores will drop when they make the most-common mistakes.

FICO's credit score has been around for decades, but only within the past decade have consumers gradually gained access to theirs. Though the raw numbers can be purchased, how they're figured remains a FICO secret, as closely guarded as the formula for Coca-Cola. Until Thursday, FICO revealed only broad categories of factors influencing the score, but not the number of points at stake for consumers who fail to pay as agreed.

While knowing the numbers may not keep you filing for bankruptcy if given no other choice, the information may help you make the best decision when faced with a bad situation.

FICO scores -- and the access to credit they provide -- are a valuable asset to consumers and supply a safety net when incomes are stretched. It's an asset that needs to be protected, Sherry says, even if job loss or catastrophic illness makes bill paying problematic.

FHA/HUD – What Originators Need to Know about RESPA, FHA Broker Approval and Appraisal Reform

Register here

Please join HUD and NAMB this Tuesday for a webinar entitled  "FHA/HUD – What Originators Need to Know about RESPA, FHA Broker Approval and Appraisal Reform"  on Tuesday, December 1 at 2:00pm ET  (1:00pm CT, 12:00pm MT, 11:00am PT).

Tune in, send questions and find out what to expect in 2010!  NAMB is hosting this webinar to provide originators with the most critical information regarding impending RESPA, appraisal and FHA Broker (mini-eagle) approval reforms.  Our knowledgeable panelists are excited to share the most up-to-date information with you.

Register here.  Below is an overview of what will be covered during the webinar:

 Panelists:

• Ms. Vicki Bott - HUD Deputy Assistant Secretary of Single Family Housing
• Mr. Roy DeLoach – NAMB CEO
• Mr. Tony Gallegos - Mortgage U – Director of Training and Consulting
• Ms. Alice Alvey – Mortgage U – President

I. RESPA/GFE

Effective January 1, 2010, HUD is requiring loan originators provide borrowers with a Standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs and that closing agents provide borrowers with a revised HUD-1 Settlement Statement. Also discussed will be:

• Elimination of FHA cap on origination fees.
• RESPA/GFE - From Broker Perspective
• Principles of RESPA reform
• Key final terms and processes
• What brokers must know
• GFE Notice Requirements
• GFE Triggers
• Important Dates
• Settlement Charges
• Block 1 - What goes into it
• All other settlement services
• What charges can change
• What charges can not
• Requirements under the rule
• HUD's interpretation of the rule
• Major issues
• The best strategies to navigate this sea of requirements.

II. FHA Appraisal Ordering Policy

• Review of process
• Expected impact

III. FHA Mini-Eagle/Broker Approval Process

•  Net worth requirements
• Are audited financials still required?
• Will lenders adopt uniform FHA standards?

Webinar Sponsor:
Credit Technologies, Inc.
http://www.CreditTechnologies.com
800.445.4922

If you are shopping for a mortgage or considering one in the future, it is important to understand how your credit score will impact the financing you will be able to obtain.

Before looking deeper at credit scores, you should first understand the "Risk-Based Pricing" methodology the mortgage industry uses to adjust interest rates based on borrower profiles.  To mitigate risk and price for the potential risk of a mortgage loan, banks and lenders have "risk-based" pricing adjustments for a variety of loan criteria (one of them being your credit score).  Simply, a borrower that is deemed a low risk will get the best pricing and borrower's with some risky attributes will have to pay higher rates.  This methodology is used across all channels of consumer credit including car loans, credit cards, and personal loans

On to credit scores... Each of the three major credit bureaus, Equifax, Experian and TransUnion, collects data from your lenders about your history of borrowing and paying back credit. They compile that information into your credit report, which any lender can access whenever you apply for a loan. The Fair Isaac Corp. is the major producer of credit scores. They take the information from those credit reports, apply their own trade-secret formula and, based on the three credit reports, distill three credit scores for you into one score ranging from 300 to 850.

Borrowers with high FICO scores -- the top tier ranges between 760 and 850 -- can expect lenders to offer them lower interest rates and more loan choices. Scores of 620 or lower usually place a borrower in the "subprime" category, and they can expect to be quoted significantly higher interest rates and may be offered fewer varieties of loans. A FICO score of about 500-520 is generally the minimum that will qualify for a mortgage.

Based on 11/24/09 national average 30-year conforming fixed interest rates according to Freddie Mac, here are the interest rate quotes you could expect to receive based on your FICO score (includes paying .5 to 1.00 point).

760-850	4.557%
700-759	4.780%
680-699	4.957%
660-679	5.171%
640-659	5.601%
620-639	6.147%

You can visit our website to utilize a free credit score estimator tool to get a feel for what your credit score might be:

http://www.nationalhomeloanadvocates.com/CreditScoreEstimator

You can also find a link to join myFiCO to purchase your credit report and score without generating an inquiry for credit at the link above.