Thursday’s bond market has opened in positive territory following the release of mixed economic news. The stock markets are showing another round of gains with the Dow up 40 points and the Nasdaq up 16 points. The bond market is currently up 4/32, but we will still likely see a slight increase in this morning’s mortgage rates as a result of weakness late yeste rday.

Yesterday’s FOMC minutes led to additional weakness in bonds after their release indicated that Fed members are still concerned about inflation. There was actually discussion of a half-point rate increase at the last meeting before voting for another quarter-point. This raised inflation concerns and caused bonds to drop during afternoon trading.

The first piece of data released this morning was the revised 1st Quarter Productivity and Costs report. It showed an increase of 3.7% compared to the 3.2% that was previously announced. However, analysts were expecting to see a 3.9% annual pace. This can be considered a negative for bonds, but hasn’t had much of an impact on trading.



The second piece of data was weekly unemployment claims that showed an increase in new claims. The 336,000 claims were higher than expected, which is good news for bonds. Unfortunately, the bond market doesn’t put much weight in this data since it covers only a w eek.

The second important report of the day was the release of the Institute for Supply Management’s (ISM) manufacturing index for May. It revealed a reading of 54.4, falling short of analysts’ forecasts of a 55.7 reading. This means that fewer manufacturers felt business improved during the month than did in April. This is good news for bonds and mortgage rates and helped push bonds into positive territory this morning.

The week’s most important piece of economic data is also arguably the single most important report that we see each month. The Labor Department will post May’s Employment data early tomorrow morning. This report gives us key employment readings such as the U.S. unemployment rate and the number of jobs added or lost during the month. Analysts are expecting to see the unemployment rate remain at 4.7% with approximately 170,000 new jobs added. An increase in unemployment and fewer new jobs than expected would be great news for the bond market. I t would probably create a sizable rally in bonds, leading to lower mortgage rates tomorrow.

The Commerce Department will release the last report of the week with April’s Factory Orders data late tomorrow morning. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but also includes orders for non-durable goods. It can cause some movement in the financial markets if it varies from forecasts by a wide margin, but it isn’t expected to cause much change in rates this month. Current forecasts are expecting to see a drop in orders of 2.1%. With the Employment report being released tomorrow, I don’t see this data having much influence on bond trading or mortgage rates.

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was ta king place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

a la mode

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CHICAGO (MarketWatch) — African-Americans and Latinos enter into high-priced, subprime mortgages more often than white borrowers with identical credit qualifications, according to a study by the Center for Responsible Lending. The report, released Wednesday, examined 50,000 subprime loans using data collected under the Home Mortgage Disclosure Act and supplemented with the Loan Performance Subprime Asset-Backed Securities Database. The two sources were used to isolate borrowers’ race and ethnicity from all other risk factors, the report’s author said. "For many types of loans, borrowers of color in our database were more than 30% more likely to receive a higher-rate loan than white borrowers, even after accounting for differences in risk," according to the report.

Subprime loans can carry interest rates several percentage points above the going rate for mortgages made to the most-creditworthy borrowers; a prime 30-year mortgage today might carry an interest rate of 6.5% while a subprime loan could run 10% or more. Plus, subprime loans also come with higher fees and more-restrictive terms. "African-American and Latino families are paying a premium for home loans because of the color of their skin and no other reason," said Hilary Shelton, director of the National Association for the Advancement of Colored People’s Washington bureau, speaking during a conference call organized by the center. The Center for Responsible Lending is an advocacy group aimed at protecting homeownership and family wealth.

The Mortgage Bankers Association disagrees with the findings, and believes methodological errors were made in the study, said Laura Armstrong, its vice president of public affairs. The organization is conducting its own review of the report. "The CRL has asserted they controlled in their analysis the relevant risk characteristics that impact mortgage pricing. The reality is, in this study they failed to do so," Armstrong said. "The data is questionable and is going to require further review."

Another look at the data

When 2004 HMDA data was first released, it showed blacks and Hispanics were more likely to end up in the high-cost subprime market than whites. But the government said the statistics couldn’t be taken as "evidence of bias in lending decisions," Armstrong said. Lenders argued minority borrowers tend to be less affluent, have weaker credit histories and make smaller down payments, said Debbie Bocian, senior researcher for the Center for Responsible Lending.
"We weren’t convinced. Our organization was created to fight predatory lending, and we wanted to make sure that borrowers of all races and ethnicities had fair access to home financing," Bocian said in a statement. "So, we supplemented the 2004 HMDA data with information from a proprietary loan-level database that contains critical information on the risk profiles of its loans," she said. "We looked at a large national sample of loans — about 50,000 subprime mortgages in all."

According to the study, African-American borrowers were more likely to receive higher-rate home purchase and refinance loans than white borrowers with similar qualifications. Those with prepayment penalties on their subprime home loans were 6% to 34% more likely to receive a higher-rate loan than white borrowers. Latino borrowers purchasing homes were 29% to 142% more likely to receive a higher-rate loan than non-Latino, white borrowers with similar qualifications, the study concluded. Bocian and others say the findings disprove the lending industry’s explanation for why minorities get more high-cost subprime mortgages, and they assert less-sophisticated borrowers are being steered to less-favorable loans.

The Center for Responsible Lending is urging a U.S. House subcommittee considering a bill on subprime lending to strengthen the language of the legislation for the increased protection of borrowers. The center specifically wants controls on yield spread premiums, which are a measure of loan pricing, and wants the government to demand that mortgage brokers act in the best interests of their customers.

Read more…

Defaulting on your mortgage is one thing, but ending up in foreclosure is an entirely different feeling of loss, hurt, frustration and embarrassment.

Most residential lenders will tell you that consumers will do everything in their power to keep from losing their homes (the only aberration would be calloused investors who walk away from mortgages when their would-be, short-term goldmines turn into a bust). The prime reasons for default typically are unexpected–loss of job, death, divorce–situations that never can be predicated by a credit report or a loan application.

A disturbing trend has begun to compound the emotional stress at the foreclosure sale. Some companies and private individuals are offering recently foreclosed former owners "to get a fresh start" by paying them a deeply discounted cash amount for an assignment of the owner’s rights to surplus funds.


"It’s a terrible thing for a person who probably needs all the funds they can get their hands on after they have been through a foreclosure," said attorney Joshua Sundt, a member of a group of Bellevue, Wash.-based lawyers who comprise the Sound Legal Center. "Most of these people are not well organized and they don’t really know what to expect from the process."

Typically, when a lender forecloses on a homeowner, the lender bids the amount owed, plus attorney’s costs and other fees, at the foreclosure sale. If no other bidder offers a higher price, the bank takes the house back at the price the bank is owed. However, escalating prices have brought higher bids at foreclosure sales, resulting in a difference between what the bank is owed and the actual foreclosure price.

For example, let’s say I fall behind on my $100,000 mortgage. I’m given notices of default and eventually a notice that my home is being foreclosed on by the Kelly Bank. The foreclosure date is set and the Kelly Bank bids $100,000 to $105,000 for the debt owed and $5,000 for taxes and attorney’s fees. However, other individual investors who have heard about the sale show up. The winning bid is $135,000. If no other liens are in place, I am entitled to the difference–$30,000.

Right after the sale is final, enter the surplus fund shark. He tells me that getting my money (since most owners do not attend the foreclosure sale, they are not aware of the total amount until later) will be a long and tedious process. He offers me a speedy resolution for 25 percent to 50 percent of "anything that’s left over."

Some offerings have called for a flat fee while others a "sliding scale" depending upon the amount of the return. The total amount often includes subjective, open-ended middleman fees. For example, some assignment forms indicate the middleman would be entitled to "attorneys fees incurred, costs for filing, service, delivering, recording, downloading or obtain any documents, title examination documents and all other fees and costs incurred in obtaining and retrieving the surplus funds."

"The truth is the former owner would have access to the funds just as fast as any middleman," said attorney Patricia Armey of the Northwest law firm of Routh Crabtree Olsen, P.S. "In some cases, these people have told clients that getting the money could take from six months up to a year when it’s often available in 20 days, maybe sooner.

"The other piece of this is that we believe some of these players are bidding up the property at the sale–or have ’straw’ bidders who are bidding up the properties–thereby netting them more money," Armey said.

Although there is nothing inherently wrong with purchasing an assignment of rights, Sundt believes to do so in a foreclosure situation smacks of poor business practices at the very least.

"It’s clear that these people are approaching the unsophisticated consumer at a very difficult time," Sundt said.

Tom Kelly’s new book, "Real Estate for Boomers and Beyond: Exploring the Costs, Choices and Changes for Your Next Move," (Kaplan Publishing) is available in retail stores, on Amazon.com, and in local libraries. Tom can be reached at news@tomkelly.com.

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