October 2, 2006
Top Mortgage Servicers
By Seth Jayson (TMF Bent)
Fiction leads the way
There’s a first-season episode of The Simpsons in which Homer has to have an RV so he can keep up with the neighbors. So, he heads to Bob’s RV Roundup, where the sales office is decorated with signs that read "Bankruptcy, Shmankruptcy" and "We give credit to everyone." Unfortunately for Homer, he can’t quite qualify for the loan big enough to buy him the "ultimate behemoth," but he falls for a lesser vehicle. Desperate to bolster his status among men, he asks what this smaller RV costs and is told "$350 a month." He takes the deal.
The joke, of course, is that "$350 a month" is not a price, it’s a fleecing. A blatant ripoff attempt. How long does this loan last? What are the terms? Only someone as stupid as Homer Simpson could fall for such a transparent ruse, right?
Don’t tell that to the home selling industry.
RV Bob at Ryland Homes?
This morning I spotted a high-end homebuilder in the Washington, D.C., area using sales tactics that could have been cribbed directly from that episode. Via a full-page newspaper ad, Ryland Group (NYSE: RYL) is trying to entice buyers with lavish digs, promising a variety of living arrangements at what seem like rock-bottom prices. Take this one: "3-4 bedroom garage townhomes… $1,174 per month." Or this one: "Single family and manor homes… $1,478 per month."
Luckily, our universe isn’t quite as skewed as the Simpsons’. Ryland discloses, in microscopic print, that these payments are in fact based on teaser rates of 2.75%, a rate that disappears after one year. After that, you’re stuck with a 6.25% rate on a 40-year mortgage. You got that right, 40 years.
Read more…
This week brings us the release of only three monthly economic reports for the bond market to digest. The first report of the week comes late tomorrow morning when the Institute for Supply Management (ISM) will post their manufacturing index for September. This index gives us an indication of manufacturer sentiment. Analysts are expecting a decline from the 54. 5 reading last month to 53.5 this month. The 50.0 benchmark is extremely important because below that level means more surveyed executives felt business worsened than those who said it had improved. This data is important not only because it measures manufacturer sentiment, but it is very recent data. Some economic releases track data that are 30-60 days old, but the ISM index is only a few weeks old. If we get a smaller than expected reading, I expect to see the bond market rally and mortgage rates fall further tomorrow morning.
The next release is Wednesday when the Commerce Department will post August’s Factory Orders data. This manufacturing sector report is similar to last week’s Durable Goods Orders release, but includes orders for non-durable goods. It can usually impact the financial markets enough to change mortgage rates if it varies from forecasts by a wide margin. Current forecasts are calling for a decline in new orders of approximately 0.2%. An unexpecte d rise could drive mortgage rates higher, while a weaker than expected reading should push them lower Wednesday.
The Labor Department will post September’s Employment report early Friday morning. This report will reveal the U.S. unemployment rate, number of new payrolls added and average hourly earnings. These are considered to be very important readings of the employment sector and can have a huge impact on the financial markets. The ideal scenario for the bond market is rising unemployment, falling payrolls and a drop in earnings.
Weaker than expected readings should help boost bond prices and lower mortgage rates Friday. However, stronger then forecasted readings could be disastrous for mortgage pricing. Analysts are expecting to see no change in the unemployment rate of 4.7%, an increase in new payrolls of approximately 120,000 and a 0.3% increase in earnings.
Overall, look for Friday to be the big day of the week, but tomorrow may also bring chang es to mortgage rates. The bond market will close early Friday ahead of the Columbus Day holiday and will reopen Tuesday morning. This may create additional volatility in the markets as investors move to protect themselves over the long weekend.
If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Float 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 taking 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.
