Usually this blog is focused on all things mortgage, or at least, all things economy. But today, a little screed about technology.

I find myself absolutely awestruck at how far technology has come at times. This feeling was especially powerful yesterday.

I was out and about, running a few errands for the family. I'd forgotten my ipod, which is bad for an FM radio phobe like me. So, what to do?

"Oh, no, I'm going to be stuck listening to...wait for it...commercials! Oh the humanity."

But wait. There's my newest gadget sitting on the passenger seat. My Palm Pre. So, just plug the Pre in to the stereo, stream Pandora, and we're right back in music heaven.

For those of you who don't know about the parts of this, a couple of them are pretty cool. First of all, the Palm Pre is an excellent phone. It's similar in many ways to the seemingly ubiqioutous iphone, but works better for me because it's on Sprint, and co-exists so much better with all the Google apps I depend on for business.

The Pre also has a cool Pandora app, much like the iphone does.

For those who have never heard of Pandora, let me tell you, it's the best thing ever invented for music control freaks. Pandora lets you set up a free account, and then creates "music stations" for you, based on favorite artists, favorite songs, whatever.

So I found myself joyfully listening to my "Pat Metheny" station on Pandora, all streamed through the car stereo.

You might be thinking it's not a big deal. But I thought it was huge.

Have to remember, I'm old enough to remember 8 track tapes. And accessing AOL on a computer with a 14.4 modem. And tan cell phones that were the size of a loaf of bread, NOT a deck of cards.

With all the bad things that happen in the world, it's certainly nice to be able to say that I'm glad I've been around to see some of the things I've seen. And heard. Like a tiny cell phone streaming stereo quality music over car speakers.

In case you're wondering, this author is not affiliated with, or compensated by, in any way shape or form, Sprint, Palm or Pandora.com.

Although I should be.

It has been lonely. I've been "that guy" for a long time, arguing that much of what is wrong with the housing sector of the economy would not be fixed with the current mortgage related policy and legislation emanating from Washington. I thought I was the only person in the world who thought we could do something very simple, more about it later, and make a significant impact on our ailing housing sector.

The Obama administration's "Making Home Affordable" plan, announced back in April, has helped some. You may have read about it here this spring.

We have been able to refinance a number of our clients who previously could not. I had one client, a very nice young woman, stuck for months because the value of her home had declined to the point that her loan to value ratio (LTV), had jumped over the 80% mark. After months of waiting for the administration's program, we were finally able to get her a wonderful 4.5% interest rate on her new loan.

But....

There are so many people out there not helped by any of these new initiatives. They are the holders of so-called "jumbo" loans. Loans that are higher than the conforming limit of $417,000. Most are stuck at rates significantly higher than those available today. Stuck because the secondary market for jumbo loans basically went away in the fall of 2007.

I know what you're thinking. "I'm supposed to feel sorry for the rich guy with the $1,000,000 house?" You aren't. But think about it this way. If the guy with the $500,000 house can't sell it to buy the rich guy's house, then the young couple can't sell their $200,000 house to buy the $500,000 house either. Etc. Etc. Etc.

I thought it was simple. Just raise the conforming limit for Fannie Mae and Freddie Mac from $417,000 to something like $700,000. It's already allowed in parts of the country, and it's beyond silly that it's not allowed everywhere.

Finally, the other day, I found a comrade, an ally, a soul mate if you will. David Adamo, chief executive officer of Luxury Mortgage, was quoted in a mortgage trade rag advocating just that.

According to the National Association of Realtors (NAR), 14 states have 11% of homes valued at $500,000 or more. Yes, California and New York are on the list. But so are Delaware, Illinois, and Oregon.

So will policy makers in Washington listen to Adamo? I hope so.

Yeah, we've all heard the old joke. The worst sentence you can hear is "I'm from the government, and I'm here to help."

But the Obama administration's recently released program aimed at helping homeowners may actually do just that. The program, called "Making Home Affordable" was announced early in March.

Beginning on April 6th, loan giants Fannie Mae and Freddie Mac will begin accepting refinances for borrowers who owe up to 105% of the value of their homes.

WOW!

Here is the best news about this. In the true spirit of free enterprise, these new loans are available from any company that can originate conventional mortgages. That's right, if you can't stand the folks currently servicing your loan, you can go somewhere else. Consumer choice is a wonderful thing.

There are going to be hundreds of thousands of homeowners who will be helped by this. Let's use an example.

You bought a home in 2006 for $350,000. Being a solid and stable person, you put 20% down. That way, you avoided having to pay a mortgage insurance premium or adding a 2nd mortgage. But you home is one of many that has seen it's value drop the past two years. You're out of luck right? Now you're looking at adding a mortgage insurance premium of as much as $200 per month to any new loan because your loan now makes up more than 80% of your homes value.

Well, now clients like the one in our example above are in luck. You can refinance that loan, with no requirement for mortgage insurance. So if you are in that position, you should be calling your favorite loan guy to start the process. If your current rate is higher than 5.75%, you can generate HUNDREDS of dollars of savings, right now with rates in the 4.5 to 4.75% range.

So the latest thing out of the nation's capital is a proposal that would limit the salary of bank head honchos...if the bank they work for is taking Federal bailout money. And you might be surprised where newly elected President Obama is finding support for this plan.

The cap is $500,000 in cash salary, but, execs can earn a nearly unlimited amount in restricted stock. How is it restricted? It doesn't fully vest until the bank pays back you and I and the rest of the American taxpayers, for the so-called TARP money.

So in order to make a pile of money, these guys would have to make smart decisions, turn a profit, and return value to their shareholders. It makes perfect sense to me. Which is why I find it all the more surprising that you have all kinds of folks beating a path on to CNBC to complain about it.

"Communism! It's the end of the free market as we know it!" they scream.

Look, I didn't pay attention THAT closely in college. But rewarding someone, handsomely, if the company they work for gets out of trouble and becomes profitable sounds like the free market at its finest.

Here at little old Willamette Falls Financial in Lake Oswego, Oregon, we're about 2,900 miles from Wall Street. But the principles should be the same. If we don't do a good job giving people sound mortgage planning advice, we don't make money.

If we DO a good job, offering learned counsel and sound advice, we DO make money.

Why should you and I be on the hook for a bunch of guys making a bunch of dumb decisions.

No less a conservative stalwart than Larry Kudlow agrees with me...

Watch last night's show on CNBC here...

Spending all day pouring through client's income, assets, credit and the other items that make up a mortgage application can be pretty dry. We are all defined, at times, in this business by numbers. Credit scores, interest rates, home value, income, mortgage amount, mortgage payment.

And it is easy sometimes to lose sight of the fact that we are not defined...despite what the banks may think...by our credit score, our job or the size of our bank accounts.

I had a perfect reminder of that today. This was in an email forwarded to me from a client. He had asked his wife, as many of us do, to lay out the details of the family books for the purposes of this new transaction we are working on. It was so touching, and funny, that I asked him for permission to share it here. What follows is the first part of the rundown, from wife to husband...

"Assets
       

Villa Verde--house
Cash in Bank account
Irene--’84 300D Mercedes
Red Robin --’95 Geo Prism
Vacation International Time Share
5 Chickens--laying about 3-5 eggs a day
Cat named Henry

Investments:

Daughter, India, 7 yrs old.   Our biggest investment for the future.  Value:  priceless; Disclaimer:  Public perception weak during whining spells and tantrums but long-term value has steadily increased."

Reading this reminds me of that great quotation on parents and kids from an unknown author...

“A hundred years from now, it will not matter what kind of house we lived in, what kind of car we drove, or what our bank account balance was.  But the world may be different because we made a difference in the life of a child.”

All good things to remember when we're fretting about our IRAs being sawed in half, the cost of health insurance, and the 1,000 other material things we all worry about from time to time.

It's the Wall Street Journal's lead story this morning.

"Lending Drops at Big U.S. Banks."

That's right. As we've talked about here in this space, a lot of the recipients of bailout, the so called TARP, funds, have gathered them to their bosoms and don't plan to let them go anytime soon.

10 of the 13 banks surveyed by the journal lent LESS money in the 4th quarter. Flying in the face of a federal program designed to have the opposite effect.

And it's not just a problem here in the United States. Banks in Europe apparently don't want to lend anyone any money either.

Franz Muntefering, chairman of Germany's Social Democrats told a German newspaper, "...most of the bankers are competent and responsible, but there are also some beatniks, pyromaniacs and gangsters."

If you have a WSJ online subscription, you can read the rest of it here.

Folks, it's very simple. This whole TARP thing won't work if bankers around the world are hiding under the bed. According to the Journal article, 59% of businesses feel like they are being hampered by the lack of credit. That means otherwise credit worthy companies are delaying expansions and/or cutting jobs.

Not exactly a recipe for recovery.

We should give kudos to Suntrust, US Bank and BB&T Corp, the three banks that actually did lend more money in Q4.

Memo to Jamie Dimon, JPMorgan Chase CEO

Dear Mr. Dimon:

I am one of your many investors. I own JPMorgan Chase stock (JPM). I own preferred stock in your company too. And as a taxpaying citizen of these United States a big chunk of that TARP money came out of my wallet.

What the hell are you doing with my money?

I just read an article in the New York Times today that says you, and another bank, foreclosed on one of Phoenix's oldest family own builders...and the guy had never been late on a payment!

That's right. NEVER LATE ON A PAYMENT!

So he was confounded a few months back when one of his banks, spooked by the decline in his company’s revenue, suddenly demanded millions of dollars in additional collateral to continue carrying loans on his projects.

He was unable to come up with the money, and in October, JPMorgan Chase foreclosed on five of his developments. Shortly thereafter, Brown Family Communities, 33 years in the business, decided to shut its doors.

“They treated me like a deadbeat who missed his car payment,” said an embittered Mr. Brown, 76. “They wanted their money now.”

Jamie, if you'd like, you can read the rest of the article here...

Let me be perfectly clear. I didn't cut you, and the rest of your friends, a $25 billion check so that you could stash it under the mattress.

Mr. Brown's employees are now all out of work. How exactly do you expect us to get our economy moving if nobody has a job?

Look, I know you guys are all a little spooked right now. The fact is you levered up further than you should have. But we're retreating in to the stone ages now.

And don't even get me started on how dumb it is for banks to refuse to re-subordinate the home equity lines of thousands of borrowers who want to take advantage of these historic low interest rates. More on that tomorrow.

In short, it's a new day in America. You supported the new President. And he's just asked for your help. He's asked for all of us to help. So sack up and start doing some business for crying out loud!

Sincerely,

Your Friend Paul

I've talked with a lot of consumers here in the Portland area who tell me they are waiting. Waiting to refinance or purchase property.

What are the waiting for? A better economy? Lower real estate prices? A sign from a higher power?

Turns out the answers are no, no and no.

They are waiting for the 4.5% mortgage rates they've been hearing are right around the corner. So they are rolling the dice, some holding mortgages with rates over 6%, hoping for that magic 4 dot 5.

And that means that they are saying, "No" to mortgage rates as low as 4.75%.

Are they right to wait?

No, say prominent economists...

"The downward trend we have seen in mortgage rates will not last beyond the first half of this year," said Celia Chen, senior director of housing economics at Moody's Economy.com in West Chester, Pennsylvania.

"By then, the Federal Reserve's program will have run its course and other issues will move to the forefront that could push mortgage rates higher," she said.

Read more about it here...

So you read that the Federal Reserve Board cut rates, lowering their "target" rate to between 0 and .25%. Normally, a Fed cut can be bad for mortgage rates, because Fed rates are overnight and mortgages are, well, longer.

But Mortgage Backed Securities (MBS) rallied briefly this week. Why? Because in it's announcement, the Fed also signaled that it would buy even more MBS, particularly from newly government controlled Fannie Mae and Freddie Mac.

That has sent fixed rate mortgages dropping to as low as 4.75%. But...

Those rates, at least right now, are only available for borrowers willing to pay, or able to finance in, the thousands of dollars of costs involved in a refinance transaction, including a 1% loan fee.

Trust me when I tell you this, because I look at dozens of rate sheets from our lender partners every day. They are completely uninterested in allowing borrowers to choose other cost structures.

For years we have counseled our clients to look first at an option to lower their rate using a "No Cost" refinance. In these transactions, we use some of the money paid to us by the lender to pay all the associated costs (appraisal, title insurance, recording fees, escrow agent, etc.) on behalf of the borrower. In normal times, that typically meant that a borrower might forgo an extra .25% in interest rate, but would save upwards of $3000 in closing costs. These transactions were a wonderful deal for consumers. Maybe that's why the banks hate doing them.

And honestly, even given that, mortgage rates aren't nearly as low as they should be. At historical norms, mortgages tend to trade approximately 1.5% higher than the yield on 10 year US Treasuries. The yield on the 10 year as I type this is 2.09%. Does anyone see any 3.5% mortgage rates out there? No. Our disconnect between mortgages and treasuries just keeps getting better. Today's unemployment and economic indicator numbers show a weak economy. Normally, that's good for rates. And the Treasury market loves the news. 10 year notes are better by 106 basis points.

Mortgages? Not so much. MBS are worse by 3 basis points. That's a rounding error to be sure, not much of a move. But where's the love mortgage guys?

The other problem, and this is a big one, is that banks have tightened their guidelines SO much that it almost doesn't matter how low mortgage rates fall.

Why?

First of all, sliding values around the country mean there are a lot of consumers who now owe more on their home than it's worth. These low rates do them no good. But there's another class of borrowers that shouldn't be in trouble, but might be.

Let's take a fairly typical mortgage customer. I have a client (will call him Bob) who purchased a first home last year here in Portland, for $250,000. Bob, a very conservative type, put a full 20% down and chose a 30 year fixed rate mortgage we obtained for him at 6.25% with no points. Yea, lower costs for the consumer! Shortly after closing, Bob took out a small $25,000 Home Equity Line of Credit (HELOC) to finance some improvements to the house. Right now he has an $25000 balance on that HELOC.

He might be out of luck. It's all going to be on the bank holding his HELOC as to whether or not they'll be willing to re-subordinate. So Bob may be stuck on the sidelines, with what now looks like an exorbitantly high interest rate, unable to avail himself of these historic low rates.

So here, in my tiny corner of the internets, is my plea. Mr. Banker, it is time, PAST TIME, for you to relax these ridiculous stone age lending restrictions. Am I asking you to go back to the wild west days of 2006, when someone could buy an investment property using an Option ARM, with a tiny down payment, bad credit and no documentation? NO. A thousand times no.

All I'm asking, on behalf of our clients, and millions more just like them, is to return to the sane and reasonable guidelines used in the mid 90s, when I started in the mortgage business. That's right, turn the clock back 10 years, not 50. Back then Fannie and Freddie required W2 forms, pay stubs and bank statements. Back then these fraudulent liar loans were NOT around. Yes, there were some stated income products, but they carried higher interest rates to protect the end investor from the additional risk.

These new restrictions make no sense. If Bob's payment goes down by $200 a month, doesn't that make him more likely to repay both is new 1st and his HELOC in a timely manner than less? Of course it does.

If credit worthy Americans are allowed in to this wonderful world, they'll use those savings. They will put more in to college funds, savings, and other investments. Bob might help out his wife by using that savings to replace their aging washer and dryer.

EVERYONE WINS! That's right. The bank originates a new first mortgage, making money for their shareholders. The holder of the existing HELOC now finds itself in a safer position because Bob's debt load on a monthly basis is down. Yes, we make money putting Bob's new lower rate loan together. Bob improves his financial situation. The guy working at the appliance store makes a sale. His boss rings up a sale and lowers his inventory. And if the owner of the appliance store is suddenly ringing up sales from Bob and others like him, maybe he'll decide it's time to trade in his old car and buy a new Chevy.

You see where I'm going with this?

But it can't happen until Fannie, Freddie and their bank partners pull their collective heads out of the sand. I'd say they need to pull their heads out of something else, but this is a family blog.

We wrote last week about the disconnect between Mortgage-Backed Securities (MBS) and 10 year Treasury Bonds. Typically a spread of about 1.5% had risen to almost 3.

As of today, we may be on a slide back to more normal conditions, and that is great news for mortgage rates. So why is this happening?

The Federal Reserve just announced that it would purchase $600B of MBS backed by Fannie Mae, Freddie Mac, and Ginnie Mae.  This is a BRILLIANT move by the Fed. It is designed to help increase the availability of credit, while lowering fixed mortgage rates. 

Last week you read here that mortgage rates were higher than they should be because to investors they were the investment world's shark infested waters. The Fed action has shouted to Wall Street, "Come on in! The water is fine!"

And they have.

So far today as Mortgage Bonds are up a whopping 128bp and appear destined to retest the price highs of 2008.

In addition to purchasing debt  backed by Fannie and Freddie, the Fed will set up a $200B program to support consumer and small-business loans. Hopefully, the plan will create liquidity in the auto, student and small business loan market.

You can read more about it here...

What this all represents is a rare opportunity for consumers to lower the rates on their mortgages. It may be the perfect time for those looking to get out of Adjustable Rate Mortgages (ARMs). As of today, Tuesday the 25th, 30 year fixed loans are available, WITH NO CLOSING COSTS, at rates as low as 5.9%. Wow!

Details on all this are available from us. Visit the Willamette Falls Financial link on the left hand side of the page and give us a call.