More on Predictions
AUGUST 2010
WISCONSIN MORTGAGE PROFESSIONAL MAGAZINE
NationalMortgageProfessional.com
18
Again and again in this column, we have discussed how hard it is to predict the future. However, when you pay economists the big bucks, they have to lay it out on the table. Not that you, as a mortgage professional, get big bucks for making predictions, but when you enter a real estate office for some reason, real estate agents and customers seem to think you can predict the future better than they can. I used to carry one of those Magic 8Balls when I made a presentation to agents. Why? I knew the question was coming: “What is going to happen to rates?” When the question came, I calmly took out the ball and asked what day are they looking to predict? Then, I shook the ball and got an answer such as “Not Today.” We all laughed and it was fun. It is not fun to be in a market in which you have no idea what will happen tomorrow … not only in terms of rates, but what lenders will be in business, what guidelines will be published and more. The only thing I am comfortable predicting is that we will have change in this industry (that has held true for 30 years). You can add the fact that the Democrats and Republicans will continue to fight and blame each other. Not much help is it? Many predicted an economic slowdown for the second half of 2010, but how many predicted record low interest rates? Again and again, we published quotes from respected analysts
indicating that rates would be rising this year. I remember getting e-mails and calls from panicked loan officers who attended a Webinar from a “respected industry expert” who pretty much said that rates would hit six percent by the end of the year. Now before you go ahead and trash that prediction, remember, there is still time until the end of the year. On the other hand, I will not be that bold because I recognize my own limitations. If I purchase a stock it goes in the tank the next day. Obviously, these predictions have not come to light as of yet. Now many are predicting that lower rates will stay with us for the foreseeable future, based upon the economic crisis in Europe and the flight to safety we are experiencing as investors purchase U.S. Treasuries. Our advice? Don’t get too comfortable. Remember when many predicted that housing prices had to fall based upon the spectacular increases we saw just a few years ago? The housing market kept on going, regardless of these predictions. Then, it ended when few were expecting the end to come. Doesn’t it always happen that way? Here is a recent quote from business analyst Allan Sloan in The Washington Post:
humbling example: The best investment by far for the first half of this year has been the one that people like me have been warning against: Long-term U.S. Treasury bonds. I’ve also said (and said) that you have to protect yourself against a decline in the value of the dollar because our need to borrow huge amounts to cover trade and budget deficits is eroding the greenback’s standing as the world’s reserve currency. But guess what: Even though it’s been a crummy year for U.S. stocks, the performance of foreign stocks has been considerably crummier. What’s happening, of course, is that we’re seeing a somewhat different version of the phenomenon in 2007-08, when scared investors sought refuge in U.S. Treasury securities because they feared a worldwide financial meltdown. This year, it’s the European problem that has prompted investors to seek safety in Treasuries. All that money flooding into the Treasury market drove down the interest rate on long-term Treasury bonds. Hence, long-term Treasury bonds’ strong performance for the first half of the year—and our country’s ability to finance its enormous deficits by selling Treasuries at very cheap rate. How do I explain that my predictions have been so wrong for the past six months? Simply this: In the long run, markets are rational. In the short run, anything can happen. The tech stock and house price bubbles lasted far longer than rationalists expected them to, but they ultimately popped. So will the Treasurybond bubble.” By the way, this “mea-culpa” does not mean that Allan is right about a bubble to be burst. What if we slide back into recession? Rates could stay low. We asked the opinion of our secondary market expert Eric Holloman, chief
value nation
executive officer of RateLink, and he added this factor to the equation: “These record low rates are causing the mortgage-backed securities (MBS) purchased by the Federal Reserve Board to pre-pay because of refinancing activity. This, in turn, is freeing up capital and giving the Fed more flexibility in case further stimulus activity is necessary.”
“I used to carry one of those Magic 8-Balls when I made a presentation to agents. Why? I knew the question was coming: ‘What is going to happen to rates?’” Regardless, we advise you not to get too comfortable. Again, no one can predict market turns. That is why a diversified marketing plan, which includes purchases and refinances, makes all the sense in the world. And this is why I delivered an “Originating Refinances” Webinar in June, but the first of July, scheduled a session, “Targeting Realtors to Increase Your Purchase Market Share,” on Aug. 11. Just staying ready! If you would like to register, log on to www.webinars.originationpro.com. By that date, I should be able to tell you what happened in July. But forget about asking me what will happen in September! Dave Hershman is a leading author for the mortgage industry with eight books and several hundred articles to his credit. He is also head of OriginationPro Mortgage School and a top industry speaker. Dave’s Certified Mortgage Advisor Program can be found at www.webinars.originationpro.com. If you would like to stay ahead of what is happening in the markets, visit ratelink.originationpro.com for a free trial or e-mail success@hershmangroup.com.
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For those seeking to take the pre“Financial markets can make you look qualification process a step further, really foolish, even if you thought your there are also helpful collateralanalysis was right, and still do. Today’s assessment tools that mortgage professionals can use to supplement their knowledge of a given market prior to making the commitment go through the application process. These tools • Nationwide Appraisal Company include the automated valuation • FHA and HVCC Compliance model (AVM) and access to local • Appraisals Multiple Listing Service (MLS) compa• BPO’s rable sales data. With these tools, the • AVM’s • National Vendor Network mortgage professional can get a rough • RealEC Integrated preview of the comparable sales data, • In Business Since 1970 which will be used by the appraiser to develop the appraisal. The customer can also be a resource in assisting with the preliminary evaluation of their collateral. A good question to start with is: “What has sold in your neighborhood that will support your 888-485-1999 Ext. 2 opinion of the value?” www.coesterappraisals.com In summary, mortgage professionals
owe it to themselves to perform a certain amount of due diligence prior to making the commitment to carry an applicant through the formal application process. Savvy loan officers, in some cases, will spot problems early on in the process and save themselves time and emotional energy. Even though, typically, the lender officer does not spend a lot of out-of-pocket money on a failed application, time is often wasted, and time is money. Simply passing on potential borrowers with insufficient collateral and servicing those with the proper collateral can be best for the lender and the borrower. Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, e-mail charlie@elliottco.com or visit his company’s Web site, www.appraisalsanywhere.com.