Three Letter Acronyms and Market Data: What Are They and Why Do We Care?

Gross Domestic Product (GDP)

By now we’ve all heard or read about the rather disappointing advance estimate for the United States first quarter Real Gross Domestic Product (GDP). Now I think we call all agree we know what the GDP is, but for the rest of us who don’t work in the financial sector, I think a refresher may be welcomed J

The GDP (Gross Domestic Product) is an aggregate measure or the total economic production of a country. This figure represents the market value of all the goods and services produced by the economy during the period measured. This includes personal consumption, investments, government spending, and net exports (Exports add, imports subtract )

So what about the number for Q1 of 2014 so far? The Bureau of Economic Analysis’s advance estimate shows a  real GDP growth of 0.1%. The key word here is “real”. Not that there is a “fake” GDP; it can be reported as nominal or real values. Nominal values may appear to be higher, because they do not adjust for inflation. Real values do adjust for inflation, and are calculated by using a GDP deflator, which we will investigate some other time…

So what are good figures for real GDP? The general definition of an economic recession is two consecutive quarters of negative GDP growth, so obviously negative growth is not so good. However, growth that is too rapid may incite inflationary concerns. According to Investopedia, the general consensus is that 2.5-3.5% per year growth in real GDP is the range of best overall benefit. The GDP may jump higher post-recession as the economy corrects itself, but in the long term, investors like to see the annual 3% growth.

Back to the Q1 estimate results for 2014; 0.1% doesn’t exactly have the zero(s) in the right place. However, it’s important to keep in mind that the values are annualized. If this rate of growth continues to the end of 2014, then yes, we have a very sad growth of 0.4% But think about this:

Home sales are generally lower in the winter months, because frankly, nobody wants to go out in the cold to look at homes surrounded by dormant vegetation. When the weather is nice and everything is growing and blooming, it’s not so bad being out and about looking at homes. It is logical to assume that real estate agents make most of their money when the real estate market is active. So does a slow January and February mean that the real estate agent is eating canned beans for the rest of the year? Of course not! (Unless they have a slow March through November as well.)

In the news, some are attributing the slow growth to the brutal winter weather. Here’s one: http://www.forbes.com/sites/samanthasharf/2014/04/30/u-s-gdp-grew-a-glacial-0-1-in-the-first-quarter-2014/

Obviously there are a myriad of factors that come into play, but I guess my point is that just because we had a weak first quarter doesn’t mean 2014 is doomed.  If next quarter is 1.1% and the 3rd quarter is another 1%, followed by a good 4th quarter, it’s not so bad. There are countless other economic indicators that we will cover as they pop up in the news, and we will keep you posted on what they are, what they mean, and why we care. 

Nonfarm Payrolls (NFP)

The Non-Farm Payroll employment statistics reflect employment data for construction, manufacturing, goods and service companies in the United States. The NFP data does not include farm workers, private household employees or non-profit organization employees.

When and how often is the NFP data released?

The NFP data is usually released on the first Friday of the month. The figure represents the change in nonfarm payrolls from the previous month, jobs added or lost in the economy.

How does this data affect the economy and financial markets?

Simply put, more jobs means more people with more money to purchase more goods and services, which increases growth. Fewer jobs mean less people with money to purchase goods and services. Some not so obvious correlations are between this data and its implications for the financial markets. Included in the NFP data is the unemployment rate in the economy, represented as a percentage of the overall work force. Needless to say, this is a good indicator of economic health, but the Fed watches it closely, because it can be tied to currency inflation, and here’s how:

When unemployment becomes low (usually below 5%), inflation is expected to increase as businesses have to pay more money to hire good workers. As a result, prices of goods and services go up as well to compensate. As prices rise, workers will likely require higher wages to maintain their standard of living. This is known as the price/wage spiral, which represents the vicious circle process in which wages and prices reinforce themselves in a negative way through a positive feedback loop.

The NFP data also includes the jobs sectors in which the job increase or decrease is experienced, and provides foresight as to which areas of the economy may be primed for growth. Average hourly earnings are important as well. If more people are working, but the average earning are less, then it’s implications the same as when jobs are subtracted from the workforce. In contrast, when average hourly earnings rise, its implications are the same as when jobs are added to the workforce.

How does the NFP data affect mortgage interest rates?

Positive NFP data can potentially have a positive impact on the stock market. As a result, people may move money from bonds to stocks. The bond market therefore has less available funds, causing an increase in the interest rates. Keep in mind that there are numerous factors that interact and affect the markets. Mortgage rates are affected by an aggregate of numerous market indicators, and no sole indicator can be held fully responsible for market movement.

Re-Posted from Mortgage News Daily
BY: MATTHEW GRAHAM
View the original article



Beginning yesterday morning, the most widely-used Loan Origination Software (LOS) has been offline.  Ellie Maeestimates their Encompass platform handles over 20% of all mortgage transactions in the US, and helped process 3.2 million applications in 2012.  But little, if anything has been processed through their system in the past 24 hours.

In their first statement yesterday, Ellie Mae said:

Clients have reported an issue affecting access to the Encompass® Homepage, Ellie Mae Network Services™, Encompass Docs Solution™ and services with dependencies on the Ellie Mae Network. Ellie Mae is investigating the root cause and will report as soon as possible when determined and resolved. 

In the meantime, clients can bypass Encompass Homepage errors and perform work in Encompass that is not reliant on Ellie Mae Network Services at this time.

Unfortunately, almost all the vital functions associated with advancing the process of a home loan within the Encompass system depend on those Network Services.  For instance, this would prevent an originator from obtaining client credit reports, running automated underwriting systems and in some cases even generating closing documents.  While there are workarounds for some of the issues (i.e. ordering credit reports directly from vendors and running automated underwriting systems directly on Fannie and Freddie's websites), if loan documents could not be generated, some loans simply didn't close or sign on time yesterday.

The timing of the outage causes additional issues in that "month-end" is an important time for the mortgage origination process.  Several stakeholders frequently count on a certain amount of volume coming in by the end of the month, not to mention the possibility that rate-lock time frames could expire.  One originator summed it up sardonically: "We had 5 loans we couldn't close yesterday. Glad it wasn't end of the month or worse, end of the quarter..."

Beyond simply missing estimated closing numbers for the month or going past the rate-lock expiration date, outages like this run the risk of straining relationships.  While the loan originator may be doing everything right, the clients and realtors counting on them to perform may not care.

"It is extremely frustrating to have closings delayed or pushed due to software issues," noted one originator affected by the outage.  "You can try and explain that to a referral partner until you are blue in the face, but the bottom line is this is a service and results oriented business. If you don't deliver based on expectations set far earlier in the process no one is happy, and they dont really care if your "system" is down."

Adding to an already high level of frustration was the announcement this morning that the issue had been resolved according to the following announcement:

Update: Access to Encompass Services Restored

Ellie Mae has restored access to all Encompass services including Encompass Docs Solution™, Electronic Document Management (eFolder), Encompass Product and Pricing Service™, Encompass Compliance Service™ and Ellie Mae Network Services.

We will continue to work tonight to make certain that the environment is fully stabilized - this may require maintenance activities which may temporarily impact connectivity.

While we are seeing more reports that users are back up and running, several recent comments indicated some users were still unable to access vital functions (though this could be due to Ellie Mae's investigation process in order to determine the source of the issue).  The specific issues varied in severity.  Some originators confirmed that certain workstations were operating normally depending on the time of day the session officially logged in.  Another noted "not all services work on all computers, this is a mess."

Late this morning, MBS Live subscribers reported receiving receiving updates from Ellie Mae reps confirming the source of the issue as a malicious attack.  Sources say the initial attack was corrected last night, but new issues arose this morning.  Despite that ambiguity, the reports go on to say that no personal client data was compromised as the attack was focused on the network as opposed to the data centers.  Ellie Mae does not currently have an official statement out on the matter.

VHDA Programs For First Time Homebuyers and More

VHDA the Virginia Housing Development Authority was instituted in 1972 to help low to moderate families find affordable options for financing a home.

The federal definition of First Time Homebuyer is anyone that has not owned a primary residence in the past 3 years. 

The difference between the VHDA programs and those on the Open Market is where VHDA gets their money.  VHDA is a bond program.  With the Bond program comes additional restrictions- income limits and sales price limits.  For a complete list please visit www.vhda.com.  In the Northern Virginia area the income limit is up to $120,900 for a family of 1-2 or $140,000 for a family of 3+

VHDA programs eliminate most of the reasons one puts off purchasing a home.  The most common reason is lack of down payment.  VHDA offers a program that allows up to 101.5% financing.  What this means is not only will they allow the 96.5% that an FHA loan allows but will also allow the FTHB a 2nd trust for their down payment.  If the borrower has over a 680 credit score they may also borrow up to 1.5% of the purchase price to be used for closing costs and prepaid items. 

Many programs require a 640+ credit score.  VHDA will allow credit scores of 620+.  This is a great benefit to many borrowers.

The debt to income ratios on a conventional loan are 28/36 meaning that no more than 28 % of your gross income should go towards your housing ratio and no more than 36% of your gross income should be used for your housing plus any minimum monthly obligations.  VHDA allows ratios up to 38/43 with compensating factors giving the borrower more purchasing power.

Often interest rates are lower than available on the open market also helping First Time Home Buyers by providing them with more purchasing power.  VHDA often works closely with the County programs to offer additional benefit to First Time Home Buyers. 

Recently VHDA has expanded its programs to include streamline refinancing on the FHA loans currently serviced by VHDA. This allows a borrower to refinance at a lower rate, even if the home is “upside down”. It also provides options to help cover the closing costs of the refinance. They may even me low to no-cost loan options available for those who qualify.

The Rapid Refinance program was instituted with a short window of opportunity to help those borrowers that purchased prior to the housing crisis that have interest rates over 6% and were in an interest only loan program by allowing them to refinance using a no doc program.  This program also gave 1% credit towards the borrowers closing costs. 

VHDA continues to strive to find solutions to help Virginia’s low to moderate income families find affordable solutions to their mortgage needs. Email me at sarah.c.pichardo or give me a call at (703) 929-1701 to let me show you how these programs may benefit you or someone you know. 

Analogies sometimes help individuals not familiar with a certain industry to understand a related concept.  One of my favorite analogies in the mortgage industry is the one that compares a Loan to a Chair; for good support, both require four legs!

The 4 “legs” of a loan are:

1.       Credit Score

2.       Loan To Value

3.       Debt to Income

4.       Documentation

Credit scores are fairly easy to understand:  If you pay your bills on time, you should have good credit.  Credit scores allow lenders to evaluate the past payment history of an individual and determine the implications in regards to future probability of loan repayment.

Credit is an important determining factor in many areas of one’s life. It can determine the interest rate they receive on car loans, credit cards, and mortgages. Even employers sometimes look at credit scores to determine is a candidate is worth the financially responsible.   It is important to review your credit report regularly (at least once a year) to determine what is being reported about you and to make sure the information is accurate.  Many lenders have analyzers that can help determine if there are things and individual can do to improve their scores.  These analyzers can often predict “what-if’s”, such as paying off or down on various accounts, opening or closing accounts, and increasing or decreasing a credit line.  These various actions can often reward the individual with the ability to maximize their credit scores. 

Loan to Value (LTV) is the amount you are putting down to the value of the home or the equity you have in your home.   The more you put down the less risky you are to a lender.  If you have sufficient resources to purchase the home in cash you do not need a mortgage.  For those of us that are not in that situation we will want to balance our precious resources of cash to the cost or monthly payment to find a balance that works best for each family’s personal situation. 

Debt to Income (DTI) indicates to the lender whether or not you can afford the home.  Lenders consider 2 ratios:  The Housing Ratio and the Total Debt Ratio (also known as “front ratio” and “back ratio”).  When one thinks in terms of a budget, they typically look at their net income or what they take home each month.  Mortgage lenders look at the Gross income with W-2 borrowers.  Income is calculated differently for a salary borrower than it is for an hourly borrower.  If an individual works 2 or more jobs, receives bonuses, overtime or commission, then 2 or more years of these records are necessary to be able to use the income to qualify.  In addition, the most recent 2 years of filed federal tax returns with all schedules and W-2’s are analyzed to determine the income that can be used to qualify.  Often times, prospective borrowers are shocked to learn that unreimbursed employee expenses on their federal tax returns can impact their ability to count the income they believe they are earning.  Self-employed borrowers are calculated in yet another way. 

Documentation is rather easy to understand in that it is just the need to provide the documents necessary for a lender to make the determination of risk.  Typically a lender is going to require a minimum of 1 months’ worth of pay stubs, along with year to date info. In addition, the past 2 months of the most recent asset/bank statements will also be taken into account. It is important that an individual is prepared to provide all pages of the required statements, in addition to sourcing any of the deposits that are not direct payroll deposits. Be especially careful during the time of a mortgage transaction to limit or eliminate any “non- sufficient funds” as well as overdraft protection charges.

Depending on the Program, each of these 4 legs will impact the loan and qualification/pricing. Send me an email at sarah.c.pichardo@gmail.com or give me a call at (703) 929-1701 so we can determine the program that will best benefit you.

We’ve all heard it’s a great time to buy. However, there may still be some lingering questions pertaining to the benefits and incentives to home ownership. The pride of home ownership is culturally ingrained. We all know, starting in childhood, that one day we will grow up, choose a career, find a partner, and buy a house. Unfortunately, a turbulent economy and an uneasy housing market have driven many to postpone home ownership.

With the recent rebound of the housing market, and interest rates at a 50 year low, one may ask, “What is the REAL benefit in homeownership?” Well, aside from the just the pride of ownership itself, financial security is also reinforced. As a renter, you are only bound to your residence by a lease, and when your contract ends, you can get up and move as you please. This is good for those with occupations that call for frequent relocation. For those with careers and families, especially those with children, it is in their best interests to become established within their community. Many don’t want the “burden” of a mortgage, but fail to realize the contingency of their financial situation when an individual other than themselves decides their monthly housing or rent payments.

Purchasing a home not only provides financial security, but can provide financial growth as well. When you rent a home, you are helping somebody else pay his or her mortgage. By purchasing your own home, you are essentially taking money each month from your right hand pocket, and putting it in your left hand pocket for later. For most taxpayers, the interest you pay on your mortgage qualifies as a deduction against you income, allowing you to keep more of the money you make. In addition, a traditional mortgage ensures that each portion of your mortgage payment goes to paying off the actual mortgage debt, thereby increasing the portion of the house that you actually own. If you eventually decide to move, you can get all your money back if you sell the house for what you bought it for, or you can even make money if the value of the house has risen, and you sell it for more than what you bought it for.

In the Northern Virginia area, the average increase in the value of homes historically (over a 50 year period of time) has been approximately a 6% growth. This value takes into factor year to year fluctuations and economical corrections- the area has seen growth in excess of 20%, in addition to occasional losses and drops in home values. However, taking the average of this 50 year span, home values in the area grow an average of 6% each year. This growth, even in during the time of economic instability, give a strong indication that as the economy continues to rebound, home values will continue to rise. At this time, the prices of homes are still lower than they have been in years, but are paired with mortgage interest rates that are lower than they have been in 50 years!

In all the ways that one can build financial wealth, it is through home ownership that many Americans attribute their success. One of the reasons we have been so successful in amassing our personal wealth is due in part to the home buying programs we have here in the US, that allow us to leverage what we have to increase our wealth. There are programs that allow little money down, and Virginia even has programs that allow for no money down! By leveraging a small amount of money (your down payment) you can have a large amount of money (your mortgage) working for you to help build your financial assets.

Knowing whether or not it is the right time for you to purchase can be an easy process – speaking with a lender will allow you to evaluate your options. Keep in mind that neither your lender or realtor will be making your monthly payments for you, so it is important to ensure that you maintain control, and not allow yourself to become contractually obligated to a home that exceeds your comfort zone for the monthly payment. Many first time homebuyers will prepare a budget with what they currently make balanced against monthly financial obligations. With a firm figure in mind for your monthly payment comfort zone, a good idea of the available money you have to put down can help you quickly determine the best program available to you.

Make sure you and your lender speak the same language, in that when you discuss your payment, it includes all the components: Principal & Interest, Taxes, Insurance, Mortgage insurance (if needed) and the HOA or condo fee if applicable. Acceptable sources of down payment may be from the borrower’s own checking/savings/ 401K accounts, employee benefits/Live near Your Work programs. Some programs will allow gift funds, but all programs do require that the source of funds used be satisfactorily explained.

Some of the most used programs available today include:
• Conventional
• FHA
• VA
• VHDA
• USDA

Make an appointment today, and we can go over your personal and financial situation to determine you options, and whether or not it is a good time to buy. Even if it isn’t, I can provide you with the information and resources you need to get on track for the path to home ownership! Call me at (703) 929-1701 or email me at sarah.c.pichardo@gmail.com.