11/01/2007

Tricky Economic Conditions

The Fed cut rates by one-half percent six weeks ago in hopes of stimulating the economy. The stock market responded favorably by trending up, but economists are still whispering notions of a recession next year. The Fed will have already met again by the time you are reading this column and the decision of another rate cut will already be known. Let’s look at key factors that influence our economy to determine the impact they collectively have on future economic conditions.

The two items we hear the most about are oil prices and the housing market. Oil prices have passed the $90 per barrel mark in recent days and are predicted to exceed $100 per barrel by the end of this year. Rising energy costs leave less money for consumers to spend in the retail markets. Less money to spend also increases delinquency rates on consumer debt. These are not good indicators we face with the holiday shopping season just around the corner. Retail associations are expecting a consumer cut-back in holiday spending, even with discounted sales prices and stores filled beyond capacity with inventories. Next comes the woes of the housing market that extend from the buyers who can no longer afford to pay payments that are adjusting up in price, to the investment firms that bought the mortgage bonds with embedded higher risks of default. I still contend that the worst of the housing market’s woes are limited to areas that experienced the highest upward trends when the housing market was strong. It makes sense that these areas would experience the poorest performance when the housing market falls because they have more room to fall. Whatever your theory, the media has permeated the downward trend in housing to all areas of the country causing the impact to be felt by us all.

The stock market has held up, but corporate performance reports indicate signs of continued weakness. There are more stocks slipping in value and trading at below average prices than this time last year. Many U.S. small and mid-cap companies are trending downward, while the stocks from global companies continue to prop-up our stock market by benefiting from international sales and operations. 

Add the component of 2008 being an election year and you have a sordid mess to figure out where our economy is going. So hang on! It’s going to be a bumpy ride.

11/29/2007

Mortgage Shopping

Deciding on a mortgage company to use can be confusing. Let’s look at who mortgage lenders are to help you know more when considering your next transaction.

In Alabama, a mortgage broker must be licensed by the State Banking Department. Initial qualifications and educational requirements must be met, in addition to periodic exams that test the accuracy of the broker’s operations and compliance with lending regulations. A mortgage broker’s operation can range from a small, owner-operator status, to a larger company with many employees to handle the business. Either way, the mortgage broker must have relationships established with financial institutions that eventually buy the mortgage paper as an investment.

The financial institutions that buy the broker’s mortgages set the rules for what type of loans they will accept, loan programs your broker will be using, and the underwriting criteria used to get your loan approved. It is typical for a broker to have relationships with multiple financial institutions to broaden the list of products they can offer. Some brokers close in their own firm’s name and sell the financial institutions a bundle of individual mortgages later. This could mean that your broker has a line of credit with the financial institutions that lets them use up their credit line before packaging and selling the individual loans later. In this case, the broker would be originating, approving, processing and funding your loan, while packaging it for approval to sell upstream later. Others close in the name of the financial institution that’s buying the paper and funding the loan.

Financial institutions are not required to have a separate mortgage brokerage license in Alabama. Banks are already licensed by their state or federal regulator to make all kinds of loans and they are backed by FDIC insurance when accepting deposits. Banks can make mortgage loans and keep the paper in their own loan portfolio, or they can package the loans to sell to other financial institutions just like mortgage brokers do. Banks establish policies that specify terms, yields, and risk the bank is willing to accept. If a mortgage loan does not fit these criteria, the bank can choose to sell the mortgage to other lenders.

Always find a mortgage broker you can trust. Ask questions and be sure they are placing you in the best product for your situation. Consult your friendly home-town bank for all of your mortgage needs.

Back to President's Articles

11/01/2007

Tricky Economic Conditions

The Fed cut rates by one-half percent six weeks ago in hopes of stimulating the economy. The stock market responded favorably by trending up, but economists are still whispering notions of a recession next year. The Fed will have already met again by the time you are reading this column and the decision of another rate cut will already be known. Let’s look at key factors that influence our economy to determine the impact they collectively have on future economic conditions.

The two items we hear the most about are oil prices and the housing market. Oil prices have passed the $90 per barrel mark in recent days and are predicted to exceed $100 per barrel by the end of this year. Rising energy costs leave less money for consumers to spend in the retail markets. Less money to spend also increases delinquency rates on consumer debt. These are not good indicators we face with the holiday shopping season just around the corner. Retail associations are expecting a consumer cut-back in holiday spending, even with discounted sales prices and stores filled beyond capacity with inventories. Next comes the woes of the housing market that extend from the buyers who can no longer afford to pay payments that are adjusting up in price, to the investment firms that bought the mortgage bonds with embedded higher risks of default. I still contend that the worst of the housing market’s woes are limited to areas that experienced the highest upward trends when the housing market was strong. It makes sense that these areas would experience the poorest performance when the housing market falls because they have more room to fall. Whatever your theory, the media has permeated the downward trend in housing to all areas of the country causing the impact to be felt by us all.

The stock market has held up, but corporate performance reports indicate signs of continued weakness. There are more stocks slipping in value and trading at below average prices than this time last year. Many U.S. small and mid-cap companies are trending downward, while the stocks from global companies continue to prop-up our stock market by benefiting from international sales and operations. 

Add the component of 2008 being an election year and you have a sordid mess to figure out where our economy is going. So hang on! It’s going to be a bumpy ride.

11/29/2007

Mortgage Shopping

Deciding on a mortgage company to use can be confusing. Let’s look at who mortgage lenders are to help you know more when considering your next transaction.

In Alabama, a mortgage broker must be licensed by the State Banking Department. Initial qualifications and educational requirements must be met, in addition to periodic exams that test the accuracy of the broker’s operations and compliance with lending regulations. A mortgage broker’s operation can range from a small, owner-operator status, to a larger company with many employees to handle the business. Either way, the mortgage broker must have relationships established with financial institutions that eventually buy the mortgage paper as an investment.

The financial institutions that buy the broker’s mortgages set the rules for what type of loans they will accept, loan programs your broker will be using, and the underwriting criteria used to get your loan approved. It is typical for a broker to have relationships with multiple financial institutions to broaden the list of products they can offer. Some brokers close in their own firm’s name and sell the financial institutions a bundle of individual mortgages later. This could mean that your broker has a line of credit with the financial institutions that lets them use up their credit line before packaging and selling the individual loans later. In this case, the broker would be originating, approving, processing and funding your loan, while packaging it for approval to sell upstream later. Others close in the name of the financial institution that’s buying the paper and funding the loan.

Financial institutions are not required to have a separate mortgage brokerage license in Alabama. Banks are already licensed by their state or federal regulator to make all kinds of loans and they are backed by FDIC insurance when accepting deposits. Banks can make mortgage loans and keep the paper in their own loan portfolio, or they can package the loans to sell to other financial institutions just like mortgage brokers do. Banks establish policies that specify terms, yields, and risk the bank is willing to accept. If a mortgage loan does not fit these criteria, the bank can choose to sell the mortgage to other lenders.

Always find a mortgage broker you can trust. Ask questions and be sure they are placing you in the best product for your situation. Consult your friendly home-town bank for all of your mortgage needs.

Back to President's Articles