Deanna and I just passed our Nationwide Mortgage Licensing System & Registry exam and have passed with flying colors. The exam does not have to be taken and passed until next June but we wanted to get this out of the way. 

Basically any loan originator that does not work for a depository institution (bank, credit union or other savings and loan) has to pass this test. The test covers Federal Mortgage-related laws, General mortgage knowledge, Mortgage loan origination activities and Ethics. 

So as I like to say you get an opportunity to work with people who know more than rate and that can make the difference in getting your loan closed on-time (or at all).

Tip of the week.  A seller held second mortgage may be the right thing to help sell your house.  Conventional loans allow for seller held second mortgages.  For the right seller this may be the right solution.  Often if very little is owed the seller can still get most of their equity out of their home.  And then create a stream of income from a seller held second mortgage.  The loan at a minimum cannot be callable before 5-years and the buyer must qualify debt/income ratio wise.  Now days this is the best way to sell a home that is outside of the FHA loan limit range where the seller has a strong equity position.

Economic news; we have seen rate pressures beginning last week and continuing into today with very strong consumer spending dollars. The Fed has jumped in to buy Mortgage Backed Securities (MBS) to help bring yields down. But know that we are nearing the end of their purchasing of MBS; this initiative is scheduled to expire at the end of Q1 2010.

 

Last Friday stronger than expected November Employment report released this after December 4^{th when}, Bernanke came out repeated the Fed's plans to maintain the fed funds rate at extremely low levels for an extended period of time.

According to Bernanke, the Fed still expects the labor market to improve very slowly, so they are reluctant to remove monetary stimulus by raising rates. Fed officials believe that inflation will remain low for the next couple of years, meaning that there is little short-term pressure to raise rates.

 

Based on the results of last week's Treasury auctions, investors appear to agree with the Fed that there is little risk of higher inflation in the short-term, as demand was stronger than average for the 3-yr auction. Investors are far more worried about the risks of inflation in the longer-term, however, and the demand for the 10-yr and 30-yr auctions was very disappointing. The Treasury was forced to offer higher than expected yields to persuade investors to purchase the longer-term securities. Increasing yields reflect concern that the current deficit spending and monetary stimulus needed to help the economy recover will lead to higher inflation down the road. Since investments in mortgages have long-term time horizons as well, inflation expectations have a similar influence on mortgage rates.

 

Bottom line higher yields on Treasuries should lead to higher long term mortgage rates. Institutional investors (banks and others that can borrow at the Fed funds window) will buy treasuries .vs. MBS as the yield gets closer together. US Treasury Bonds are considered risk free investments while MBS have a risk premium due to the possibility of default on the underlying collateral of the homes.