With the immense tidal wave of refinancing going on right now, I think I'm seeing the beginning of a real and sustained boost to the economy. I didn't realize that so many A credit borrowers with equity in their property existed! The borrowers that my company is seeing right now are very savvy and goal oriented. They are seizing the opportunity to refinance at the lowest fixed rates in the last 50 years and they are taking cash out for specific and well thought out reasons. I am personally doing loans for borrowers who are using their equity to put in a swimming pool, build a deck, kitchen remodel, sunroom addition, and finish a basement. I am also doing some debt consolidations as well but the debt does not appear to be accumulated irresponsibly. The borrowers who are not taking cash out are just plain saving $100's per month on their current mortgage payment and many are trading in their ARMs. FHA streamline business is booming too. We are saving people an average of $200/mo on streamlines. I'm pretty sure the monthly savings will at least be partially put back into the economy.

The best part of what I am seeing is the fiscal responsibility of the clients who are entering the market right now. They are well qualified with excellent credit scores. However, they are all just about to pump much needed spending into the economy. We're not talking big screens and trips to vegas this time. The money going in right now is going to trickle down and help everyone along the way. I don't see this wave as the beginning of a bubble. Being in the front lines of the industry, us mortgage pro's have a much better idea of what is really going on out there. I remember back in late 2007 thinking that we were already in a recession. My denial rate was running around 75% of all applications. No one could borrow and so many people were way over their heads in monthly debt. Spending was falling off a cliff. It only took the Gov't almost year to officially announce that we had been in a recession for 10 months.  The rest is history.

There are many people out there who think that low rates are going to cause the exact same problem that put us in this mess. I'm hearing it from the headlines to armchair economists. They obviously don't have a clue as to the self regulation that has taken place in the mortgage industry. Just because rates are unbelievably low does not mean just anyone can get a loan. Full income documentation, high credit scores, and restrictive debt ratios put this wave of new loans in a total different class than the easy money of 05 and 06. We are getting back to traditional lending guidlines and this will be paramount to the future of the mortgage industry. Some criticize and say that lending is too restrictive. While this is probably true, the pendulum has to swing both ways. We have gone from one extreme to the other in the last 18 months. Soon we can strike the balance and let managed risk back into the market. The good borrowers who just don't fit the box right now will likely be back in the game in the next 12 - 18 months. By that time, hopefully we will be back on the road to a stable housing market and a recovering economy.

I will go out on a limb right now and say the headlines and sentiment are going to change for the better by the end of June 2009. The entire year will likely be quite difficult but I really think we may turn the corner sooner rather than later. It will be a long tough slog to 3% GDP but America will survive!

I think you will find that most of us are having the same experiences with our customers.  There is light at the end of the tunnel....

Bingo.  Your analysis matches my thoughts very closely.  The fears of persistent low interest rates creating a new bubble seem way overblown, because buyers, lenders, and investors are going to be exceedingly careful given the lessons of the last two years.  It'll take quite a while to dig out of this mess, especially as unemployment mounts, but there are starting to be good signs, sustained low mortgage interest rates (for solid credit borrowers) being a case in point.

Of course, at some point down the road we'll all forget the lessons of '07-'08 and there'll be another housing bubble, but let's hope by then we're all old enough to be the grumpy old timers who everybody ignores as we warn them about what can happen. 

Keep in mind that after 9/11 the mortgage industry was single handedly responsible for bringing the economy out of a recession and pumping in trillions of dollars. Our economy boomed on what amounted to almost 80% of the mortgage industries market share: subprime loans. This market has virtually disappeared. Even though the majority of my loans are A paper borrowers I don't think this is enough to help in my opinion. Low rates are only helping those who can take advantage of them which is 10 to 15% of the total mortgage market over the last few years.

Since Jon is right in stating lenders are going to be exceedingly careful given the lessons of the last two years, this reinforces my belief that banks won't address the needs of the remaining 80% of the market that ballooned due to loose guidelines and programs.

Because our economy was built up and I would argue sustained by this percent of the market and banks will not make the same mistake of loaning to this market, it will be hard for the economy to recover these lost dollars that have propped up our economy the last 8 years. 

We are still several years away from recovery and I still several problems stemming from real estate on the horizon.

Don't get me wrong as I am extremely grateful for the increase in my business but I remain bearish. 

Mike King:

Since Jon is right in stating lenders are going to be exceedingly careful given the lessons of the last two years, this reinforces my belief that banks won't address the needs of the remaining 80% of the market that ballooned due to loose guidelines and programs.

From what I remember, subprime consisted of only 25% or so of total loan volume.  Did I miss something?

Kent,

I said subprime when I meant non conforming loans. Sorry for the confusion.

Great post Bob.  I hope the guidelines do loosen a bit, as i feel they have moved to far.  For one, i would like to see stated loans come back for 740 credit scores and above with lower ltv's.  what we dont need are 100% ltv sisa with 600 credit scores.

Stephen Ames:

I think we're only thinking for the moment...It's far from over even though we all feel great today due to low rates...Don't let your guard down just yet...

Expect the best but prepare for the worst.

I do believe that 09 is going to be really rough. I guess my post title should be "The End of the Economic Contraction may be on the Horizon". I don't think growth will return until 2010 and it will be meager at best. However, I do believe that we will see a rebound in the doom and gloom that is dominating the markets. Headlines will likely soften around the middle of 09.

I did a little math on my pipeline over the weekend. We currently have 51 rate/term and cash out refinances in the pipe that have either just closed or are about to close in the next 3 weeks. There are some debt consolidations but the majority of cash outs are for major purchases, remodeling/renovations, and even downpayments for investment properties. The total cash out for the loans is about $825,000. The total monthly savings is just about $14,000. Now, just to throw a number out there. Lets say there are 200 mortgage shops in each state just like mine (very conservative). That would equal $8.25 billion being injected into the economy and $140 million of freed up monthly cash flow. This is in just a 2 month period of time. How can this not show up in economic reports down the road?

Bob Hill:

This is in just a 2 month period of time. How can this not show up in economic reports down the road?

I think the question moving forward is, can this trend(cash out refi's) continue and be sustained for the long haul in a depreciating market. It will be great for the economy in late 09 but one would have to think that with rates being so low, after everyone that can qualify jumps on the bandwagon and refinances in this boom during the next year, what do we have after that going forward to sustain this cycle?  

I think this is a great point...depending on perspective, things can be viewed very, very cheap right now...or if you are a bear, then things still look expensive for you:

Jim Paulsen channels the spirit of Gordon Gekko

By MarketWatch
12/23/2008 06:05:00 PM

"What we need back is the one thing the public blames for this crisis: Greed." Jim Paulsen tells Andrew O'Day "we need people wanting to step and buy cheap assets. Greed and value are starting to entice buyers, and I think that is a good sign that maybe we're at the front end of the end of this thing." The secret, Paulsen says, is to help unfreeze the panic in the healthy economic players who have jobs and businesses; to persuade them that it's "it's O.K. to go out and spend some money again. It might be O.K. to hire again. It might be O.K. to buy a car."

Mike, I would hope it is a balanced purchase market and the beginning of property appreciation. Job creation will be back on the table at some point too. Another thing to keep an eye on is managed risk and portfolio lending. A lot of good borrowers are being shut out right now and the industry knows this. I'm not talking about hard money either. The cost to lend will likely be low for several years (we hope!). I have a lot of good borrowers that would take 7 - 8% in a split second if I could offer it to them. 7-8% 30 year fixed can be quite profitable if done correctly. 2005-07 is the textbook for doing it incorrectly.

As soon as property values stop depreciating, we will see guidelines loosen and portfolio lending come back.  

"As soon as property values stop depreciating, we will see guidelines loosen and portfolio lending come back.  "

I'd LOVE to see portfolio guidelines come back.  There are HUGE gaping holes, particularly in Jumbo, here in CA on that side.  They just need a little more confidence.

Thank you for a refreshing breath of optimism!! I wholeheartedly agree with the sentiment that there IS light at the end of this tunnel.

I think todays data is noteworthy. I'm not talking about Caterpillar's dismal outlook and layoffs either! Sure, it is pretty tough out there and yes, there is plenty more bad economic news and layoffs coming. However, upside surprises on both existing home sales and leading economic indicators cannot be overlooked. Blips in the radar on a screen of endless bad news? Beginning of less doom and gloom? You be the judge. I will say this, I closed 2 purchases today. One was a FTHB and the other was an upgrader. All of the agents at both settlements were chatting about the upswing in activity. It was a breath of fresh air to talk about market optimism instead of how bad the RE market is. Low rates are making a difference. Most importantly the low rates are helping the psychology of the prospective homebuyer and the qualified refinancer.

I'll bump this thread once a month so we can see how things progress.....for better or for worse.

The stock markets are starting to show some optimism. 10% gains over the last few weeks is not too shabby at all. Sucker's rally in a bear market?? Tough question to answer. Equities are always forward looking so investors must see some reason to feel a little better about the future.

Retail sales looked pretty good the last report. We need at least 3 good retail reports in a row before we can start to think that the consumer is starting to awake from a deep hibernation. I'm becoming more confident that the turn in the economy will happen in 2009.

After being the worst industry in the country, the mortgage business has become fun again. Uncle Ben dropping the bomb yesterday made me almost fall out of my chair. The remainder of 2009 will likely have the lowest mortgage rates in history. It that shall not be named has just begun.......again.

I would hope that there is some optimism in the staock market.  After dropping over 40%, there have to be some deals out there.  People will start to see that and take advantage of the low prices.

I don't know what you are seeing, but I went out to eat Monday night and the restaurant was packed.  Monday night and the wait was 45 minutes, that isn't a bad sign.  And it wasn't the hot spot in town, just Olive Garden.  Now we just need the media on board!

The Dow +500 in one day? Wall Street apparently thinks the end is in sight.

I had to dig up this thread. I guess I can pat myself on the back for predicting that headlines would turn by the end of June. Here we are and we are definitely getting mixed signals.....some data good....some data bad. Wall Street has gotten a little ahead of itself over the last month. So much has happened over the last 3 months that it can give you a headache just trying to digest it.

Long story short: What I though would be a good thing about economic headlines and the economy is turning out to be a bad thing. Irrational exuberance has wrecked the very things (QE in particular) that were supposed to support us through the year. Don't even get me started on the deficit........hopefully Uncle Ben can have some sharp words in regards reigning in spending when the FOMC announcement comes out on Wednesday.

Anyone holding their breath until 2:15pm on Wednesday?