June-22-blog

Market Commentary 6/22/18

U.S. bonds traded nearly unchanged for the week as interest rates rate remain capped by a combination of geopolitical and macroeconomic events. Key events this week that kept rates low included increased tariff tensions between the U.S. and China, a choppier stock market with a couple of ugly trading days both here and abroad, and commentary from the European and Japanese central banks about ongoing stimulative interest rate policies. Keep in mind that the world is addicted to low-interest rates and any news from our domestic or foreign central bankers about keeping rates “low for longer” is usually met with a positive response.

We are paying particular attention to the 2-year versus 10-year spread on U.S. Treasuries which compressed to near 40 basis points(bps). Economists consider a flattening yield an ominous signal of a slowing economy and it’s also a key recessionary indicator.

With what we believe to be a few tough weeks of negotiations ahead on tariffs, we are slightly biased toward floating interest rates as we can see the case for rates to go lower. However, if the geopolitical tensions around tariffs ease, we believe rates will rise quickly.

6/5/18 blog image

Market Commentary 6/15/18

Bonds traded impressively in the face of several important events this week. The most important economic event was the announcement by the Federal Reserve to increase short-term interest rates by a ¼% in response to a strong economy. They also stated an intention to pick up the pace of future increases. In his press conference, the current Fed chair, Jerome H. Powell, discussed the need to continue to raise rates in response to a strong economy, which is at nearly full employment, and signs of rising inflation. The Fed raises short-term rates as a defense against overheating the economy and to help protect against asset bubbles, but this comes at a cost to consumers and businesses who will experience higher borrowing costs.

Two other important global events, the U.S. and North Korean summit and the European Central Bank meeting, were also potentially hazardous to bond yields. The US-N.Korea summit was a success which lessened geopolitical tensions and the ECB announced that it will begin winding down its stimulus program, known as quantitative easing, later in the year, but did not expect to raise interest rates until well into 2019.

To make things worse for bonds, the European economy is showing signs of slowing and there’s an emerging threat of a trade war with China, both of which would certainly cap the rise in U.S. bond yields.

We continue to remain cautious with respect to interest rates and are biased toward locking-in rates, especially with the 10-year Treasury note trading near 2.90%.

Why Having a CPA on Your Mortgage Team Puts You a Step Ahead. Meet Neil Patel, CPA

Most people in the mortgage business do not have a tax background, but Neil Patel, a licensed mortgage broker at Insignia Mortgage has a special superpower; he is also a Certified Public Accountant. Patel’s comprehensive business management and tax experience enable him to better structure loans for the unique, complex financial situations of high net worth individuals. In today’s environment, determining what type of loan is best for particular circumstances is no longer simple—even for individuals with traditional, predictable income streams. This task becomes all the more complicated when non-traditional cash flows are present, such as with foreign nationals, real estate investors, and others who are self-employed. Patel specializes in sourcing financing for high net worth individuals and for the complex loans that are Insignia Mortgage’s specialty.

A Southern Californian through and through, Patel grew up in Orange County, went to school in San Diego, and landed in Los Angeles. He graduated from University of California San Diego in 2011 with a BA in Economics and a minor in Accounting. Prior to joining Insignia Mortgage in 2014, Patel studied for and earned his CPA while working at accounting firms Schonwit & Company and Stuart A Ditsky, CPA PC. He is currently a board member for the CalCPA Los Angeles chapter and maintains his CPA designation through 40 hours of Continuing Education credits per year, which typically include conferences and classes. Patel also obtained his real estate salesperson license and mortgage license through the NMLS in 2014, enabling him to work under brokers to bring in business. As Patel transitioned from underwriting files and analytical work to generating business at Insignia Mortgage, he earned his real estate broker’s license. This designation allows Patel to directly generate business for his firm, something he’s aspired toward since starting at Insignia. “In the next few years, I hope to bring in more business for Insignia through extensive networking and meeting with as many realtors as possible,” says Patel. “I’m hoping these activities will attract a greater number of well-qualified buyers.”

The youngest broker at Insignia Mortgage, Patel also caters to millennial and first-time home buyers. “As a millennial myself, I can relate to the issues specific to this stage of life,” comments Patel. He explains that there is one constant when it comes to lending: when approving, banks look to past cash flows. “I work with those individuals who are still highly qualified, but due to their profession, age, or other circumstance, their tax returns do not convey their true net worth.” In other words, the income verification process becomes incredibly convoluted and involved. That’s where Patel comes in.

Patel’s CPA specialization helps him work with real estate investor clients. For example, if an investor is looking for a loan to purchase and flip a property, the likelihood of approval decreases due to the associated risk. While the buyer is investing in the potential for future cash flows from the property, this “potential” does not carry any weight with the bank. When approving loans, banks solely take into account previous cash flows. Patel understands the nuances of such situations, and how to best package and present information to the bank for loan approval.

Patel and his team recently had a client who owned over 25 tax entities and 20 properties, who was planning to purchase an $8.5 million primary residence. Insignia was able to solidify 55% lender financing by creating a corporation with a foreign trust as the beneficiary. The details included a $4.75 million loan, 7/1 ARM, 3.788% APR, no prepayment penalty on a 30-year term, and a 40-day close of escrow. In other no tax return loan scenarios, Patel may prepare other alternative financial documentation such as recent self-employed income verification, CPA-prepared profit-and-loss statements and balance sheets, divorce and retiree income, real estate schedules, and liquid asset statements.

Patel also recently helped structure a deal for a foreign corporate executive client’s $6 million second home purchase with 60% lender financing (despite a lack of U.S. income, credit, or assets). Patel and his team worked with the client’s advisors, both foreign and domestic, to structure the purchase as tax-efficiently as possible. The complex tactics and creativity used to craft these loan structures are almost limitless.

As with any independent mortgage broker, Patel’s core responsibility is shopping around to find the best rate and terms for a particular applicant. Where he adds significant value, however, is acting as a project manager to get the best loan approved—and approved quickly. Through his deep expertise in complex tax returns and lending, Patel knows what bankers need to see and how to see it in order to approve the loan. Adds Patel, “I look forward to continually amplifying our benefit for clients through my professional experience unique to the field. Not many people can say they are a mortgage broker and a CPA.”

In the mortgage business, each deal is a team effort. Patel’s expertise as a double threat—mortgage broker and CPA—offers tremendous value to any Insignia Mortgage client.

What You Can Expect Working with Neil Patel, CPA:

  • A high skill set in tax returns and complex financials to better structure mortgage loans
  • Tax and business management experience, establishing deep expertise and understanding of high net worth financials
  • Loan implications of numerous non-traditional financial circumstances of buyers, including foreign nationals, real estate investors, millennials, and the self-employed
  • Creativity and knowledge of various intricate mortgage loan structures
  • Perhaps a round of golf or a meal at a nice restaurant with the self-proclaimed “foodie”

Contact Neil today at
Phone: 424-488-3566
Email: neil@insigniamortgage.com
CA BRE: #01952615 NMLS: #1179478

Market Commentary 6/8/18

U.S. government bond yields dipped and traded favorably this week in response to mounting concerns about emerging market economies, increased tensions over global tariffs between the US and our major trading partners, and the likely prospect of a Fed Rate hike next week. However, the aforementioned events must be weighed against positive factors including the U.S.’s strong economic growth, the low rate of unemployment, and the corporate and personal tax cuts, all of which have increased business and consumer confidence and which continue to support the argument of higher interest rates.

We remain watchful of the 10-year Treasury trading pattern to see if the all-important 3% yield level is breached. We believe rates above 3% is what may make a dent in the value of stocks, bonds, and other hard-asset valuations. We also fear that if the yield pushes above 3%, rates may move higher quickly and volatility will surely follow as well.

With several important meetings next week including the U.S. and North Korea Summit, the Federal Reserve Meeting, and the European Central Bank meeting, we are heavily biased toward locking-in interest rates to protect still historically attractive rates and terms.

Market Commentary 6/1/18

In the past week, we witnessed a global inflow into the safe haven U.S. bond market as yields fell precipitously in response to the turmoil in Italian politics. Italy, as much of Southern Europe, has witnessed anemic growth for almost a decade, still has high unemployment rates, not to mention displaced workers and migrants, all of which has spurred a rise in populism. Thankfully, the fears of a new anti-Euro Italian government were quickly squashed but not before denting the stock market and catching some bond managers off-guard who had placed bets on higher interest rates globally. This week’s issues in Europe support the argument as to why our own interest rates in the U.S. may be capped as we are reminded of the flawed nature of the European Union (think Brexit) and the global implications of even the thought of dismantling the European Union would have on the world economies.

Back in the U.S., jobs are strong and the economy is robust. At least that is how the May Jobs report played out with unemployment touching an 18-year low at 3.8%.

There were 223,000 new jobs created above the 190,000 expected. May hourly payroll increased .3% in line with expectations, and for the time being, is not flashing any real wage inflation signals. Labor Force Participation fell a tick to 62.70%. Bonds responded as expected given the strong jobs report with the 10-year Treasury note closing at 2.900% up from the low of the week of 2.818%.

Housing supply also remains tight due to strong demand and a lack of inventory. At the moment, the U.S. economy is in a Goldilocks environment with a strong business sentiment, low-interest rates, and many jobs and employment opportunities available. Even tough talk from U.S. policymakers on global tariffs did little to unhinge the bond and equity markets. As we have opined previously, the only real threats to the markets currently are geopolitical, which were on display briefly mid-week, but were quickly dispatched.

We remain biased toward locking in interest rates at current levels. Should interest rates rise above 3.25% on the 10-year Treasury, we would see reasons to float interest rates, but given the strength of the U.S. economy and where interest rates are trading currently, we feel locking-in is the right move.

Market Commentary 5/18/18

Higher interest rates were all the rage this week with the 10-year Treasury bond rising to a high close of 3.12% before retreating on Friday. We pay close attention to the 10-year Treasury because it underpins the pricing of various financial instruments from mortgages to corporate debt.

This upward trend in the 10-year Treasury pierced the psychologically important 3.00% threshold which may suggest higher interest rates in the future. The reason for the rise in rates is always complicated, but you can chalk higher rates up to strong earnings and a high level of confidence about the economy, the continued normalization of interest rate policy by the Fed, our huge deficits, and anticipation of QE ending in Europe come later this year. For the week, stocks and bonds shrugged off geopolitical tensions involving disarming North Korea, trade tariffs with China, and tensions in Italy.

With the housing market in full bloom, purchases remain strong and lenders continue to find more creative ways to finance home purchases. With interest rates still in the upper 3% to low 4% range, rates are still attractive historically. Given the above, we are biased toward higher interest rates in the coming months and believe locking-in rates is advisable.

Ranked Top Producers for 2017

Insignia Mortgage Nationally Ranked Top Producers For the 3rd Year In A Row

Once again, Insignia Mortgage has achieved top status as among the nation’s top mortgage producers for 2017, as ranked by The Scotsman Guide, National Mortgage News, and they’ve again cracked the $150 Million Club, as ranked by Mortgage Professional America. Insignia Mortgage consistently has the highest average loan size per borrower in the country at over $1,950,000.

“We continue to focus on the loans that are hard to place due to the borrowers’ profile” said Germanides, adding, “The fact that we’re able to meet our clients’ needs to close transactions very quickly combined with our access to common-sense lenders keeps us very busy in this robust housing market.”

Chris Furie and Damon Germanides were ranked as #11 and #12 Top Producers nationally respectively for this year by The Scotsman Guide, with a total volume of $414 million, a total of 212 closed loans between them and an average loan of $1.95 million, an increase over last year’s average loan size. Chris and Damon ranked #16 and #17 respectively as top national producers by National Mortgage News.

He remarked, “We remain the top jumbo loan broker in the country by loan size. We specialize in packaging non-traditional loans for high net worth borrowers who may be foreign nationals or not using tax returns.”

Chris has been in the mortgage business for 28 years and Damon has been in the business for 14 years.

Market Commentary 5/11/18

Bonds traded in a tight range this week while stocks ascended in response to muted inflation data, a decline in volatility, and ongoing strong corporate earnings. Even the U.S. pulling out of the Iran nuclear deal and the resulting Israeli-Syrian conflict could not deter the stock market rally.

Small business optimism remains high, which is a good sign for home purchases, especially in states such as California which have a high number of business owners. Oil traded above $70/per barrel supporting a strong economy spurred on by low rates and reduced regulation amongst other geopolitical factors.

While many economists believe wage and consumer inflation will become more of a factor in the not too distant future, key inflation readings came in lighter than expected. Wholesale and consumer inflation readings were tame and included the widely watched CPI readings. All of this helped keep the 10-year Treasury note at or below 3%, even with central bankers continuing to reiterate the need to move short-term rates higher. We will see how long the “so-called Goldilocks” environment can last given that the U.S. is at or near full employment and the economy is running at high capacity levels, both of which should produce meaningful inflation at some point.

It is hard to argue the lower interest rate narrative for the moment absent a black swan event. Therefore, we remain biased toward locking-in interest rates given the potential for higher interest rates globally.

Market Commentary 5/4/18

Each new month brings a new jobs report which is one of the most heavily watched economic reports on Wall Street. April’s Job Report was no exception with the headline unemployment reading dipping below 3.90%. However, it is what is inside the report that moves the bond and equities markets, and not necessarily the headline reading.

The April jobs report was a bit of a disappointment with 164,000 jobs created versus 190,000 expected. The report did include some positives and negatives within the numbers.

Within the report, the hourly earnings grew less than expected with the annualized pace of wage growth coming in at 2.600%, down from the 2018 January pace of 2.900%. The U6 number, or the total unemployed, fell to 7.8% and the Labor Force Participation Rate ticked down to 62.8% from 62.9%

Earlier in the week, another important inflation reading was published, the Core PCE, which is the Federal Reserve’s favorite inflation gauge. Per this report, inflation grew at 1.90% over the previous 12 months and is now approaching the Fed’s target rate of inflation which is 2.00%. In the Fed’s eyes, a 2% yearly gain in inflation is a sign of a healthy economy and will enable the Fed to continue to raise short-term interest rates. If inflation were to get out of hand (which is not currently the case), the Fed could decide to raise interest rates more quickly to slow down the economy and prevent asset prices from becoming too bubbly.

At the moment, we remain in a “Goldilocks environment” with no sign of a recession. Interest rates, while higher by a bit, are still below 3% on the 10-year Treasury note, corporate earnings continue to beat estimates, central banks around the world continue to be accommodating, and finally, global tensions such as the threat of tariffs with China and the threat of war with North Korea have been subdued.

With all of this in mind, we remain biased toward locking in interest rates given the overall positive economic environment that we are experiencing and expectation of higher short-term interest rates over the coming months which should move the entire yield curve higher.

Market Commentary 4/27/18

Long-term Treasury yields rose in response to ongoing confidence in the U.S. economy. The 10-year Treasury note breached the 3.00% mark this week for the first time in more than four years. The significance of the 10-year rising above 3.00% is that it supports a strong economy and suggests the U.S. is healing and now prospering after the worst financial crisis since the Great Depression, even as some economists believe that the U.S. economy is in the late stages of expansion.

The rise in rates across the yield curve is a response to both the current forecasts by the Federal Reserve of at least three more Fed Funds increases (which would bring short-term rates) from 1.75% up to 2.25% to 2.500% and the sense that wage and consumer inflation may be on the horizon. Further supporting higher interest rates are talks in Europe about the pullback in bond purchases by the ECB, known as QE (“quantitative easing”).

In economic news, the first read on Q1 2018 GDP came in at 2.30% versus the 2.10% expected and down from 2.90% in the final quarter of 2017. Within the report, it showed that consumer spending rose just 1.1% from the lofty 4% gain the in the fourth quarter. Inflation data within the numbers were a bit hotter than expected. If today’s 2.3% GDP reading remains as intact as the final reading, the forecast for 2018 GDP growth is near 3.00%. This is good news for the economy and bad news for bond yields.

With the 10-year Treasury note near 3.00%, we are biased toward locking-in interest rates, but can also make the argument for a small dip in rates given the psychological significance of the 10-year Treasury breaking and closing above 3.00% this week.