In a sign of further weakness in the European markets, the European Central bank cut their key interest rates this morning to a record low of .50% following the path of our Federal Reserve.  In reviewing the monetary policy statement released by the Federal Reserve yesterday, its clear that economic activity is expanding but as expected at a very slow and modest pace.   It will be interesting to see what the Jobs report shows tomorrow.

Over the last two months, we have seen a nice rally in the bond markets pushing interest rates back down.  This coupled with loosening and improving lending standards and a stronger real estate market have made real estate loans extremely attractive once again. 

In the latest reports, the number of U.S. mortgages that were behind on their payments or in foreclosure in March fell below the 5 million mark for the first time since 2008.  The reduction in troubled loans along with improving existing and new home sales are why banks are beginning to get more aggressive and increasing their lending appetite in the residential home loan market. 

Commercial mortgages are also becoming much more attractive as securitization of commercial loans once again becomes active with a $500 million portfolio being securitized in the coming weeks which will make this the busiest month in the $550 billion market in more than five years. The loans are very diverse in nature and are originated across the country and consist of all property types including hotels which up to now were extremely difficult to finance.

As lenders continue to re-enter the market, it’s imperative that you expose your needs to the broad market to insure that you are getting the best possible terms.  Conventional wisdom of going directly to the big banks is not effective as a lot of better and more aggressive lenders are looking for good loans.
As a boutique mortgage banking firm, we have access to the market and through our vast rolodex can insure that your short and long term objectives are met to protect you, our valued client!  

Once again it’s time for our annual forecast for 2013. As always, our annual forecast is available on our website http://empyreanfunding.com/money.html I strongly encourage all of you to peruse our prior year forecasts and predictions. While a one year forward prediction is not as complex as longer term predictions, a look back at a longer trend is much more difficult and a true testament to our ability to look forward and provide clear guidance.

As always, our sincere gratitude goes out to our clients for entrusting in us some of your most important business decisions. We don’t take your confidence in us lightly and will continue to deliver trusted, reliable advice to you as our partners.

Now for 2013. The elections are over and as expected, the stalemate continues. With the divisions that continue between the parties, the financial divide will not create any solutions to the long term problems that will plague the markets as our leaders fail to make sound decisions for our future. Entitlement reform will stay elusive, unemployment will remain well above the Fed Target rates of 6.50% and fears of inflation will remain mostly unfounded.

Liquidity continues to improve as Central banks around the world continue to print money and pump money into the market. At last look, the Federal Reserve Balance sheet has increased over 1800% over the last five years. Along with Central banks, lenders continue to increase their allocations for lending in 2013. Insurance companies, conduit lenders and banks are also loosening their lending guidelines as competition heats up between lenders for top tier loans that are properly underwritten.

Along with the government impasses here in the U.S., headwinds from Europe will continue to dominate the news as will continued unrest in the Middle East for the foreseeable future.

Unemployment will remain stubbornly high. A look into the current unemployment figures reveal that while the unemployment rate itself has dropped, true unemployment is still very high as the “participation rate” which measure the actual number of people eligible to work vs. those actually working is still at a 30 year low. An economic recovery will take much longer than most anticipate so a substantial improvement to unemployment is not expected through 2013.
Inflation will still remain in check through 2013. I continue to watch for deflation as a larger concern than inflation as excess capacity and lack of wage growth will keep inflation in check. De-leveraging will also continue at a rapid pace as the massive debt bubble that exists globally continues to be unwound. Remember that the Fed does not control the amount of money circulating in the economy nor the speed at which it turns over. Until the money actually makes its way into the economy and starts to be utilized, the impact of the liquidity will not be felt. Monetary growth and final demand in borrowing will aid productivity and income and until then, inflation should remain tame.
Now on to more of our expertise: the real estate and housing market. 2012 saw much more activity than expected as home sales and real estate values stabilized and in some cases improved beyond expectations. Problem loans and foreclosed home figures are slowly dropping and moving in the right direction. Segments of commercial real estate such as multi-family continue to do well and in many markets are beginning to over-heat. With these low interest rates, many investors will continue to pick up historically undervalued properties as alternative investments may not have the same attractiveness.
As for interest rates, for years we have been of the opinion that the 30-year Treasury bond rate could not go up and stay up as the Fed continues to stay involved. For many expecting higher interest rates, the wait has been expensive. Even with the recent increase in rates, our view remains the same. Interest rates may, will and have gone up based on periodic changes in psychology. However, the underlying fundamentals will insure that they will not continue to rise as we expect rates to remain at the current levels with a downward trend through the end of 2013.

P. Jacob Yadegar
Empyrean Funding Inc.
Your Mortgage Loan Specialist
Commercial and Residential
310-571-3672
310-571-3681 fax
www.empyreanfunding.com
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