The Pinnacle Report - Got to Be Debt Free.

20090611 - To The Moon, Baby!

Thu, 11 Jun 2009 17:04:11 PDT

30 yr – 5.59% w/ 0.7% in fees. Up from 4.91%. 1 yr ago – 5.97%
15 yr – 5.06% w/ 0.7% in fees. UP from 4.53%. 1 yr ago – 5.20%
5/1 ARM – 5.17% w/ 0.6% in fees. UP from 4.82%. 1 yr ago – 5.70%
1 yr ARM – 5.04% w/ 0.7% in fees. UP from 4.69%. 1 yr ago – 5.09%

(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -6-11-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Mortgage Rates: Rates have popped up quite a bit over the last few weeks. I guess this goes to show you that even a blind dog finds a bone once in a while. I figure, if I keep predicting something enough times, eventually I’ll be right. What am I talking about?

For the last few years, one of my biggest concerns has been the appetite or desire for buyers of our country’s debt…bonds...to continue. Without the continuous purchase of this debt, interest rates would have to rise in order to attract the money to keep buying. As long time readers may recall, what happens in the bond market directly impacts mortgage rates. Mortgages are eventually converted to bonds and sold as mortgage backed securities, MBS. These MBS investments compete with any other investment for investors’ money. Investors have choices where to put their money, right? If they’re interested in bonds, they can buy US government, municipal, corporate and mortgaged backed. or they can go a whole other route like guying GM's Hummer division, the Sears Tower, Gold, Oil, Food, etc. US government debt is (or at least was) considered the safest investment in the world. THIS appears to be changing, and changing fast.

As the US government debt load balloons with bailout after bailout and spending spree after spending spree, the perceived risk of lending more money (via the purchase of US government bonds) to the US has grown. As a result, investors like China and Japan are not willing to pay as much for this investment, so the price goes down. When the prices of bonds go down, the yield or return goes up. That has happened rapidly the last few weeks. Fixed rate mortgage rates closely track what happens in the US government bond market, specifically the 10 year bond. Not always and sometimes there are anomalies, but usually they track closely with one another, with the government bonds being the big dog on the porch. Where it goes…others follow.

So, government bond yields have risen quite a bit this year and have really accelerated over the last few weeks. Chatter about the quality of the US as a borrower is weighing heavily on the markets. As a result…mortgage rates have jumped quite a bit too.

Is this a one trick pony, or the beginning of a longer term trend? Me thinks this is the beginning of the beginning…but in reality, what do I know, I can't even use proper grammar? Let’s review some recent economic stats:

Housing: Existing Home Sales are up? Yay!!!! Or not? I didn’t realize this, and I’m sure most other people didn’t as well. Existing home sales are reported as such whenever there is a "signed contract" for a home sale. It is NOT measured by the actual "closing" of the transaction. For example, Buyer A and Seller X sign a contract to buy/sell a home and for whatever reason, the transaction never closes. Imagine that Buyer A applies for a mortgage. He is not approved, the transaction never closes. This still gets reported as a sale. Did it actually sell? No. Does this seem crazy? Yes. So, don’t always believe what is reported…even here. Do your homework. Is this a cooking of the books by industry insiders?

Latest reports show housing sales are up. I don’t think so.

Local appraisal company, IRR Residential Axiom, reported that single family residential unit sales over the last 12 months in Grand Traverse County Michigan are 10.32% lower than the previous 12 month period. That's not so bad. Prices are also down 10.02%. Now, these are just statistics! Everyone’s situation is different and depending on the market segment and location, the numbers will certainly vary. For example, waterfront activity is down 30.77% from 12 months ago and prices are down 8.76% in GT County and there is a 45+ month supply of inventory on the market. Ouch! That's not the worst though, Emmet County sales are down 82%, prices are down 31% and at this pace, it will take almost 6 years to sell the inventory on the market. All is not lost, Charlevoix County sales are only down 45%, but prices are up 7%. Remember, these are all just statistics…Contact mgarrett@irr-residential.com to be added to their email distribution list for similar type reports.

Mortgages: The recent voluntary moratorium by mortgage lenders on foreclosures earlier this year has been lifted. Banks are now starting to foreclose on homes in an accelerating fashion. May 2009 saw an 18% increase from May 2008. 1 in 398 homes with a mortgage received a foreclosure notice. While it was reported that foreclosures were down in Jan and February; March, April and May have seen 30%+ increases in foreclosures from the same periods in 2008. Not good and more are coming.

Employment: Jobs are key to economic stability, let alone growth. Always has been. Always will be. Unemployment, as reported, has risen 3.9% and 5.37 million jobs have been lost in the last 12 months. This too is a figure that gets manipulated by the government. If it was reported the same way it was calculated just a decade ago, the rate would be another 2% higher.

People without jobs eventually have a hard time paying their mortgages. Higher mortgage delinquencies/foreclosures will greatly impact future housing prices. When banks must sell and buyers are far and few…prices must be dropped in order to move this inventory…either prices fall further, or banks become landlords instead of sellers.

If you must sell, DROP YOUR PRICE and sell the house NOW!!!! It’s going lower. :-(

Where are mortgages rates headed and why?

The yield on the 10 year T-Bond has risen to its highest level since October 2008. The amazing part is that even with the government buying $19 billion of their own bonds, rates still rose to an average yield of 3.99%. Next up is the sale of $11 billion in 30-year bonds. 30 year bonds have also risen to their highest level since October 2007. Since mortgage rates closely track these investments, borrowing just got more expensive. More expensive means less demand…I don’t think that will help housing prices either.

After years and years of low rates, borrowing costs are rising, for individuals and the US government. Other nations that have purchased these bonds over the last several years appear to be wising up, or demanding more return for their risk. Uncle Sam is quickly becoming a sub-prime borrower. Either rates rise, the dollar falls, or these creditor nations take their ball and play another game by investing their money elsewhere…

Russia's central bank says it may switch out of U.S. bonds and into IMF bonds. Russia's Finance Minister Alexei Kudrin says Russia will buy $10 billion in IMF bonds. While not a huge percentage of their portfolio, it's still a strong statement. China floated an idea earlier in the week about buying $50 billion in IMF bonds. Brazil said it will buy $10 billion worth of IMF bonds. If they’re not buying our government debt, they’re not buying our mortgage debt either.

LESS DEMAND = LOWER PRICES = HIGHER RATES.

Is this the start of a trend, the middle of a trend, or the end of a trend? The balance of power in the global financial system is shifting. It favors real resource producers and creditors, not borrowers and spenders.

This recession (some call a Depression) was caused by too much credit and massive bad investment. It will not be cured by government spending. We already have excess capacity, especially in industrial production. Lower interest rates sounds like a decent idea, but it won’t and hasn’t worked. What business wants to borrow more money, even if at lower rates, when they don't need to? Why expand production when there is already too much to begin with and demand is stagnant in most parts of the world and falling in the rest?

Besides, what does a government really accomplish when it manages to artificially increase consumption with lower rates or through confiscation…oops, I mean higher taxes and redistribution? Increased consumer spending primarily benefits the producers of consumer goods. Those producers are in China and the developing world, not America. It's true that local retailers may profit. But the bulk of the profits go back overseas anyway.

At the heart of this bad policy is the fallacy that prosperity comes from consumption. Ever met someone that spent their way to prosperity and accumulated wealth? Didn't think so. Spending money doesn't create wealth. Prosperity begins with capital formation (saving) and production (manufacturing….actually making something that people want).

For some reason, somewhere, things got all messed up. People seem to think wealth begins with consumption and spending. This change from a manufacturing country to a financial services based country has failed. It’s turned out to be a world history making mistake. As America produces less and borrows more, the buyers of its bonds and dollars will continue to defect to better investments in other places…

Gold, Oil, Food, Energy and basic Resources like farmland, agriculture, forest land, water, etc. It’s back to basics.

Thought of the Week: “Try to become the kind of person that people would follow voluntarily, even if you had no title or position.” Brian Tracy

20090527 - A Month of Sunday's - We're Toast!

Wed, 27 May 2009 14:46:14 PDT

Mortgage Rates: Rates have been up, down and all around. The party may be over. Today, Wednesday May 27, 2009, witnessed mortgage rates jump about ½ percent. Oh well…we knew it couldn’t last forever. Last Thursday, 30 yr fixed mortgages rates averaged 4.82%...the same as when we last met in late April. Next week, look for some upward changes.

Why all the fuss Big Jim? Well, does anyone remember me talking about investors’ appetite for all the bonds the US government is going to have to peddle in order to pay for the trillions of dollars in debt? Well, do ya? I thought so….well, the chickens may be coming home to roost. But I could be wrong…and most likely will be.

Mortgage rates and all interest rates are heading higher for multiple reasons. However, mortgage rates are still low, under 6%. But so are housing prices and employment.

So what’s happening? Let’s try to ‘splain’ what we see…at least from the cheap seats.

Housing: Home prices fell 19% from a year ago, according to the Chase-Shiller index. But at least volume was higher by 2.5%, led largely by the sale of foreclosures…you see, lenders must sell the homes on their books. The average Joe, at least has somewhat of a choice. As more and more people lose their jobs, less and less people will be able to afford their house payments. Can anyone see the writing on the wall?

Consumer Confidence: For some bizarre reason, consumer confidence ‘apparently’ rose last month. Why? What are these people thinking? Maybe they’re not. The markets chose to ignore the Housing data and instead focused on the consumer…after-all, they supposedly represent 70% of the market. The other 30%? Government spending. (Pssst…I say they represent 100% of the market…the government spends our money anyway, don’t they?)

Equity Markets: The markets were up 150+ points the other day. The state with the biggest economy in the nation is going broke…California. So is the nation's biggest manufacturer. GM. Profits are falling and the government is racing to put in place a form of “state-sponsored” capitalism much like Mussolini's Italy or Peron's Argentina. Doesn’t seem to make sense that the market sare rising from this news…but what do I know? Today they were down 150+ points.

Panic Mode? Flight to Quality? - The markets are trying to determine what is happening. Odds are we may go all the way to 10,000 on the Dow. It would be a classic “Sucker’s Rally”. But what the heck do I know? Many investors have been buying US Treasuries, thinking this was a good investment, the safest in the world..a place to park your money to ride out the storm. Problem: The people stoking the fire are from the government. I’d think twice about that. Lending 101: The buying of US Treasuries is the same as lending money to the US government. Recently, investors have been so scared and bid up the price on government treasuries (thus reducing the yield) that for 90 day Treasuries, you’d earn a whopping zero percent. Odds are, that won’t happen again....probably not in our lifetimes.

Anyway, when deciding to lend anyone any of your hard earned money, or those of your clients, you’d generally look at the borrowers’ balance sheet, right? Let’s do that now, look at the US government. Call me a gloom and doomer, I don’t really care. I’m a realist and I’m not going to be on this bus when it goes over the cliff.

The US government balance sheet has a lot of assets and lot of liabilities. When you add them all up, you get a really big number...one with a BIG negative sign in front of it. In 2009, the US is expected to bring in roughly $2 trillion and spend almost $4 trillion. Not a recipe for success, is it? In order to pay for all this spending, the government will do one of two things, or a combination thereof:

- Print more money out of thin air
- Raise interest rates to attract buyers of our debt

Either way, the dollar becomes worth less and less. In fact, the largets holders of US dollars, the Chinese, have quietly making deals with other trading nations to make direct exchanges in money as opposed to the more normal route of exchanging Chinese remnibi/yuan, for US dollars, then exchange the dollars into the trading countries' currency. Me thinks the Chinese understand what is going on here are saying..."Screw this! We don't want no stinking dowwars!" and they're bypassing the system altogether. They now have currency swap agreement with 6 other nations. The future of the dollar is being scripted for everyone to see.

Yeah Jim, those are all a bunch of numbers and a lot of mumbo jumbo, what does it mean for me, the average Joe? I’d suggest that things will be much worse before they get better. Hunker down, save your money, get out of debt, teach your children to speak Chinese and kiss your bosses rear-end every day because without a job, odds are you will be toast!

Thought of the Week: “What must happen, will.”

20090420 - Smoke and Mirrors

Tue, 21 Apr 2009 05:32:52 PDT

Pinnacle Report 4-20-09

30 yr – 4.82% w/ 0.6% in fees. DOWN from 4.87%. 1 yr ago – 5.88%
15 yr – 4.48% w/ 0.6% in fees. DOWN from 4.54%. 1 yr ago – 5.40%
5/1 ARM – 4.88% w/ 0.6% in fees. DOWN from 4.93%. 1 yr ago – 5.48%
1 yr ARM – 4.91% w/ 0.7% in fees. UP from 4.83%. 1 yr ago – 5.10%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -4-16-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Mortgage Rates: Rates have improved over the last few weeks, albeit fractionally. The looser underwriting guidelines have “apparently” become available to help people refinance that meet the special criteria as laid out by Washington. Refinances are now available for those people that originally made a 20% down payment when they purchased the home, but now find that based on lower values they cannot refinance very easily. Fannie Mae and created the new Fannie Mae Refi Plus program. Details have just been made available…stay tuned.

Rates are still good. How long will they last? If you get a smokin' bargain on a home and have good credit, NOW is a great time to buy...but what will happen to home prices in the future? Up-Down-Flat?

Retail Sales – As most of you already realize, Consumer Spending is a huge part of the US economy. When people cut back on spending, it impacts someone else’s income…and it just keeps snowballing from there. March Retail Sales fell 1.1% and are down 9.4% for the last 12 months. This tends to be deflationary and helps keep mortgage rates lower.

Inflation – Wholesale and Retail inflation figures for March are showing some of the largest declines in prices in decades. Lower demand often leads to lower prices. Lower energy costs are impacting these figures as well. As a consumer, lower prices are good. As a business, lower prices can move things off the shelves or out of the warehouse, but at the cost of lower profits. Again, one persons spending is another person’s income. This is certainly deflationary and helps keep mortgage rates lower.

Manufacturing – Industrial Capacity Utilization measures the efficiency of America’s factories. This measure has fallen to 69.3% in March, one of the lowest figures since the 1950’s. A clear sign of today’s economy. Knowing that the economy is not about to catch fire, this report helps keep mortgage rates lower.

Housing – The woes continue in housing. In February, there were some surprises to the upside, but at the cost of prices. March showed building permits down 45% from a year ago and housing starts down 48%.

You may have heard some mumblings from "experts" in Washington about seeing the light at the end of the tunnel and the rate of economic deterioration may be slowing. While I wish to remain optimistic, many facts are contrary to what the experts are saying.

Foreclosures - RealtyTrac reported on 4/17 that foreclosure filings reached 800,000+ for Q1’2009, up 24% from Q1’2008. 340,000 of these came in March alone, a 17% increase from February and 46% higher than March 2008. The trend is not our friend. Keep in mind, some of these figures spiked due to an artificial drop and voluntary moratorium on foreclosures implemented by many large banks over the last few months. So, hopefully things will at least level off, if not improve, in the future. Now that the banks have started ‘reporting’ profits, it appears they are taking care of business and getting bad loans off their books…increasing foreclosures. After-all, banks CANNOT allow people to stay in their homes if they cannot afford to make the payments. Of course, banks lose a ton of money with all these foreclosures, but not to worry, the banks are now reporting profits all of a sudden (more on bank profits below).

When looking at the number and type of loans issued over the last several years, it’s easy to understand why some experts are calling for Foreclosure Wave #2 in the next 10-24 months. A high percentage of adjustable and exotic Option ARM loans were created in recent years. These types of loans carry features which will often devastate borrowers when negative amortizing loans (loans where the loan balance increases every month) reach a certain threshold. At this tipping point, the “option” that borrowers enjoyed allowing them to make extremely small payments, disappears, and the payments will often double as a result. Not all of these types of loans will go bad. Common sense however dictates that in this economy which features ever decreasing home values and increasing unemployment, a large percentage will go bad, thus increasing foreclosures which will maintain downward pressure on home values.

Look for commercial mortgage foreclosures to rise dramatically also. The largest commercial developer in the country just filed bankruptcy.

The Banks – Trouble is brewing. Bailouts and subsidies create dead banks and a dead economy. The American populace is taking action against a government that chooses the winners and losers and subsidizes those that have made mistakes (hear bout those protests?). The fact that nothing has worked so far does not discourage the rescuers. They don’t know what caused the problems, while under their watch, but give them more money and they can at least "do something" about it.

What good does it do to put people to work doing things or buying things that people don’t really want? Alternatively, if people are not willing to buy something on their own, or invest in it (can you say automakers?), why is it such a good idea when the government does it? You can certainly put people to work by digging holes and filling them back up, but what’s the point?

The Treasury Plan – a recently announced plan by Wonder Boy, is really a “robbery of the American people” (Joseph Stiglitz). A new fund has been created as a public/private partnership that buys toxic assets from banks. The goal is to help than banks and give the investors (and government) a chance to make a return on the investment. There’s a problem: the only way it helps the banks is if these toxic assets are sold for more than they are worth, which alternatively means the investors and government are paying too much for these assets….otherwise, the banks won’t participate (i.e. sell the assets). The fund is also structured so that the losses are not shared equally. If this fund loses money, the government takes the hit, not the private investors. Bottom Line: banks made bad deals. They should eat their losses.

Miracle Profits Show Up – Wow! What a relief…now the banks are suddenly making money. Does anyone really believe that the Titantic sized banks like Goldman, Citi and JP Morgan Chase have suddenly changed course and are earning profits?

The health of a business can be measured by the improvement or deterioration of their balance sheets…after all, cash flow adds to balance sheets, not income. You see, income, can be created out of thin air with creative accounting. Cash flow is what pays the bills. Here’s an example, Goldman Sachs became a bank holding company in late 2008. Prior to this change, they had a financial accounting year-end of November 30th. However, when they changed their structure, they adopted a December 31 accounting year-end. They recently released stellar numbers for Q1’2009, for Jan-Feb-March 2009. Seems normal, right? Well, their year end for 2008 ended on 11-30-2008. Q1’2009 ended 3-31-2009. What happened to December 2008? You guessed it. It was never counted. Phantom Profits. Smoke and Mirrors. They had huge losses in December 2008, but they don’t show up anywhere on their books, except maybe in some buried footnote.

One more before we go…

CitiBank Profits – Pure Magic! Citibank lost money from its core banking and lending operations in Q1'2009 (i.e. what the bank actually does), yet they showed a $1.5 billion profit for Q1'2009. While not the same shenanigans as described above, something interesting to note:

The trading operations of Citi had a large $2.5 billion boost from an accounting transaction, not actual cash flow. Citi made $2.5 billion on the fact that at the end of each quarter, banks are allowed to "act as if they bought their own bonds back at their true value" (FAS 159). Huh? Quick example; on 1/1 a corporate bond is worth 100 cents on the dollar; on 3/31 the value of that bond fell to 60 cents on the dollar. So, the company can pretend they now bought it at 60 cents and "book" a 40% profit. So, the deterioriation of their credit worthiness, as reflected in the value of their bonds, actually results in a profit? Yup. So, if you like this business model and believe that investors can reap dividends and the companycan actually pay bills and make a profit as they're creditworthiness deteriorates, it's a great investment. It appears that the closer Citi gets to bankruptcy, the more money it makes. The company reported declining revenues in its core business activities, yet reported a profit. I’m not a big fan of that business model.

Thought of the Week: “When they tell you to look left, you better look right to see what’s really going on. Smoke and Mirrors.” - Jim Casler

20090325 - Look in the Mirror for Leadership

Wed, 25 Mar 2009 14:21:28 PDT

30 yr – 4.98% w/ 0.7% in fees. DOWN from 5.15%. 1 yr ago - NA
15 yr – 4.61% w/ 0.7% in fees. DOWN from 4.72%. 1 yr ago – NA
5/1 ARM – 4.98% w/ 0.7% in fees. DOWN from 5.08%. 1 yr ago – NA
1 yr ARM – 4.91% w/ 0.6% in fees. UP from 4.86%. 1 yr ago – NA
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -3-19-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Mortgage Rates: Rates are up. Rates are down. Who cares if you can't borrow money for any number if umpteen reasons prevent you from improving your situation....no job, crushed house values, stupid rules about making too much money, not making enough money, etc. It seems that the most people getting any assistance are people that are late on their mortgages. Reqrding failure. Super!

Rates improved this week after the Treasury announced they would spend a TRILLION to help Wall Street Banksters work they’re way through this “rough patch” in the economy. Rates may go lower in the future, or they may go a lot higher…especially after the Chinese and Russians are starting to rattle the cages, calling for a replacement of the US dollar as the world’s reserve currency. Bottom Line: things are unstable and anything is possible.

Bailout Plans: Washington is causing so much unpredictability in today's financial world, it is amazing that they are confused, or at least play like that on TV, about the reasons why things aren't getting better. Sometimes they seize companies and sell them to their buddies, sometimes they inject billions, sometimes they let companies fail. Hmmmm...what's the baromter used for such decisions? No one knows. Nobody knows what the rules will be and as a result, only fools would expose new capital to the US financial sector at this time. Again, the politicians wonder why things have stopped. Doh!

Personal Finances: People need to prepare and prepare wisely and without haste. The future is still uncertain...that's never going to change... and if anyone is pinning their hopes on politicians to solve this, let alone solve anything, they deserve what's coming. Red, Blue or otherwise, it's a shame. Meanwhile, I'm getting off this runaway bus, it's fast approaching the cliff.

I heard the audio to this video the other day on the radio. I searched the internet and found it. I thought it was interesting and wanted to share it. Some of you will love it. Some of you will hate it. Some of you could care less. So be it.

Happy Easter.

Thought of the Week: "That which must happen, will happen."

20090312 - Getting Tooken

Thu, 12 Mar 2009 09:10:13 PDT

30 yr – 5.15% w/ 0.7% in fees. UP from 5.07%. 1 yr ago – 6.03%

15 yr – 4.72% w/ 0.7% in fees. UP from 4.68%. 1 yr ago – 5.47%

5/1 ARM – 5.08% w/ 0.6% in fees. UP from 5.07%. 1 yr ago – 5.34%

1 yr ARM – 4.86% w/ 0.6% in fees. UP from 4.81%. 1 yr ago – 4.94%

(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -3-5-09)
Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates. For example, credit score below 740, higher rate. Refinance, higher rate. Cash-out refinance, even higher rate.

Mortgage Rates: Rates have remained somewhat steady, increasing slightly over the last few weeks. The outlook calls for slight increases in weeks and months to come as the supply of the debt that exists in this world creates competition by those looking to sell this debt. Investors have choices when purchasing debt-related investments (bonds)….US government, municipal, corporate, etc. Pssst…in case you haven’t heard, there’s a lot of debt to be piled on the taxpayers by the US government. This debt doesn’t just magically appear…someone has to loan the money…these are the investors of which I speak.

As the government tries to issue more and more debt, this creates competition amongst debt issuers, namely government, mortgage and corporate bonds. What is the investing world’s appetite for these debt securities? Who knows, but with more supply, the likely result will be lower prices. Lower prices on bonds results in higher yields (i.e. interest rates). In order for the world’s investors to buy this debt, interest rates will have to go higher and higher in order to continue to attract this investment money.

Rates are going up. Next week, next month? Who knows…but the laws of supply and demand, just like gravity, cannot be repealed by speeches of hope & change and the political shenanigans by politicians…right or left.

The Federal Reserve: In a speech this past week, Helicopter Ben Bernanke (so called for his past statement that said if they have to, the Fed can just print money and drop it from helicopters) stated that a recovery would "remain out of reach" if the major financial institutions were allowed to fail. In other words, The Fed is not going to let any banks fail...at least none that are on the "preferred" list. Continuing, if the banking sector is stabilized, a recovery later this year is not out of the question (and I have some land I'd like to sell you in Florida). Once the banks find their footing, the Fed chairman says, "then I think there is a good chance the recession will end later this year and 2010 will be a period of growth.". What an amazing turnaround that would be, millions losing their jobs, billions in profits falling off corporate income statements and trillions in wealth lost...so far. Deluded optimism?

USA Balance Sheet: Forbes says the entire U.S. financial industry is "effectively insolvent" and everyone is pointing the finger at capitalists. Yes, they are rotten, sumbags…no doubt about it. BUT, the people who now pretend to save us from them may even be worse. At least these Wall Street people made their money by honestly misleading investors. Even Bernie Madoff made his money by defrauding investors, one at a time. Heck, some say these people should be elevated to government positions to help in the chicanery.Now, the whole mess has been turned over to the big boys. Now we're getting the shaft and fraud on a much bigger scale…"We’re Getting Tooken". Trillions of dollars are being given out by politicians. AIG, for example, has been described as 'where taxpayers' money goes to die.' But it doesn't really die in AIG…it travels goes down the line to pay off debts to the big boys still in the game...Merrill and Goldman Sachs. It’s reported that Goldman was actually in the room with the feds made the decision to 'rescue' AIG. Goldman may not have mentioned it at the time, ooops, but AIG owed Goldman billions of dollars. Now, the taxpayers bailout AIG so that Goldman can get its money. It’s really quite simple…the banksters are getting their money, one way or the other.

Getting Tooken - select the play button. Audio only.

Inflation: And when you think things can't get any stranger, we see this type of stuff being touted by the mainstream press, mainstream finance professionals and policymakers. A perfect example was a quote in this week's Australian Financial Review. Now, keep in mind, this isn't coming from one isolated member of the finance industry. It is the mindset of most in the finance industry, and the mindset of virtually 100% of those that advise politicians. The quote was from Adam Carr, senior economist at ICAP Australia:

"I think when you print money, it becomes very attractive [for investors] to take advantage of the fact that money is just given away for nothing."

Printing money? Sure, that solves everything…

This just drives home the point when we speak of $20 loaves of bread. Policy makers are actually pushing ahead with the ideas that bring us closer to this reality.

Consumer Spending: The current mindset says... “The economy isn't growing because consumers aren't spending. If consumers aren't spending they must be saving. If consumers are saving that is why the economy isn't growing. Saving is bad, spending is good, the economy must grow. Grow Grow Grow!” Well, who can argue with that?

Washington Solution: At first, policy makers lowered interest rates to help induce borrowing and spending. That's apparently not working. Next, they could simply print money and give it away for free, right? Sure they can, but if they give it away to the new “savers” of the world, they won't spend it...so, that's a bad idea. Nope, there's only one solution to make sure that the money goes to those who truly know what to do with it. ...drum roll please ..........

Give it to federal, state and local governments. They know how to spend money.

Angry About Losing Money? So is Ward...

Outcome: However, the big losers will be those that the government claims it is trying to help, individuals and business. The individual will lose out because they will be burdened by the combination of the devaluation of their earnings and savings, and the increase in prices. Small businesses will be denied the chance to take market share from companies that would have otherwise failed.The government is notoriously bad at doing stuff and the unintended consequences of their actions will be rampant inflation. Maybe, just maybe, some will be able to take advantage of this situation and come out on the other side much stronger.

Quote of the Week: "Like a leech on the back of a water buffalo. The animal may be strong and fit; but put enough leeches on him and he'll wither like a dried up grape.".

20090304 - The Foreclosure "Fix"

Wed, 04 Mar 2009 09:14:41 PST

Today was supposed to be the day that the details of the foreclosure fix that was originally announced by the White House on 2/18/09 were to be revealed. Well, "the fix" is in alright.

The ambitious and complex foreclosure-prevention program could end up helping fewer homeowners than originally advertised because of tough eligibility restrictions, likely delays in execution and possible legal challenges. The program is designed to help delinquent borrowers, but it's also is supposed to help certain people that have seen their home values go down and can't refinance as a result, but otherwise have solid payment histories.

a. the details on how this is to be implemented are lacking. No plans. No directions have been offered.

b. lawsuits are going to fly all over the place

c. there are so many strings attached that no lenders are going to want to participate.

Let me take each one and make a few comments:

a. No details have been provided. Simple enough. How is the government ever going to come up with an efficient processes, complete details and oversight to implement something that will impact 7 to 9 million individual, unique circumstances that are connected with each individual and unique mortgage. It cannot be accomplished.

b. Not having a full understanding of the mortgage industry allows bureaucrats to have "pie in the sky" dreams of utopia. Here's the deal though...

Mortgages are originated by loan officers "on the street". The loans are then sold either individually or in bulk to other lenders. Sometimes these lenders re-sell them again. They can re-sell them to Fannie Mae or Feddie Mac. Or, they can re-sell them to large hedge funds, pensions funds, insurance companies, etc. (i.e. the investor). Of the $13 trillion loans out there, about 1/2 are owned by Freddie and Fannie and the other 1/2 are owned privately by investors.

Lenders will often retain "the servicing" rights of these loans. This means that the lender that sold it, still processes the loan payments, enforces foreclosures, etc. The lenders that service the loans have agreements in place with the investors or Fannie/Freddie....the people that bought these pools of mortgages as investments. These agreements allow some latitutude on how to service the loan. However, these agreements don't allow the servicer to arbitrarily offer a "haircut" on the principal balance of the loan to the borrower and/or negotiate away the return of their investment (i.e. mortgage payments).

You see, the "fix", calls for lenders to offer solutions to help borrowers, like lower the loan balance or defer payments or lessen the monthly payment altogether. However, the servicer has to first consult with the owner of the mortgages; the investor that actually paid for and owns these loans and all the payments that are supposed to come with them. Now, the "fix" lets servicers change the terms of the loan without thinking about the investors that bought these loans and the government is coming in and saying that they have to take the hit.

Well, investors are claiming that if the servicer of the loan complies with the new government "fix", then they will sue the servicer for default on the terms of their agreement and they will also sue the government for "the taking of their private property without compensation". So, in fear of getting sued by investors, servicers of loans are not going to sign up for the new "fix" that has been offered up.

Investor groups (those that own these mortgage) are also suggesting that if the government wants to help all these people in default, they need to buy the loans from these investors. You see, all the Fannie Mae and Freddie Mac loans are already eligible for this "fix", yet they only account for 1/2 the loans. These privately held investments / pools of mortgages, are the other 1/2 of all loans outstanding. They argue that once the government owns the loans, they can do whatever they want. Meanwhile, they're trying to force these investors to eat crap sandwiches. This is analogous to the government coming in and saying that your certificate of deposit that you hold at the bank should be reduced by 10-20% because the bank is having a hard time or because they need that money to lend to other people. It's craaaaazzzzzyyyyyyy !

c. Based on all the above, it's such a cluster that the timeframe for anything meaningful to come out of this is many months. Not quite what the government intended...or is it?

Quote of the Day: "If no one is allowed to fail, then no one is allowed to succeed either." - Anonymous

20090227 - Hangin' In There

Wed, 04 Mar 2009 08:59:39 PST

Pinnacle Report – 2-27-09

30 yr – 5.07% w/ 0.7% in fees. DOWN from 5.25%. 1 yr ago – 6.24%
15 yr – 4.68% w/ 0.7% in fees. DOWN from 4.92%. 1 yr ago – 5.72%
5/1 ARM – 5.07% w/ 0.7% in fees. DOWN from 5.26%. 1 yr ago – 5.43%
1 yr ARM – 4.81% w/ 0.6% in fees. DOWN from 4.92%. 1 yr ago – 5.11%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -2-26-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates. For example, credit score below 740, higher rate. Refinance, higher rate. Cash-out refinance, even higher rate.

I realize that I have been a little negative and sarcastic over the last several issues. I am generally a very positive person and my tone of late has been an attempt to be somewhat humorous while at the same time trying to share my views, from the cheap seats, on where things are headed. While I don’t know any better than the next clown, I sincerely hope I can get a few people to slowly pause and think about what is really happening.

Summary: Mortgage rates have improved slightly over the last few weeks and loan applications for refinances continue. yay me. However, a larger and larger percentage of these applications are not resulting in closings and/or benefits to borrowers. Why you ask? Well, I’ll tell you Bubba. Housing values, to nobody’s surprise, are continuing down. Lower home values leads to less equity in the home, leading to higher risk for the lenders, thus leading to higher rates and fees to borrowers and more and more scrutiny by lenders. Mortgage rates should hold steady.

Mortgage Approvals: Slam dunk borrowers of months ago are now marginal. As always happens during a “crisis”, the knee-jerk reaction swings too far, too fast. While I am a big proponent of common sense underwriting and getting back to the “good ole’ days”, some of these lenders are getting ridiculous. However, I understand where they are coming from…to a certain point.

You see, the lenders are not in total control. No doubt you’ve heard that giant sucking sound from Washington. The pitch I hear is from those sink-holes called Fannie Mae and Freddie Mac. While these two entities should have been buried long ago, they still call the shots in the residential mortgage industry. Most loans are sold to Fannie and Freddie. As a result, loans need to meet their guidelines. These guidelines are changing faster than their share values are sinking, now below 50 cents. Amazing how corporate accounting shenanigans can get your share over $100 and get you millions in bonuses, but after TSHTF, 2 short years later, they’re now penny stocks!

Anyway, when lenders sell their loans to Fannie and Freddie, the lender is still on the hook if the loan goes bad. So what the lenders do is put the borrower through the wringer to document more than usual. I even had a lender require the borrower to write a lender explaining why they haven’t been to the dentist in the last two years and tell me what color their underwear was on the last Tuesday in January!! Can you believe it? All kidding aside, the lenders are putting everybody through the wringer because if the loan goes bad, they need to demonstrate to Fannie and Freddie that they went “above and beyond” to make sure the borrower was a qualified buyer. Otherwise, Fannie and Freddie have agreements in place that require the lender to buy-back the loan in the event of a small technicality, or if they can prove the lender should have done this, or done that. So, in an effort to remove that chance, the lenders are looking under every stone these days. Bottom Line: expect loan approvals to be excessively detailed and take a long time. The lenders are being more prudent and borrowers need to learn to be patient. Me thinks, a little too little and a little too late.

Housing: New Home Sales: Gee, permits for new homes are down 50.5% from last year, while housing starts are down 56.2% and New Home Sales down 48.2%. While no surprise, it’s still going to leave a mark! There’s excess inventory that needs to be sold off. The government is trying with proposal after proposal and plan after plan…but WE CAN’T SPEND OUR WAY OUT OF THIS REPRESSION !!! Besides, the money has to come from somewhere and they can only take so much taxpayer money before people give up on our once great nation. I have talked with too many people talking about throwing in the towel and leaving.

Employment: Next week we will see the big employment report for February. Nothing positive is anticpiated. Weekly claims for new unemployment are well above 600,000. As I have often repeated, jobs, jobs, jobs are the foundation of the economy. Without jobs, it all stops. But they must be productive jobs. People have stopped spending money, which is what they should be doing. But someone else’s spending is someone else’s income. When their income drops, they cut back on spending, and so on and so on.

While many are calling for the government to step in and pick up that slack of spending. Crazy stuff: have you ever experienced a government spending program be efficient? There is too much room for waste and corruption. This government spending is supposed to keep jobs up and help instill confidence in the consumer. Consumer confidence is not what is needed!!! What we need are productive jobs. We cannot sustain ourselves by being a bunch of paper pushers…and I write this realizing that this is exactly who I am…a paper pusher. Believe me…I know, it’s hypocritical and it’s something that I came to realize a short while ago.

Inflation: Inflation is supposedly down. Ya mon, right. Even if it was, taxes are going up.

Taxes: Hey did you hear, there's a new plan to save the world. it includes a 40% tax on aspirin...can you believe that? 40%? I heard the tax is so high because aspirin "works"! Sorry, can’t help myself. Did you know that the top 10%of wage earners, “the rich”, are defined as households making over $108,904 per year. You know, a teacher and a police officer. This top 10% pays 63% of all taxes paid. Even if the government taxed 75% of the income of the “rich”, it still wouldn’t pay for the proposed 2009 government deficit of 1.75 trillion. WE CAN’T SPEND MONEY WE DON’T HAVE !!!!

I've gone through this before. If we don’t have the money, but those people in Washington, REPUBLICAN or Democrat, keep spending it, generations will have to pay one of two ways: borrow the money at higher and higher interest rates until we can’t pay anymore, or print the money. Some people think printing money is the best idea. After all, it’s more money. Money in the form of paper or in the form of digits in accounts is not money. All this does is lead to inflation…the kind that causes bread to cost $20. Think about your child or grandchild…with deficits we will need higher and higher and higher and higher taxes. Higher taxes will simply mean we will all become slaves to the government. But hey!!! At least they’re “doing something”.

What’s the problem with inflation? Think about this for one second. 2500 years ago, an ounce of gold could buy 350 loaves of bread. Today, an ounce of gold, $1000 +/-, will buy you the same 350 loaves of bread. How much did a loaf of bread cost in US dollars in 1913? How much does it cost today?

Thought of the Week: “Yesterday, the Dow fell again - down 80 points. We have been estimating that it would fall to between 3,000-5,000. But we are eternal optimists. Always looking on the bright side - every glass has a silver lining...and every cloud is half-full! But if the stock market repeats the experience of '29, it will fall below 2,000” -Bill Bonner

20090219 - Good, Bad or Indifferent

Thu, 19 Feb 2009 11:05:07 PST

The new housing plan from Washington has been released. A summary was prepared earlier this morning. You'd think I would be ecstatic and all for these plans. Not so fast there partner. What the government giveth, the government taketh away. After all, this money doesn't just get dropped from helicopters...or does it? (That's a whole other story left for another time.). There are a few issues to be discussed:

1. The plan provides cash payment to lenders to incentivize them to modify loans...something they should already be doing. Sounds like a bailout to the lenders...again!

2. The plan provides cash payments to borrowers that obtain loan modifications and then to do what they're supposed to already be doing....making their flippin payments! How about another $5000. CRAZY! After all, the losers of society should be rewarded, right? (Prediction: soon, otherwise responsible citizens will see all the bailout money going elsewhere and will start pounding on their neighbor or otherwise become a leech on society...after all, besides character, what's the reward for "following the rules"?)

Other thoughts..."Why Do Losers Get Rewarded?" see video here http://www.cnbc.com/id/15840232?video=1039849853

3. The plan also allows bankruptcy judges to modify loans for borrowers, WITHOUT CONSULTING THE LENDER. In other words, they can take the mortgage "contract" and re-write it to better suit the borrower, most likely by lopping off a prtion of the principal balance. After all, it will avoid a foreclosure and keep people in their homes...isn't that what we want? Of course, but why should other taxpayers be the ones to pick up the tab? YOU TELL ME! Banks made bad loans, they should eat it.

The bigger problem with this: what incentive do buyers have to make their payments, what incentives will lenders have to issue loans when they know these otherwise valid mortgage agreements can be stricken down with the stroke of a pen? What large instrituional investors will purchase these loans if they know that the return on the billions they fork over as an investment, can be diluted by that same stroke of the pen?

END RESULT: Higher rates to make up for the uncertainty that will pervade the mortgage industry. There may be blips along the way, but overall, investors that buy mortgages and lenders that issue mortgages will raise rates to compensate for the higher risk resulting from this "scheme", oops, I mean plan, to "help" homeowners.

4. Why is it that the plan costs $275 billion, yet the direct benefit to homeowners is only $75 billion? Could the other $200b be a bailout of sorts? OF COURSE IT IS !!!!!

Pony up everyone. After all, by keeping the neighbors home from going into foreclosure, isn't that really helping you keep your home value up? You see, everyone wins! Yay, this stuff is easy.

I have a better idea. Send every household $1/2 million dollars and let's just get it over with. Everyone pays off their mortgage, the banks are flush and paid off and there's plenty leftover to spend, spend, spend. Inflation rages and the national debt is repaid by foreigners with cheaper dollars. Problem solved. Thank you. (Obviously, I am joking...)

2090219 - Mortgage Plan from Washington

Thu, 19 Feb 2009 06:53:33 PST

Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan

Borrowers Who Are Current on Their Mortgage Are Asking:

1. What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?
Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

2. I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

3. How do I know if I am eligible?
Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

4. I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

5. Will refinancing lower my payments?
The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan.
When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.

6. What are the interest rate and other terms of this refinance offer?
The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.

7. Will refinancing reduce the amount that I owe on my loan?
No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

8. How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?
To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.

9. When can I apply?
Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.

10. What should I do in the meantime?
You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes:information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources, your most recent income tax return, information about any second mortgage on the house payments on each of your credit cards if you are carrying balances from month to month, and payments on other loans such as student loans and car loans.

Borrowers Who Are at Risk of Foreclosure Are Asking:

1. What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?
The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

2. Do I need to be behind on my mortgage payments to be eligible for a modification?
No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

3. How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

4. I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?
No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.

5. I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.

6. I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both?
Only the first mortgage is eligible for a modification.

7. I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?
The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates.
However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

8. I heard the government was providing a financial incentive to borrowers. Is that true?
Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

9. How much will a modification cost me?
There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.

10. Is my lender required to modify my loan?
No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

11. I'm already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?
Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

12. How do I apply for a modification under the Homeowner Affordability and Stability Plan?
You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

13. What should I do in the meantime?
You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources, your most recent income tax return, information about any second mortgage on the house, payments on each of your credit cards if you are carrying balances from month to month, and payments on other loans such as student loans and car loans.

14. My loan is scheduled for foreclosure soon. What should I do?
Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility.

20090206 - Higher Rates. Higher Fees

Fri, 06 Feb 2009 05:51:01 PST

30 yr – 5.25% w/ 0.8% in fees. UP from 5.10%. 1 yr ago – 5.67%
15 yr – 4.92% w/ 0.8% in fees. UP from 4.80%. 1 yr ago – 5.15%
5/1 ARM – 5.26% w/ 0.6% in fees. DOWN from 5.27%. 1 yr ago – 5.21%
1 yr ARM – 4.92% w/ 0.5% in fees. UP from 4.90%. 1 yr ago – 5.03%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -2-5-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: As predicted earlier this week, on average, mortgage rates rose this past week. Atta Boy Jim! (Well, someone has to pat me on the back. If not me, who else will do it?) Overall though, rates are still historically low. Continued poor economic news coupled with the continuing borrow and spend mentality are causing rates to increase. HUGE supplies of government debt are causing rates to increase as the appetite for these investments from large institutional investors and foreign governments in waning in the wake of the MOAB (Mother of all Bailouts). While riots haven’t begun in the country yet, the world is experiencing change…not the promised “change” of political campaigns, but real economic change.

Employment – new applications for unemployment benefits rose to a new “season” high of 626,000 people for the week ended 1-31-09. Yowza! A little higher than expected. The rot on the vine continues as the total of people that remain on unemployment has grown to 4.788 million, the highest level since the 1950’s.

The January employment report just posted and initial indications are that the nation's unemployment rate rose to 7.6% as 598,000 jobs were lost, the most since 1974.

Auto Sales – Closer to home here in Michigan, January auto sales were horrible. On average down 37.7% from year ago levels. Consumers without jobs don’t tend to buy new cars…at least they’re not supposed to. The auto suppliers are next in line looking for $20B from the "gub-mint".

US Treasury – This past Wednesday, the US Treasury opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come. (i.e. this is how the US pays for all this spending; by issuing bonds…we the taxpayers, promise to pay you the buyer of these bonds). The large volume of bonds to be issued means it will likely be harder to attract investors...after all, how many people want to lend money to what is fast becoming a sub-prime borrower, namely the US. As a result, more supply with stagnant or lower demand means that prices need to come down on these bonds.

Mortgage Rates: As long time readers may recall from past lessons, when the price of a bond drops, the yield or rate increases, and vice versa. The recent drop in rates has been caused by the unwinding of what are known as “carry-trades” (long story for another time) and a flight to quality. Typically, when the equity markets are crashing like the world experienced this past Oct and Nov, money gets parked where it is presumably safe, US Treasury Bonds. Typically, what happens in the US Bond markets closely parallels what happens in the “mortgage backed securities” market. The rates tend to move in the same direction. However, this carry trade is pretty much over and the flight to quality may be quickly changing as the US balance sheet is getting more and more out of whack and the quality of the US, as a borrower (i.e. issuer of bonds), is coming under more and more scrutiny from past and present investors/buyers of this debt.

A good way to describe this might as follows: A golden boy, hot shot business man was the envy of the world because everything he did worked very well...for decades. He was a machine. After many, many years though, he stretched himself a little too thin and is now basically insolvent (bankrupt), but his reputation has allowed him to go deeper and deeper in debt. Same with the US and as a result, the 10-year Treasury note has risen almost 1 percent in the last month from just over 2% to 2.95%.

Unless some major “gub-mint” intervention takes place to drastically and artificially lower mortgage rates (which is still VERY likely), mortgage rates may naturally increase along with Treasury Bonds in order to attract buyers/investors of this debt.

Deficits Don’t Matter: Some people have claimed that the US has run up huge deficits in the past and that it can overcome these things as what happened during the Depression of the 1930’s. A few major differences should be noted: We were a nation of savers back then, so when the Federal Government went into debt by issuing bonds, the majority of the buyers of these bonds were US citizens. 1) The US citizens had the ability to buy bonds to support the government debt, and 2) The US citizens had a vested interest. Today, that’s not the case. We’re a nation of spenders and our government debt is primarily owned by foreigners. Yes, they have a vested interest also, but not as strong as the citizenry certainly would. So, the growing debt situation is strained by the fact that WE don’t really control it. It also doesn’t help that our economic leaders in the Treasury Department have recently started pointing fingers and partially blaming those countries that can, do and will have a direct impact on our ability to fund this deficit spending. It's kind of like biting the hand that feeds you. This is why many are so concerned about rising interest rates and/or MUCH higher inflation…ala $20 loaves of bread.

Bailouts: It started with the banks, then the insurance and auto companies, now auto suppliers. MARK MY WORDS: Next it will be state governments (can you say California, New York and every other large Nanny State), large municipalities, pension funds, commercial real estate and finally, YOUR 401k’s. OK, here we go again, Jim’s on a rant…

How boring it is to be alive today....NOT !!! The times we live in our anything but boring. When tax cheating "leaders" and politicians stand on their soapboxes and take a morally righteous tone and lecture others about fiduciary duties and responsibility, it just makes you want to puke. It's totally absurd. Democrat or Republican, except for a very few exceptions, they're interests are placed well above and beyond of us, the citizens of these united states.

The day has arrived when politicians have now decided to limit executive compensation. (Pssst...if they can to it to "them", they can do it to you.) Now, I realize that corporate CEO salaries have risen exponentially compared to the average salary of their employees over recent years. I am not defending the $100mm golden parachutes to executives that drove these companies into the ground and are now “too big to fail”. Screw ‘em! This is a corporate issue, not a political issue. Shareholders, you know, the people that actually "OWN" the companies, should have resolved this and removed the dunderheads running them into the ground. Shareholders need to vote these SOB's off the boards at their annual meetings and control things a little better with their compensation committees. Well, I guess now that the government owns part of them, they're actually shareholders. There's goes that argument.

Anyway, because taxpayer money is now involved with many of these companies, the Washington Wizards have jumped on the populist thought of the day and have now limited executive compensation. After all, they're "doing something". Don't worry, it's all window dressing and these people will continue to put up smoke screens and “dance the dance”, all in the name of "doing something". The executives will still get paid through some loophole somewhere discovered by some compensation consultants. That's not my issue today..I don’t own of their stocks so I don’t care.

What I do care about is the charade, the smoke screen, the “distraction”. Let's examine where even more of "our" taxpayer money has gone over the last several decades. In an old Saturday Night Live "Church Lady" voice..."Can you saaaay, The Government?" The people in Washington get taxpayer money every single day. They even spend money they don't have by stealing from future generations and they have had budget deficits for decades!

Congress, the Fed, the President and the Treasury have mis-managed their institutions even more than Wall Street has mismanaged itself. The political class, you know, the elites in capitols across the globe, now represent their own interests above the interests of the electorate. That’s the problem. Solution: No one in Congress is allowed to make more than the median average household income until the Federal Budget is balanced, around $50,000. After all, shouldn't everyone be accountable for how they discharge their responsibilities?

If CEOs can have their pay capped, then why shouldn't Congressional Representatives and Senators fall under the same rules? A soldier makes about $24,000/year. That's about half the median household income of $50,000 and considerably less than the $174,000 paid to low ranking members of the U.S. Congress. So let's do the math. A 20-year old serving his/her country overseas gets $24,000, but the people who decline to fulfil their Constitutional duty make $174,000 while overseeing and implementing annual budget deficits, often fail to pay their own taxes correctly, take bribes, get sweetheart mortgages and lecture the American people on the need for sacrifice and how "patriotic" it is to pay taxes. Absurd. Really.

Thought of the Week: “Americans have been beaten down to a degree that they're now a pacified population, largely willing to accept any economic outrage its elites impose on them.” - Mark Ames

20090202 - Idiocy in America?

Sun, 01 Feb 2009 06:35:21 PST

30 yr – 5.10% w/ 0.7% in fees. DOWN from 5.12%. 1 yr ago – 5.68%

15 yr – 4.80% w/ 0.7% in fees. SAME at 4.80%. 1 yr ago – 5.17%

5/1 ARM – 5.27% w/ 0.6% in fees. UP from 5.24%. 1 yr ago – 5.32%

1 yr ARM – 4.90% w/ 0.5% in fees. DOWN from 4.92%. 1 yr ago – 5.05%

(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -1-29-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: “On average” mortgage rates have held steady. Be advised though that these averages do not reflect the last few days of last week…rates started creeping higher on Thursday and Friday. Next week average rates will likely show a slight increase.

Housing: Same story, different month. A most reliable S&P/Case-Shiller® 20-city composite index showed an 18 percent annual rate of decline through November and the National Association of Realtors® (NAR) showed a 15 percent annual rate of decline through December. Keep in mind, these sales figures happened while mortgage rates were at 50 year lows in late December.

Home Sales: Sales of "New Construction" homes for December were down 44.8% from a year ago to an annual level of 331,000 units. Existing Homes “surprised” the experts and rose from last month to an annualized rate of 4.74 million, down 3.5% from a year ago. However, average home prices fell due to the increased number of foreclosures and stressed sales.

Employment: Weekly unemployment claims have held steady in the upper 500,000 range for the last several weeks. This number is certain to increase as the number of announced layoffs have increased over the last few weeks. As I have repeated a number of times, productive jobs are a HUGE factor to any economic recovery. See last weeks rant. Real jobs, not government jobs that are created out of thin air and at the expense of taxpayers.

The Federal Reserve (The Fed) – the country’s financial leaders don’t have a clue...oops, my opinion came out. I'm not saying I have all the asnwers, I just think what's going on will have DIRE consequences weeks, months, years and generations to follow. They met this last week and didn’t make any changes to interest rate policy. Why? We’re already effectively at zero…so, it’s time to start of the printing presses. They have indicated they “will do whatever it takes” to fix this thing. Yeah, everything except do what’s right!

Idiocy in America: How does adding more debt and bailing out the banks will NOT solve a debt problem? Chatter about another 1-2 TRILLION to the banks in the near future. GM wants more. California is issuing IOU’s to the citizens that they owe money (tax refunds, vendors, etc.)

Wall Street: Did you hear about the billions in bonuses paid to Wall Street banksters that were getting bailout money last year? It’s not surprising….at least not to me. Now the populist idea is to limit executive pay. Be careful of what you wish for and might support. While it truly is amazing and wrong, the previous bailouts didn't limit how this money was spent, limiting executive pay sets a precedent for government to slowly but surely start to implement limits on everyone’s income. Last week the White House “set the example” by limiting pay raises. Is your industry next?

Outlook: Rates will be slightly higher next week. Bailouts will continue and incompetents will still be elevated to higher positions of responsibility.

Thought of the Week: “We cannot tax and spend our way to prosperity.” – Trent Franks, Arizona

20090122 - Uh Oh, Rates Up and ... More Regulation My Rear

Sat, 24 Jan 2009 15:50:24 PST

Uh oh - rates up?

30 yr – 5.12% w/ 0.7% in fees. UP from 4.96%. 1 yr ago – 5.48%
15 yr – 4.80% w/ 0.7% in fees. UP from 4.65%. 1 yr ago – 4.95%
5/1 ARM – 5.24% w/ 0.6% in fees. DOWN from 5.25%. 1 yr ago – 5.24%
1 yr ARM – 4.92% w/ 0.7% in fees. UP from 4.89%. 1 yr ago – 4.99%

(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -1-22-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

It seems that in today's economic world, people want to "blame" someone for the problems. I can understand that. It appears to make sense. The popular belief is that the capitalist society we live in has been blamed and that greed is the root of the issues and the only solution to that is "more regulation". Again, seems understandable. The fact is, in my humble opinion, lack of regulation is NOT the problem. Politicians are the problem...on BOTH sides of the spectrum.

Let's see, the SEC audited Bernie Madoff's firm how many times in the last several years? Seems that regulation didn't help in this regard, did it?

Closer to my backyard, politicians are now calling for more regulation in the mortgage industry. A little too little and a little too late. As far back as 7 years ago, some were calling for more regulation of Fannie Mae and Freddie Mac...but did anyone listen. Nyet! The politicians let the Schumer hit the fan, while Daffy Duck was on Capitol Hill trying to hide the fact that "accounting irregularities" ala Enron, excessive risks posed no problems/risks for Fannie Mae and Freddie Mac. Could large political contributions has clouded their judgement? Nah...elected officials know better than we the sheeple.

To help further demonstrate the point, watch the short 3 minute report showing who tried to do what to reduce the risks at Fannie Mae and Freddie Mac. Aside from the source of the video, the facts remain...some people warned about potential problems and others swept it under the rug.

As you may know from past posts, I think all politicians in Washington have lost their collective minds over the last several months. See video below.

"OK Jim, if you're so darn smart, what are we to do with our money and investments? How do we come out of this thing on the other side? Smart aleck!"

Whoa there partner. I'm just an average schmuck with a little bit of an attitude. I don't have all the answers. I'm not sure I even have "any" answers. I know lately all I have been seeing and reporting about is nothing but bad news, and how strange it must be to even as the new era of responsibility has come upon us and now the sun is supposed to shine a little brighter and water is going to be cleaner and the ... well, you get the idea. The world has been saved...by government? huh?

Anyway, I think my neighbor's daughter has the answers: The Three G's.

Have you seen how Gold investments have performed over the last several years? Oh, up about 150%. Have you seen the cost of Groceries come down? I think you can figure out what the other "G" is for in this picture. Isn't she cute?

More regulation is coming to every business in the land. I've reported it here in the past about the mortgage industry. End result, higher costs.

20090118 - Birds Gotta Fly

Wed, 21 Jan 2009 17:23:06 PST

30 yr – 4.96% w/ 0.7% in fees. DOWN from 5.01%. 1 yr ago – 5.69%
15 yr – 4.65% w/ 0.7% in fees. UP from 4.62%. 1 yr ago – 5.21%
5/1 ARM – 5.25% w/ 0.6% in fees. DOWN from 5.49%. 1 yr ago – 5.40%
1 yr ARM – 4.85% w/ 0.5% in fees. DOWN from 4.95%. 1 yr ago – 5.26%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -1-15-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: Good News? 30 year fixed rates, on average, are lower than they’ve been since recording weekly averages began in 1971. The Bad News? Not everyone can get these rates. BUT EVERYONE DOESN’T DESERVE THESE RATES EITHER!

MOAB: The Mother of All Bailouts continues...to anyone's surprise? Give me a break...they're politicians and banksters. The mindset of the dunderheads in Washington and the intelligent, brilliant and tax cheating executives at the US Treasury Department continues. Is it any wonder that the citizenry expects that at least a morsel of these bailouts could actually help them. Imagine that, billions and billions, actually trillions, have been spent on our behalf and pledged to be paid by us, our children and grandchildren for decades, and “we the people” are hoping for some benefits too. Understandable…but naïve. Wake up !!!!!

Amazingly, mortgage rates have continued to improve on the continuous deterioration of the economy…lower house values, higher unemployment, more confiscation of our money…ooops, I mean more bailout announcements for the banks….again. The shackles of serfdom seem to be getting tighter and tighter. The government is taking over and/or controlling more and more industries in this country. I know the government is efficient at everything else, so I expect that to continue...NOT! Mortgages have benefited because they are now basically getting purchased outright by the Treasury. This makes them considered “safer” investments by the large institutional investors that purchase these bundled mortgages. As a result, yields on those investments have dropped (i.e. mortgage rates have improved.)

Some may call me a gloom and doomer, but I calls ‘em likes I sees ‘em. Yeah, there are a few bright spots…people are starting to get back to basics. Frugal is starting to become cool.

Mortgages: Many people have benefited from lower rates…some saving $300 and $400 per month. Yahooo !! It’s a great opportunity…for some. The industry has become so glutted with activity that services that used to take a few days are now taking a few weeks. The lesson to be learned here…don’t delay and move quickly if you want to borrow money. Could rates go lower? Of course! Anything is possible. Nothing would surprise me.

Not For Everyone: I’ve discussed this before, but want to reiterate that not everyone can take advantage of these rates for a few reasons:

Low credit scores
Lower home values
Tighter underwriting guidelines

Credit scores for borrowers need to be higher than in the past. The lower the score, the higher the rate. Lower home values continue to wreak havoc. If somehow home values could stabilize it could potentially help. But there are many other issues at hand. There is chatter about more bailout programs and tax credits to help homebuyers. In the short run and on the surface, these bailouts can “appear” to help, but bailout money comes from somewhere…it’s not manna from the sky. The problem with bailouts is that the money that is being taken from the “payers” eventually runs out. The other problem is that bureaucrats are deciding who gets the money and who doesn’t with no apparent concern for calls of transparency and accountability.

This past week I heard some mortgage “genius” on a local radio program in Traverse City. He opined that the banks need to "loosen" their standards to "get things going". What !!!! What!!! Did I hear this bafoon correctly? The poor people that need the lower rates from a refinance can’t because they don’t qualify. Boo hoo. They used to qualify years ago, when all you had to do was fog a mirror to get approved. In case people haven’t noticed, and apparently this “genius” is one them – things have changed. Loose credit helped created the problems we now face. This mortgage genius was telling a story about a woman he was working with that was late on her $10 electric bill and that caused her loan to be denied. I have two observations: 1) I have never seen a $10 electric bill, which makes me think he's fabricating this story and 2) If she can't make her $10 payments on time, how will she make her $900 house payment on time? Yeah, it may have been an innocent mistake, but I can’t believe that this was the only issue. My 20 years of experience tell me otherwise.

Anyway, lower rates may be coming from bailouts, but lower home values and lack of a job may very well prevent you from refinancing in the future. If it makes sense, refinance…NOW.

JOBS: The new people coming to Washington have been chatting about ideas on how to “fix” the economy. It's no different that the bozos leaving the White House this week. The one thing I want to know...which doctor gave George Bush a lobotomy? Bush, Bernanke and Paulson - The 3 Stooges. Given the chance, politicians and bureaucrats will ALWAYS do the wrong thing, ALWAYS. Anyway, recent comments about the governments grandiose plans for creating jobs keep changing. First the goal was to create 2 million jobs, then it was raised to 2.5 mm and now it’s 3 million jobs. Well which is it? This all changed within a few weeks time frame. This shows that they have no clue…you don’t just magically create an additional 1 million jobs because it sounds better in a speech.

Anyway, the sheeple of this country are demanding that the government “do something”. So, “something” is what they will get. I hope everyone likes the results, not me. This bus is close to going over, or may have already gone over the cliff...and I’m not going to be on it!

Contrary to popular belief, the goal of the economy is not “job creation”. Jobs “can” be a sign of a healthy economy, but not necessarily the only barometer of a healthy economy. Just as the high energy level in a person can be a sign of health, unhealthy substances such as drugs can artificially give the addict the burst of energy that has nothing to do with being healthy.

Artificially created jobs just exacerbate our problems. The goal of a healthy economy is “productivity”. Jobs are a positive outcome of productivity. Think about it: a "job" could be to dig a hole one day, and fill it back up the next. It’s activity, it pays, but it doesn’t accomplish anything. In a government sponsored project or bailout, the money used for that paycheck ultimately came from taxing someone else. It’s taken from someone, somewhere, or it’s borrowed or created out of thin air…but that’s a whole other rant. Transferring wealth from those who produce to those who do not won’t get us anywhere except make the politicians look as if they “did something”. What makes the people in Washington know how to better run companies? Letting the government decide who gets what….what kind of solution is that? Just as Robin Hood stole from the rich to give to the poor, our government has now been given carte blanche authority to do the same. Don’t be a sucker.

WASHINGTON WIZARDS: They want to take our money and magically “create” millions of jobs through another so-called economic stimulus package. After all this money is confiscated from us, who is going to be left standing to tax in the private sector to pay for all these public sector make-work jobs? Is Washington really the answer? Think about, these 534 people that make up the Congress, Senate and Executive branches are in control. They’re the problem! Unfortunately we have a long way to go until we hit rock bottom. Today...it's the government against the citizens.

Outlook: More stuff will hit the fan. Hang on and get out of the way. I've made my predictions in past issues....lower rates at first, heck, maybe even free money. Followed by higher rates, worthless dollars (i.e. MUCH higher inflation like $20 loaves of bread)due to all the government borrowing and bailouts. When will this happen? In the future...2 days, 2 months, 2 years, 20 years? How is that for a confident answer.... We have the government we have elected. Wake up!

Thought of the Week: “Birds gotta fly. Rain has to fall. Fish have to swim. The future has to happen.”

20081227 - When "Stuff" Hits the Fan

Sat, 27 Dec 2008 06:11:49 PST

30 yr – 5.14% w/ 0.8% in fees. DOWN from 5.53%. 1 yr ago – 6.17%
15 yr – 4.91% w/ 0.7% in fees. DOWN from 5.33%. 1 yr ago – 4.84%
5/1 ARM – 5.49% w/ 0.6% in fees. DOWN from 5.77%. 1 yr ago – 5.90%
1 yr ARM – 4.95% w/ 0.5% in fees. DOWN from 5.02%. 1 yr ago – 5.53%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -12-24-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: Whew! Rates have been bouncing around more than a hungry monkey trapped in a banana factory. As many of you already know, we’re in strange financial times and with that comes unexpected market fluctuations…some to your dismay like the average fall of around 40% in the stock market indices or more beneficial ones like the unprecedented swings in mortgage rates, sometimes exceeding 1% in a given day.

I’ll try not to bore you with too many details in this last writing of 2008. While I was going to review a book with you that I recently read, I decided I would take another route. A quick review and then maybe a preview:

About 2 weeks ago, I blasted out an email to my newsletter distribution list indicating that mortgage rates, on average had dropped almost 1 full percentage point in one day. Amazingly, it only lasted a few short hours and rates came back up ½ percent. I was fortunate to be able to make contact with a few past clients and locked them into lower rates for a refinance. To my recollection, a move this big hasn't happened during my 19 years in the business.

Rates then held steady for several days only to drop again another ¾ percent in one day. I was able to lock a few lucky people into a 30 yr fixed at 4.75%. Keep in mind, they have a tone of equity in their homes, large loan amounts and superior credit scores (i.e. not everyone qualifies for this tytpe of rate). These are unprecedented moves…totally unexpected and unpredictable. What’s going on?

As predicted here a few weeks ago...luckily and with no real skill...I feel this is just the beginning of the BAILOUT FOR RESPONSIBLE BORROWERS. For the first time, the FED is taking direct actions in the mortgage markets and buying mortgage backed securities, thus impacting mortgage rates substantially. Mortgages are now in effect equivalent to Treasury securities – theoretically, the safest investments in the world. As such, yields to investors are lower and you – Jane and Joe Borrower – get to experience lower mortgage rates.

THE FUTURE: My crystal ball has been cloudy for the last 19 years, but I’ll give it a nice rub and she what she says. Ahhhh, here we go…As I’ve indicated before, I think the politicians and government will do what they have always done and as a result, I envision more government intervention in every aspect of our financial lives. The Mother of All Bailouts (MOAB) is upon us…after all, the voting populace is demanding that politicians “Do Something!”, even if it messes things up further and makes things more painful for a longer period of time. At least they can say they “Did Something!” I know this attitude will make a few people mad, but most people I talk to think these bailouts are a pure case of Robin Hood in reverse... a scalping of the collective taxpayers. It's a Bernie Madoff, but only bigger. By the way, why isn't that SOB in jail? He admitted to ripping people off, it's not as if he claims to be innocent.

As far as mortgages are concerned, further government intervention will help propel rates down further. How long will this take and for how long will it last? That’s where the ole’ crystal ball goes blank. Who knows? My advice: if it makes sense to refinance, then do it today. Don’t get too greedy hoping for a little lower rate. You may never see it again. How do you know if it makes sense to refinance?

While everyone’s situation is different, a quick rule that I use is that I think it makes sense to refinance if you can recoup your closing costs in less than 2 years of payment savings. I prefer to see a break-even period of less than 1 year. For example, let’s assume you can save $100/month by refinancing and closing costs are $1800, which is typical for a $175,000 loan. $1800 divided by $100/mo savings = 18 month break-even period. In this case, I would likely advise you to refinance.

Here’s something else to consider: while rates may be lower in the future, so may your house value. A lower house value could keep many people from realizing the benefit of a lower rate. Here a real quick example:

Assume your home is worth $200,000 and your loan balance is $160,000. This is a classic example of having 20% equity in your home, or an 80% loan-to-value ratio (LTV). Perfect for a refinance. This eliminates the need for additional and costly Private Mortgage Insurance (PMI), which in this case would add about $80/mo. What if your home value goes down $10,000? In order to keep the LTV at 80%, the maximum you could borrow would be $152,000. You would either need to come up with $8,000 to refinance and pay PMI. The PMI would greatly reduce the benefits of refinancing, likely eliminating the benefits altogether, thus meaning you will have to see if rates go lower, or hope your home appreciates.

Can you see why “now” is the time to consider a refinance?

PREDICTION: Lower rates followed by higher rates.
I predict that rates will continue to bounce around, heading lower sometime over the next six to 12 months. I even half-joked with someone this past week that I wouldn’t be surprised to see mortgage rates drop to under 3%. What the heck? Treasury Bonds are yielding close to zero...and in fact some wnet negative this past few weeks. Investors were actually willing to pay money for an investment. I wonder if they think that is better than holding cash...which might go down in value even more...

While this is all fine and dandy if you can take advantage by refinancing, the gloom and doom inside me also sees a few other things happening.

HOWEVER, I also soon predict that mortgages and all other interest rates will eventually RISE... very high. WHY? First the banks, then AIG, then auto manufacturers. Next will be California, following by several other states and large cities. Limiting executive compensation, a moratorium on foreclosures followed by property taxes and on and on. After all, the government has to do something, otherwise you will literally see rioting in the streets. The nation’s homebuilders and large retailers are discussing how to best approach Washington for their bailout money too. Who can blame them? The stage has been set…better go get your money while the spigot is open. It’s a vicious cycle and heck, we haven’t even talked about commercial mortgages…How do the mall operators and office building owners pay their mortgages when retailers are closing and layoffs are emptying out office buildings...

So, with all the “stuff” continuing to hit the fan, how in this world is our government going to be able to borrow enough money, at reasonable interest rates, to continue bailing everyone out. Soon enough, our nation’s creditors will no longer have the stomach for lending us money or if they do, they will want a king’s ransom in the form of higher interest rates for doing so... and what if we default on those bonds...what collateral will the creditors want in return? The Panama Canal...oh yeah, too late, the Chinese own that. Ports in California...oh yeah, too late, the Chinese already own those. The Indiana Toll Road, oh yeah, already owned by an international consortium. What's next? Could it be our corn and wheat fields, coal mines and onshore and offshore rights to oil. Anything is possible....we must start to really scrutinize how much money the US can borrow and if the government pledges too much of our future income (higher taxes), what will happen if the US can't pay it's creditors? Just as a bank takes your home as collateral, what is the government's collateral...

I have asked this before. Think about it: How is going deeper and deeper into debt ever going to help the situation? I understand the notion of taking one step back to go two steps forward. It takes money to make money, blah, blah, blah. At some point, our nation’s creditors (i.e. China, Japan, Middle East, etc) will stop buying our debt. Then what? I know, I know…the government will just keep printing more money…won’t that do wonders for us?

I didn’t mean to end this on such a downer sentiment. I hope you all have a great 2009. Hang on tight. Kiss your loved ones and if you have a job and are not late on your mortgage, call me to refinance.

Thought of the Week: “Forget the BMW in the drive-way. The new hip is a paid for home paid -- free and clear, no mortgage.” - Dave Ramsey

20081206 - Dork Debt Arrives

Thu, 11 Dec 2008 07:20:30 PST

30 yr – 5.53% w/ 0.7% in fees. DOWN from 5.97%. 1 yr ago – 5.48%
15 yr – 5.33% w/ 0.7% in fees. DOWN from 65.33%. 1 yr ago – 5.27%
5/1 ARM – 5.77% w/ 0.6% in fees. DOWN from 5.86%. 1 yr ago – 5.75%
1 yr ARM – 5.02% w/ 0.5% in fees. DOWN from 5.18%. 1 yr ago – 5.46%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -12-4-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

BAILOUT FOR RESPONSIBLE BORROWERS?

Could it be? Could it Be? Say it’s so, Jimbo!

Here’s the scoop. The head honchos at The Fed and Treasury are yappin’ about buying securities from Fannie Mae and Freddie Mac. What does that mean? All conforming loans issued to the regular, average, qualified borrowers through banks and mortgage lenders, eventually get purchased by Fannie Mae and Freddie Mac. They then package millions of loans and sell them as ‘mortgage backed securities’. The demand for these securities directly impacts the interest rates on mortgages. The demand is created by large investors like insurance companies, pension funds, mutual funds, etc. (large institutional investors) that purchase these as investments. As the appetite, or desire, for these bonds grow, the price goes up and the resulting yield, or interest rate goes down….and vice versa.

So here comes the Treasury Dept. last week or so, indicating that they are “backing up” these investments, something like $300 billion in Fannie Mae/Freddie Mac bonds. (i.e. they’re guaranteeing them to the eventual investors). So, if investors no that the guv ‘mint is guaranteeing these securities, they figure they’re risk is even lower, thus they’re willing to pay more for these mortgage backed securities and get a smaller return. Result: Lower Mortgage Rates. But that’s not the end of the story….

Earlier this week, The Fed said that not only are they going to "back-up" these securities, they may start buying them directly. What does that mean? It means that mortgage back securities sold by Fannie Mae and Freddie Mac will in essence be equivalent to Treasury Bonds, theoretically the safest investment on the planet. And, if it’s the safest investment on the planet, investors cannot expect a high return/yield/interest rate. The risk will supposedly be eliminated…after all, these investments will be backed by the good faith of the US government...which in turn is backed by all the US taxpayers…meaning you and me. So, as a result of this development, normal, every day, plain Jane vanilla mortgage loans may experience a drop of near 1 percent!

Did you read, rates could drop another 1 percent…at least according to “the experts”.

WILL RATES DROP?
In my 19 years as a lender, I have never predicted the future interest rates. No one really knows. I am very close to doing so for the first time. But I’m a little nervous…like a schoolboy on his first date. Should I? Shouldn’t I? Oh well…

If past experience is any indicator and if you know politicians, the dunderheads in Washington will likely use our money and spend it on these mortgages, after all, as they all keep saying, “We need to do something, anything, to loosen up credit and get people spending more money to get us out of this situation.”. Everyone else is getting a bailout -- banks, insurance, auto…what the heck…let’s give it a go, how much more harm will it cause? In my opinion, they're flying blindly, have pressure from their constituents to "do something!", and I think they have the big hammer of China telling them they better do something, or the house of cards will come crashing down...hard and fast! (You see China is the holder of most of the government's debt...they're the government's largest creditor. Picture this: If you are way behind on your car loan, doesn't the creditor come crashing down on you? Yelling screaming, ready to take your car away? Yes. Can't the government's creditors do the same?)

Let's get back to basics: “What caused all this trouble?”

Yes, it’s obvious... it was loose money, easy money, money for nothing, good time rock n' roll, plastic banana, phoney baloney lending practices...along with many other shenanigans. Will creating more of the same thing going to help fix this situation? Me Thinks NOT!

So, what’s my take? The government is going to juice the markets and mortgage rates are going to drop in the near future. How long until they go even lower? I DON’T KNOW. These are strange times and strange markets and ANYTHING can happen, so I’m not betting too much on this prediction. Heck, I wouldn’t be surprised if government bonds are soon rated as “junk” and rates skyrocket.

Be ready. If the call or email comes to you, my many clients, jump on it because this may be a situation that won’t last long and you’ll want to act fast. Get your personal financial documents in order (paystubs, taxes returns, bank statements, etc) and be ready to refinance into a 30 yr fixed rate loan somewhere below 5%. We're in the mid to upper 5's depending on your specific circumstances. Don’t haggle about the rates, don’t get too cute and hope they go down further. I get this reaction occasionally, “Jim, I know I’m at 7% and today I could get 5.625%, but I really would like to see 5.25%.” Come On! It’s a free gift! Don’t get greedy, grab it while you can. Remember, pigs get slaughtered.

US GOVERNMENT JUNK BONDS?
Junk bonds are bonds (debt) issued by riskier companies and governments in order to raise money. The strength and stability of the issuing entity determines the rate of these bonds. The riskier the company, the more money it will cost them to borrow the money in the form of bonds. Example, if you were looking to purchase GM bonds, you'd expect to ask for a nice, big fat yield or return. You might never see the money again, so, for the risk you want to be rewarded. By the way, GM can’t issue any bonds…no one wants them! So, the lender of last resort, the guv’mint is going to give them the money…I have no doubts! yay! Detroit is saved! That will the be the headline...the truth is a few degrees South of that.

What’s the point? How many promises has the US government made over the last several weeks? Answer: A LOT! The government is in DEEP debt and going deeper by the minute, and soon the additional promises may help the average guy (as described above) get lower rates. Meanwhile, to give you an idea of how much money has been promised, take a look at this chart showing all The Government Bailout Promises (link).

What many people don’t really understand is that the government debt is not just some mythical number…the government, you and me the taxpayers, via the government, actually owe this money to other people and foreign governments. That's a fact. What happens when you don’t pay your personal debts? The collectors come a knockin’. What happens if for some reason the government defaults on all this debt? The collectors come a knockin.

"Fool! That will never happen! Good thought…but I think it’s more a hope rather than a comment based on any reality. The government pays it’s bills from revenue collected in the form of taxes. How much in taxes will they collect from people without jobs? How much will the government collect in taxes from companies not earning profits? How much can the government collect in taxes from banks that are getting huge tax refunds because of all this bailout stuff? That’s what’s more amazing about this stuff. Banks that take bailout money who in turn purchase other, smaller banks (thus eliminating competition), are using some peculiar tax code that was repealed in the 800 page, $700 billion bailout legislation. Reports I’ve read indicate that another $145 billion is there in the form of tax refunds. Amazing!

So here we have all this debt, the interest payments that go with it and a recession which usually results in less tax revenue to the government -- how are the payments on all this new debt going to be paid? And who will come a knockin’ when the debts aren’t paid? Can you say, China, Japan, Russia, Saudis, etc….

Scary Stuff….and there’s a lot more. These are the type of things I think about all the time. I know, “What a dork!” I’m thinking of starting to calling myself "The Debt Dork". What do you think? Does it have a nice ring to it?

WHAT’S THE AVERAGE GUY SUPPOSED TO DO:
Save Your Money. Pinch Your Pennies. (I know, nothing original).

Next Week I’ll share a review of a book I have read multiple times and have given away to clients for years. I hope you purchase it. Read it. Learn from It. It's not for everyone, but it's for most everyone.

Economic Reports: I could almost copy the same from last week, except some of the numbers are worse. So I won’t.

Thought of the Week: “Be a Trendsetter. Be Frugal.” - Jim Casler

20081202 - Be Cool. Save Your Money.

Tue, 02 Dec 2008 07:57:14 PST

30 yr – 5.97% w/ 0.7% in fees. DOWN from 6.46%. 1 yr ago – 5.94%
15 yr – 5.74% w/ 0.7% in fees. DOWN from 6.19%. 1 yr ago – 5.73%
5/1 ARM – 5.86% w/ 0.6% in fees. DOWN from 6.36%. 1 yr ago – 5.86%
1 yr ARM – 5.18% w/ 0.5% in fees. DOWN from 5.38%. 1 yr ago – 5.43%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -11-26-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: All right! All Right! Here’s the deal. This might be a little long today, but I hope at least a little educational, if not humorous.

Mortgage rates have improved quite a bit over the last few weeks due to…you guessed it…more frickin’ government spending. Don’t get me wrong, this just might produce a mini-refi boom for me, and that’s good…but it’s also only good for borrowers in a position to refinance. Let me ‘splain further…

The Fed has decided to “back” mortgage backed securities issued by Fannie Mae and Freddie Mac to tune of something like $300 billion (i.e., if they go bad, the government picks up the tab…that’s you and me buddy!). Secondly, there is chatter out there that the Fed is going to be purchasing long-term treasury bonds. I’m not sure how that works, but it’s a continuation of the rot on the vine called government fiscal and monetary policy. They're making this up as they go. So anyway, all this helped mortgage rates go down.

Who's Refinancing with Today's Low Rates:
Have you heard that house prices have dropped, say, 15-20% from their peak prices of a few years ago? I know you knew that. I was just kidding. Let’s take a looksy at a few common scenarios. Most homes bought in the last few years were done so with less than a 5% down payment. So, last year, Barely Get-By Bob bought his home and put a respectable 5% down payment. But now, he’s ‘up-side down’…he owes more than his home is worth. He’s trying to decide whether he should bother making payments any longer. Heck, every other joker on Wall Street is getting a bail-out, but not Bob. He can’t refinance.

Good Time Charlie, on the other hand, was a smooth cat, saved a few pennies and he put down 20% when he bought his home three years ago. He has a rate somewhere in the mid 6’s. He thinks it might be a good time to refinance, save a few bucks, replenish his 201k…ooops, I mean 401k. However, now, he has less than 20% equity. This means he has mortgage and insurance and his rate is not as favorable as could be if he had 20% equity. He can’t refinance.

Good Time Charlie’s opposite brother Tightwad Ted and his wife, Investor Ida, are millionaires. They took out a loan a few years ago against their paid for, free and clear home and made a reasonable investment. Nothing risky, just reallocated their assets...you know, diverisification. They now have tax advantages they didn’t have before. You see, now that they’re over 70 years old, the KGB…ooops, I mean IRS… forces them to liquidate their IRA’s, thus raising their incomes and putting themselves in a very high tax bracket….which is going higher next year, for sure! They’ve done everything right -- saved for years, have pensions, IRA’s, 401k’s and receive social security. But now they’re getting hammered by the IRS! The IRS wants their money and they want it now! They're vene getting taxed on taxes they've paid (i.e. social security benefits). What happened? Congratulations, following everyone’s advice has made them the IRS’ favorite citizen…a high tax payer. So Ted and Ida did some creative financing with an interest only, fixed rate loan. While it's still working for them let's see if they can save them some money.

Ted and Ida can’t refinance because now that the mortgage industry has been all beaten up (and rightly so) the fixed rate interest-only loan they had either doesn’t exist or is now higher than it was a few years ago. In the recent past, an interest-only loan only cost about ¼ percent higher than a normal 30 year fixed rate, and for many like Ted and Ida, this made sense. They have enough to pay off the home, but they’re doing something different. So while rates used to only be ¼ percent higher, today they’re over 7%. They can’t refinance.

Anyone else? How about borrowers that bought their homes 5, 6, 7, 10 years ago. They didn’t purchase they’re homes at the high end of the market…they still have equity, right? They certainly do, but these folks already refinanced, or should have, back in 2005 when rates were even lower than they are today. So, they can't refinance.

FHA government backed loans are getting some action. People with sub-prime loans are refinancing into FHA loans. Good for them, bad for the taxpayer. Huh? These loans are sub-prime for a reason. Get it. SUB-PRIME. Now many of these loans are getting refinanced into FHA loans. The Net Result: the loans are paid off and removed the banks' balance sheets...they're getting rid of the bad debt at little or no cost. Now the new FHA insured loans are shoiwng up on the new lenders' balance sheets...with one BIG EXCEPTION though. They're now INSURED BY THE GOVERNMENT. Some call it a great deal…saving all these people from foreclosure. I call it another bailout -- FOR THE BANKS. Now they’re risky loans are insured by the US Taxpayers….Thank you very much.

I know. I know. Rant Rant Rant. Sorry folks…just calling it like I see it.

Congrats to me
HEY HEY, by the way – congrats to me for becoming one of the first licensed loan officers in Northern Michigan. Here’s another thing that has me bent out of shape. The wise guv’mint of Michigan, and several other states, have decided in their infinite wisdom to start to regulate the mortgage industry better. Pssst – too late! Anyway, all mortgage companies and loan officers that work for mortgage companies now need to be licensed. I know, crazy that we didn’t need that before. At least in the past there was 'some' regulation in that the company iteself had to be licensed.

Anyway, this new regulation only applies to mortgage lenders…NOT THE BANKS. Here we go again…the banks always get the sweet stuff and everyone else gets the shaft! Remember that my friends -- whenever you see Big Ben Bernanke or Hank “Puff Daddy” Paulson talking on stage…EVERYTHING they do is to protect the banks! That’s why they exist. Did anyone read that book I recommended last time? Do it! The Creature from Jekyll Island.

Loan officers that work for banks are not required to be licensed...for some goofy reason, yet everyone elseo is required to be licensed. So I did my part and passed the exam last week. Early estimates show that about 40% of those taking the exam are failing. And the test is currently only available to those with 4 1/2 years experience. Those with less will be taking it early 2009. So while this requirement is weeding out many loan officers, I think all it will do is have those who fail either dropping out of the business (yay for me again!) or going to work for a bank where they are not required to be as competent.

The Economy

"Hey Jim, how about the economy you blabbering goof?" I know, I hear ya.

Economically speaking, the reports are nothing but horrible. I think the next new trend, if not already here, is FRUGALITY. Manufacturing, Employment, Inflation, Consumer Sentiment. Heck, consumers are so doped up on need to consume that they’re literally killing people by trampling all over them to get the next GameBoy, PlayStation or xBox. Here’s the challenge of the week: try and send me reports on good news. I’ve tried to stop watching the news lately. Gets me down. Gas prices are down!!!! Beat you to it. :-)

Frugality – The practice of acquiring goods and services in a restrained manner, and resourcefully using already owned economic goods and services, to achieve a longer term goal. (i.e. being cheap!)

Common strategies of frugality include the reduction of waste, curbing costly habits, suppressing instant gratification by means of fiscal self-restraint, seeking efficiency, avoiding traps, defying expensive social norms, embracing free (as in gratis) options, using barter and staying well-informed about local circumstances and both market and product/service realities.

Upcoming News:

Look for some announcements on a change in focus for Pinnacle. Some hints have already been dropped in this posting. It focuses on REALLY helping people with their debt problems. More to come later...

Outlook: Look for continued government intervention and stimulus packages. They might start and stutter certain areas of the economy. BUT, it all boils down to jobs and wages. If you don’t have a job, what good does a 4% mortgage rate do for you, or a stimulus check of $1000.

A view from the cheap seats: Since when did issuing more debt to someone having huge debt problems ever help? Think banks, automakers, local, state and federal governments. If piling on more debt makes sense to you, then ask yourself what you think the end result will be from the over $8 TRILLION that the government dunderheads have pledged with our future tax dollars. And they’re NOT DONE YET! The homebuilders want money, automakers want money, California wants money, Philadelphia wants money, etc. I want some too...

Thought of the Week: “Be a Trendsetter. Be Cool. Save Your Money.” - Jim Casler

20081106 - Tea Time Anyone?

Thu, 06 Nov 2008 07:17:37 PST

30 yr – 6.46% w/ 0.7% in fees. UP from 6.04%. 1 yr ago - 6.26%
15 yr – 6.19% w/ 0.7% in fees. UP from 5.72%. 1 yr ago – 5.91%
5/1 ARM – 6.36% w/ 0.7% in fees. UP from 6.06%. 1 yr ago – 5.98%
1 yr ARM – 5.38% w/ 0.6% in fees. UP from 5.23%. 1 yr ago – 5.57%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -10-30-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: Please forgive me in advance. I am going to be all over the map today. It’s been a month of Sunday’s since our last issue. WOW! A lot in the world has changed as we once previously knew it. 401k’s are now 201k’s, the government has ensured our grandchildren will be paying more and more taxes and The Creature from Jekyll Island has certainly shown it’s colors (more about that later). Mortgage rates have been popping up and down just as financial markets all over the world do the “hokey-pokey” and turn themselves about. After all…that’s what it’s all about!

Overall, mortgage rates have risen lately, but they’re still very attractive for those that want to borrow money. They’re attractive for those that need to borrow money too! However, it is becoming harder and harder for those that need the money, to get the money. Marginal borowers are toast. Higher down payments, more money in reserves, etc. are all pushing many out of the market. This will only help to curb demand for homes already on the market, continuing the downward pressure. I am not saying this is good or bad…it is what it is. What goes up must come down…it’s the law of gravity.

Some readers may argue that I am all full of vinegar today, and maybe I am, and this is a lot of “gloom and doom”, but what the heck, the state of Washington just passed an Assisted Suicide proposal this election while the entire US Congress recently assisted The Federal Reserve commit suicide for the whole country in the name of “bailouts”. I still can't believe that 70+% of the American people expressed opposition to these bailouts and the SOB's in Washington still voted for it. Well not the $700B, but the new and improved $800B bailout package. After all, when the taxpayers are paying for it, it's never really enough money. As many have expressed to me lately, “We’re Screwed.” While I cannot say for sure whether we are or aren't, it all depends on how you look at it and your perspective. Anyway, on to some economic information.

Housing – no real surprise here. September new home sales are 33% lower than one year ago. Anyone needing to sell is certainly taking a hit. Advice: go shopping for a great deal if you are investing for the long term. Otherwise, hang on tight and hope to come out well on "the other side”…whatever that means.

Consumer Confidence – It’s no small surprise that consumer confidence took a hit, BIG TIME as the index fell from 61.4 all the way down to 38.0. At least gas prices are dropping…but if you don’t have a job, who cares? (see next)

Unemployment – New weekly unemployment claims for the week ending 10/25 were at 479,000. This next week we get the next BIG employment report for October. The unemployment rate is expected to rise to 6.2%. In Michigan, it is and certainly will be higher. Some people have argued that if the "guv-mint" calculated unemployment the way it did years ago, the the “real” unemployment rate in Michigan would be approaching 20%. You see, once unemployment benefits expire, people are no longer counted as unemployed. Same goes for inflation.

Inflation – the latest inflation figures show consumer prices up 4.9% and producer prices up 8.7% over the last 12 months. Again, if the "guv-mint" calculated these figures as they did in the early 90’s, they would be much, much higher.

But, now there is fear of deflation…prices coming down. Seen any ads for automobiles or electronics lately? Great time to get a good deal…or maybe they’ll get even better after the world celebrates the end of the election season over the next 2-6 months.

PS – did you see what happened to the equity markets yesterday, the day after the election? I thought the world was supposed to rejoice at the notion of change coming to Washington. Each major candidate expressed "change" as a theme. How strange? How can anyone that works in Washington, come to Washington (when they're already there) and make "change" when they've been in Washington already? I don't get it. Maybe I'm stupid. yeah, that's it. Be careful what you wish for is all I can say.

Anyway, the Dow had it’s largest percentage drop ever following a presidential election. Anyone want to guess when the 2nd highest drop happened? 1932. Does that ring a bell for anyone? What was happening in 1932? Ask your grandparents….they’ll tell you ALL about it. Pay special attention.

Enough of the Gloom and Doom…I heard gold prices are rising. Need help on where to buy some. HAAAAAA! Good luck…seems like A LOT of people are investing in that shiny metal these days. Don’t believe me? Go get your yellow pages book (or Google) and look up gold/silver dealer in the largest city near your home, Detroit (and suburbs), Lansing, Flint, Grand Rapids, etc. Call them up and ask if they have any gold bullion for sale. What did they say?

The Fed – The Fed lowered rates the other day. Big deal. Who cares? Does't help anyone but the flippin' banks. Now they can pay less on savings accounts. If this continues any longer, they'll start charging you for savings accounts. The Fed Funds Rate is now at 1%....close to zero. As a result…mortgage rates went up. Huh? Rates will continue to bounce around as we work through this mess…oops, I mean, situation. As many readers may recall, in the past I have been concerned about the government’s ability to continue to borrow money at reasonable interest rates. What happens in the treasury bond markets closely tracks what happens in the mortgage markets.

ECON 101 – when the government spends money, they need to get that money from somewhere first. They get it one of two ways – tax revenues from you and me, and/or borrowing money. Which is easier for them to do? When the government borrows money, it does so by selling government treasury securities – T-Bills and T-Bonds. Foreigners are the largest buyers of these bonds…can you say China? US government bonds are considered the safest place in the world to invest…at least for now. All other bonds must compete against the US Bonds in order to attract investment money. Mortgage bonds are the same. What’s the point of all this? Hang on, Hang on, I’m getting there. You may have noticed that the government has recently decided to spend a hell of a lot of money! You did hear about that, right? A few short years ago, the cooked books of the government were close to being balanced. Now they’re talking about a mere $1 Trillion budget deficit for 2009. Right now the total government debt is over $11 Trillion. What many people don’t realize is that this is an actual debt. The US owes that money to someone…can you say China? Not all, but a lot is owed to China and other foreign governments.

Have you ever heard about anyone being in way too much debt? I’m sure you have. Do you think lending them even more money will help? Maybe for the short term, but the fact is that you cannot help someone get out of debt by giving them more debt. That’s what the US government is doing with all this bailout stuff. The money has to comer from somewhere, either more debt and/or higher taxes. Oh, by the way, California, the automakers and now the national homebuilders are lining up at the government trough asking for many more billions and billions of dollars.

Who in the hell is going to pay for all this crap?

Think about it…really.

Eventually, the government will do one of two things…either let all the chips fall where they may and let businesses and industries go out of business, or, most likely they will continue to print more and more money and start dropping it from helicopters until everyone is fat and happy by Christmas. When that reaches the point of no return, those holders of US dollar denominated bonds (i.e. the Chinese) will realize that they are losing more and more value by holding onto these bonds. They won't want them any longer and will instead want their money back. When the government can’t pay them…”we’re screwed” (there’s that phrase again) and interest rates just might rise a "little" bit. Wink Wink.

Trivia: Did you know that in 1913 we didn’t have any taxes? Look how far we’ve come in the last 100 years. Does anyone remember what the Boston Tea Party was all about? Look how far we’ve come.

Book of the Week: "The Creature from Jekyll Island" It’s long, it’s boring, it’s full of history, it’s eye opening, it’s scary. Just what you would expect from an ECONOMICS BOOK !!!!!

I’m starting to get tired of whining about all this, as I’m sure you are tired of reading it. I'm outta here. To be continued…

Outlook: ??????????????????

Thought of the Week: “People don’t always get what they want, they usually get what they deserve.” - Some mean spirited person enjoying Schadenfreude = the gleeful joy one experiences watching someone else get his just desserts.

20081005 - Dunderheads 1. Sheeple 0.

Mon, 06 Oct 2008 15:25:30 PDT

30 yr – 6.10% w/ 0.6% in fees. UP from 6.09%. 1 yr ago - 6.37%
15 yr – 5.78% w/ 0.6% in fees. UP from 5.77%. 1 yr ago – 6.03%
5/1 ARM – 6.00% w/ 0.6% in fees. DOWN from 6.02%. 1 yr ago – 6.11%
1 yr ARM – 5.12% w/ 0.5% in fees. DOWN from 5.16%. 1 yr ago – 5.58%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -10-2-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: Mortgage rates eased a bit the past few weeks amid continuing concerns about slow economic growth and the “apparent” lack of concerns about higher inflation. In addition, the global financial turmoil is resulting in money into US Treasuries, the supposed safe haven of the investment world. As a result, prices have risen and therefore the yield, interest rate, has come down (Over the last 12 months, investment in T-Bonds have resulted in about a 15% return) As long time readers understand, mortgage rates closely follow the lead of US Treasuries. Result: Lower mortgage rates.

Psssst! I heard there is something going on with Congress and some bailout or something???? Anyone have any more information they can share with me about this? Ahhhhh!!!! This is CRAAAZZY stuff going on right now and there are a million opinions on the right thing, wrong thing, best thing, worst thing that can, would and should be done about the nation’s, and the world’s for that matter, financial situation. All I can say is “HANG ON TIGHT!”.

Hey – I have a joke for you -- What do you say to the poor investment banker who just lost his job? “I’ll have a burger with fries. Hold the mayo.” I know…not funny. Well…kind of.

Seriously though, as I write this, I am reflecting back the events from last Monday, 9/29/08, when Congressional Representatives voted no on this $700 Billion bailout plan. The stock markets dropped 700+ points…and many “experts” claimed that the markets are calling for this plan to pass…NOW! Without it, the world will fall from orbit. Well, 5 days later, this same Congress votes “Yes” and passes an $850 Billion bailout plan, 20% more money. Yay, right? Wrongo Prongo. Now the Asian and European markets drop, and the US stock indices are all down 5-6-7%. So what happened? What was great last week is now not such a good deal? I know there’s a lot more to the story…but something stinks in Denmark. (By the way, does anyone know where that saying ever came from?).

Foreign Buyers of Debt – as long time readers may recall, one of the concerns I have held for a long time is the continuing ability of the US government to attract foreign investment purchases of our bonds (i.e. debt) to finance our government’s gluttonous spending habits (Congress really...as you may or may not know...Congress holds the purse strings, not the President...although he's a spend-a-holic too...I used to like "W", but now I think he's a doofus too). These foreign investments have been the foundation of the US's ability to spend money we don't have.

NOW, if you were a foreign investor with billions to invest, would you pause for a moment and think about the situation in the US and the losses you’ve already taken because of the loss in the value of the dollar before you plopped more money into the hands of the dunderheads in Washington? I think so. And, that’s exactly what’s happening. However, now Europe is falling apart, so where are the Chinese going to invest their money? They’re stuck too! Everyone is all tied together. So what does this all mean?

There are certainly smarter people than me talking and analyzing this situation. These are just my random thoughts, for whatever they’re worth…remember, this is a free publication…

Dunderhead Alert - These dunderheads in Washington make me want to puke. They are all congratulating themselves for making this thing “supposedly” go away. Ha! Don’t look now, but I see one of them now reaching for your wallets and purses!

Anyway, a lot centers around Beijing…China that is. The bailout is pretty much as Treasury Secretary Paulson asked for, just a few more bells and whistles and some chest pounding to make those in Washington look and feel like they did something…something for us on Main Street. Liars!

The SEC now also has the power to suspend certain accounting rules. I don’t know much about history, don't know much about biology (Sam Cooke) …but aren’t accounting changes and government screwing around and all the other shenanigans what helped cause this situation? Me thinks this might not really help...in the long run. It seems it just might delay the inevitable and bring an even harder correction...a return to normalcy. The basics are simple...you can't spend more than you earn...Congress! These new accounting rules allow troubled firms to hang on a little longer and hope for the best. It simply makes their balance sheets look better than they really are. But, this also might allow the Treasury to now buy these “troubled assets” at higher values…thus the argument that this is a bailout of bankers. Ahhh! Who knows?

So, while this bailout is all about propping up the failing banks, the one question many are asking is “where does all this money come from?”. Just as when companies go public they need to hit the road and create interest for the new stock offering. Same goes here…the Treasury needs to go out and find suckers...oops, I mean investors, for this new debt offering.

Can you say China, Japan, Saudi, etc.? Financial institutions not out of business are also having to partner up with others which are now going to own larger and larger shares of America’s largest financial institutions and companies. Will that have any influence on the future of this country? Me thinks so. Now, if the Fed can't get anyone to buy all this new debt, they can simply create the money, right?

Either way, the dunderheads in Washington should understand that the nation has just been sold into debt-servitude. But then again, that’s should be nothing new…they’ve done it for years.

Equity markets obviously have not trumpeted in the new deal. The other thing…banks will still need to lend in order to get the juices flowing on this economy. Will that happen? Who wants to lend and who wants to borrow? The markets also need to account for the possibility that more bad things are to come. It’s hard to believe we’re at the end of this turmoil…after all, Ben Bernanke and Henry Paulson said we were at the bottom of the crisis almost 18 months ago…in August 2007! WRONGO PRONGO!

In the end, it wasn’t Wall Street greed that created this trouble. The politicians want everyone to think that though. The politicians tried to change the game of finances...they tried to get their "feel good" hands in the lives of other people. Dolts! Congress encouraged and almost mandated (under the threat of heavier scrutiny) that banks lend more and more money under the “affordable housing” umbrella...after all, more homeowners make us a better country. Well, some people just can't handle that responsibility. The people that borrowed the money are to blame just as much as anyone else. Everyone wants to blame everyone else.

Let’s hope China wants to lend us some money and keep this game going. I'm sure they will... and when the time comes, they will decide the rules of the game.

Thought of the Week: “You can’t always get what you want.” Mick Jagger, The Rolling Stones

20080907 - Home Sales Up - Prices Down

Sun, 07 Sep 2008 07:09:09 PDT

Home Sales Up, Prices Down, GDP Up, Unemployment Up, Wages Up, Productivity Up

30 yr – 6.35% w/ 0.7% in fees. DOWN from 6.460%. 1 yr ago - 6.46%
15 yr – 5.90% w/ 0.6% in fees. DOWN from 5.93%. 1 yr ago – 6.15%
5/1 ARM – 5.97% w/ 0.6% in fees. DOWN from 6.03%. 1 yr ago – 6.32%
1 yr ARM – 5.15% w/ 0.6% in fees. DOWN from 5.33%. 1 yr ago – 5.74%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -9-4-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: Mortgage rates eased a bit this past holiday-shortened week following the release of various economic data suggesting that consumer spending may slow. 2nd Qtr Gross Domestic Product grew 3.3%.
Gross Domestic Product – GDP – This is the largest measure of economic output for the nation. It was the “market mover” this past week. The revised Q2’08 GDP rose 3.3%, up from the previous estimate of 1.9%. While this was a surprise to the markets, many experts are claiming that this jump was the result of the government stimulus checks handed out in previous months. It appears that the “rebate of taxpayer money” (i.e. stimulus checks) did what they were supposed to do…get spent. Odds are HUGE, that this won’t be repeated in Q3’08 and that we’re still in a mode of slow growth.

Employment: The August Employment Report revealed that the nation’s official unemployment rate rose to 6.1%, up 1.5% over the last 12 months. Non-Farm Payrolls fell 70,000 and over the last 12 months, the nation has lost 283,000 jobs. Avg. Hourly Earnings rose 0.3% and have risen 3.7% over the last 12 months. Worker Productivity also rose 4.3%.

Existing Home Sales – July home sales rose 3.1%, sparked by the large number of foreclosures getting picked up. Nearly 1/3 of all home sales are foreclosures. While the number of home sales is up, the average sales price is down 7.1%. If it’s priced right, buyers will buy. That price just might be much lower than what the seller purchased it for. While the amount of foreclosures is still huge, the important thing is that homes are indeed getting purchased and this excess inventory is getting absorbed. Eventually, whether 6 months or 6 years, markets will return to normalcy…they always do.

Advice: If you want to buy a new or additional home, have a steady job, good credit, good finances -- go for it, go get a bargain.
If you need to sell your home, expect a lower price than a few years ago.
If you don't need to sell your home, don't.

Overall, the nation is losing some jobs, wages are rising which is a concern about inflation, but productivity is also rising which will lessen that concern. If workers get paid more, but produce more products, the employer has more profit to then pay that higher wage, thus no need to charge a higher price for the product sold…theoretically.

Construction Spending: For August fell 0.6% and over the last 12 months is down 4.8%. No real surprise here.

Outlook – Next week we get reports on unemployment, balance of trade, wholesale inflation and retail sales. There’s probably not much that will move the markets too greatly.

Thought of the Week: “I will prepare and someday my chance will come.” Abraham Lincoln

PS - Congratulation to me! This past week I just passed my Michigan Real Estate Broker's Exam. Hey! If I don't promote myself, who will? :-)

20080728 - Short and Sweet - Rates Up

Mon, 28 Jul 2008 05:00:13 PDT

30 yr – 6.63% w/ 0.6% in fees. UP from 6.26%. 1 yr ago - 6.69%
15 yr – 6.18% w/ 0.6% in fees. UP from 5.78%. 1 yr ago – 6.37%
5/1 ARM – 6.16% w/ 0.6% in fees. UP from 5.80%. 1 yr ago – 6.30%
1 yr ARM – 5.49% w/ 0.5% in fees. DOWN from 5.10%. 1 yr ago – 5.69%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -7-24-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: Market concerns about rising inflation and a higher probability that The Fed will raise short term rates sometime this year pushed mortgage rates higher.

Oh yeah, and there’s that little thing about Fannie Mae and Freddie Mac getting bailed out by the US taxpayers to the tune of $50 to $120 BILLION, with a "B". That's a lot of money and obviously a MAJOR cluster. The weak balance sheets of these quasi-government entities means that investors of mortgage backed securities (the bonds that are created when millions and millions worth of mortgages are pooled together and sold on Wall Street) are desiring a higher yield (interest rate) for these, now, riskier, investments.

Existing Home Sales – June home sales fell 4.8% as compared to year ago levels. The slowest pace since February 1991 and over the last 12 months is down 15.5%. No real surprise here.

New Home Sales – June new home sales posted a 530,000 annual pace of sales. Overall, down 33.5% for the last 12 months.

Outlook – Advance GDP numbers are released later this week as well as the June employment report. Overall, rates jumped quite a bit this past week and could possibly remain stable as economic news is fairly light this week.

Thought of the Week: “Everybody thinks of changing humanity, yet no one thinks of changing himself.” - Leo Tolstoy

20080723 - Keep on Pumping...money

Wed, 23 Jul 2008 05:32:27 PDT

30 yr – 6.26% w/ 0.6% in fees. DOWN from 6.37%. 1 yr ago - 6.73%
15 yr – 5.78% w/ 0.6% in fees. DOWN from 5.91%. 1 yr ago – 6.38%
5/1 ARM – 5.80% w/ 0.6% in fees. DOWN from 5.82%. 1 yr ago – 6.35%
1 yr ARM – 5.10% w/ 0.6% in fees. DOWN from 5.82%. 1 yr ago – 5.72%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -7-17-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: While the data is a little stale, rates are clearly up since the last time Pinnacle Report from early June. Why? Higher interest rates of course…Silly Billy. Just kidding. Yeah, rates are higher, but big deal…look how attractive they still are for consumers willing and able to borrow money. They’re lower than last year! There are plenty of transactions still taking place. Overall, rates are lower as more bad economic news gets reported, thus [supposedly] lowering the concerns of higher inflation. Whacked I tell you, just whacked! Buy any groceries of energy lately. Anyway, on to the meat of the report.

Retail Sales – In June, consumers spent a little less than anticipated, continuing to point to a weaker economy. Stimulus checks have helped and a big shift in buying patters have more people shopping at discount places like Wal-Mart and fast food places.

Wholesale Inflation PPI – Inflation as measured by the PPI for June rose 1.8%, higher than expected. Over the last 12 months, wholesale inflation has risen a whopping 8.9%. That’s not good.

Consumer Inflation CPI – Inflation for June as measured at the consumer level also rose in June, 1.1%. Over the last 12 months, prices have risen 4.9%. Again, not a good thing. Not in the range of comfort for The Fed.

There’s a problem though. The way to help control inflation is to raise interest rates. However, raising interest rates tends to curb economic growth. So what’s The Fed to do? Raise rates and keep prices in control and at the same time, hurt the economy more, or do the opposite. Keep rates the same or lower them, help the banks get out of their mess, keeps rates low, keep the economy moving, but risk prices going even higher. In my opinion, The Fed will ALWAYS do what The Fed is ALWAYS going to do. Help the banks, keep printing money, and keep the economy stable. Result: higher inflation and continued devaluation of the dollar. (as they print more, the ones in existence become worth less and less. Just my opinion).

Another big problem that could enter into the equation is the willingness of foreigners to keep buying our government bonds. The US Treasury sells these bonds to finance our budget deficits. If they are unwilling to continue to buy at current interest rates…by the way, I’ve discussed this for years and it may be starting to come to fruition…then the rates offered or return they receive will need to be raised (i.e. rates will need to go up). If Treasury rates increase to continue to attract foreign buyers, then all rates go up, including mortgage rates. Also putting pressure on Treasury bonds; the fact that the government is now backing private and quasi-private entities like the now converted Bear Stearns and Freddie Mac and Fannie Mae. About 20% of government securities are now back by the performance of lesser quality mortgage backed financial instruments. Who has confidence in those? Foreign buyers of US Debt are not stupid. For the added risk, they will want an added reward (i.e. higher rates).

Unemployment – unemployment claims keep hovering around the 366,000 claims per week. Higher than normal, but still within reasonable levels.
Housing – Building permits – June activity for building permits and new starts rose from previous months. Still down about 25% from year ago levels. This will continue as excess inventory still needs to get sold and as the economy sputters along.

Outlook – later this week and next week existing homes sales and new homes sales are reported for June, some consumer confidence reports and preliminary gross domestic product figures are released. Then the following week, the often market moving Employment Report is released for July.

Thought of the Week: “If you care enough for a result, you will certainly attain it.” - William James, Psychologist

20080607 - You, Me and Dupree

Sat, 07 Jun 2008 06:23:03 PDT

30 yr – 6.09% w/ 0.6% in fees. UP from 6.08%. 1 yr ago - 6.53%
15 yr – 5.65% w/ 0.6% in fees. DOWN from 5.66%. 1 yr ago – 6.22%
5/1 ARM – 5.51% w/ 0.5% in fees. DOWN from 5.62%. 1 yr ago – 6.24%
1 yr ARM – 5.06% w/ 0.7% in fees. DOWN from 5.22%. 1 yr ago – 5.65%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 6-5-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: Interest rates for fixed-rate mortgages were nearly unchanged this past week. Consumer spending rose only 1 percent, representing the smallest increase since the 2001 recession and Fed Chairman Ben Bernanke cleans out the stalls and manures flies everywhere.

Consumer Confidence – April’s Conference Board measure of consumer confidence came in at 57.2 and consumers’ expectations of inflation are at the highest levels since 2001.

Employment – May’s employment report showed the unemployment rate jumped from 5.0 to 5.5% as the country’s measured job loss was 49,000 for the month. Hourly wages rose 0.3% and have risen 3.6% for the last year.

Housing - Construction Spending for April fell 0.4%, no real surprise here.

Mortgage/Banking Industry – Q1’08 mortgage delinquencies were reported by the Mortgage Bankers Association, showing a rise to 6.35%, a record high in data back to 1979 (i.e. we're nowhere close to out of the woods with this mortgage meltdown malarkey). These delinquencies threaten the banking system. As a result of all this banking turmoil, the value of the dollar is in serious jeopardy of remaining the world’s reserve currency.

If and when The Fed pumps another few billion into the banking system to bail-out the next dunderhead institution that went wild and showed no restraint, this will further devalue the dollar...it’s not a good thing. (I think I might start a new DVD collection…”Banks Gone Wild!” What do you think?). Think of the nation’s currency as “the stock” of that nation. The US has been losing value and most other nations have been gaining. Seen a Canadian dollar lately...it's worth more than the US dollar. The world is losing confidence in the US.

Gas/Oil Prices – Have you seen gas prices lately…they’ve dropped about 10 cents. Yippeee! NOT for long. Many expect gas and oil prices to continue to rise as developing nations like China and India keep demand high. Although we have enough oil IN THE GROUND to last another 2 generations, the speculators and the fact that the oil is still in the ground and not getting pumped out of the ground, means that the supply is limited. The Chinese will get their oil, and as a result, the laws of supply and demand will likely result in prices going ever higher. Heck, China is drilling for oil less than 100 miles off the coast of Florida…why aren’t we?

The Fed – Big Ben Bernanke, or as some have started to call him, Helicopter Ben (because he has been dropping money into the economy as if he threw them out of a helicopter). Anyway, this past week at various speeches he indicated that The Fed now sees higher inflation and that it is caused by the weaker dollar. NOT! Well, kind of... Economics 101 students learn that when you print paper money and put it into the economy, the value of ALL dollars in circulation drop. When the value of the currency drops, prices of items you wish to exchange for those less valuable dollars goes up. So while the weaker dollar does result in inflation, he's trying to act as if The Fed had no impact on the weaker dollar. Printing money is creating the weaker dollar which is leading to higher prices..inflation. That is Fed B.S.!!!!

Anyway, always keep in mind the role of The Federal Reserve…I have said this many times before…it is to keep the banking system functioning and to keep it’s member banks in business and when they mess up as they always do by lending to 3rd world countries, lending to bankrupt businesses or lending to consumers that can’t afford to pay them back. It always happens and it will again and again and again. Who pays for it? You, me and Dupree. The result: printing money, inflation and weaker dollars. Don't save your money...it is becoming worth less and less every day.

Next week: Reports on retail sales, consumer inflation and balance of trade. Rates should remain fairly stable, but we’re in a goofy time so anything can happen.

Thought of the Week: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.” - Ronald Reagan

20080524 - Short-Term Up, Long-Term Down

Sun, 25 May 2008 06:04:12 PDT

30 yr – 5.98% w/ 0.5% in fees. DOWN from 6.01%. 1 yr ago - 6.37%
15 yr – 5.55% w/ 0.6% in fees. DOWN from 5.60%. 1 yr ago – 5.87%
5/1 ARM – 5.61% w/ 0.6% in fees. UP from 5.57%. 1 yr ago – 6.02%
1 yr ARM – 5.24% w/ 0.6% in fees. UP from 5.18%. 1 yr ago – 5.64%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -5-22-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Long term mortgage rates improved slightly on news of weaker industrial production and falling consumer sentiment. However, short-term, adjustable rates rose slightly following market forecasts that the Federal Reserve may not lower rates in the near-term as many have predicted/expected.

Consumer Sentiment – Consumer Sentiment as measured by the Federal Reserve’s Conference Board fell to its lowest level since June 1980. High food and energy prices, declining home values and concerns about jobs basically summarize the concerns.

New Housing Starts – on strength from the multi-family sector (apartments), housing starts rose in April. However, starts of single family homes fell to an annualized rate of 692,000 units, the least since January 1991 and almost 62% below the November 2005 peak. To go along with this sobering report, homebuilder confidence for May equaled an all time low. While I know this constant basking on housing doesn’t help anyone, it’s factual.

Wholesale Inflation – Producer Price Index (PPI) – April’s measure of wholesale inflation rose 0.2%, lower than the expected 0.4%. However, for the last 12 months, is up 6.3%, well above comfortable levels.
Unemployment - Weekly unemployment claims for the week ending 5/17 were lower than expected at 365,000. While a lower than expected number, it’s still poor.

Existing Home Sales – April’s report of 4.89 million annualized sales of existing homes was in-line with expectations. For the last 12 months, sales are down 17.5%.

Thought of the Week: “The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends upon the unreasonable man.” - George Bernard Shaw, Playwright

20080502 - Don't Worry, The Fed Has Plenty of Ink

Mon, 05 May 2008 06:22:56 PDT

30 yr – 6.06% w/ 0.5% in fees. UP from 5.88%. 1 yr ago - 6.16%
15 yr – 5.59% w/ 0.5% in fees. UP from 5.40%. 1 yr ago – 5.87%
5/1 ARM – 5.73% w/ 0.5% in fees. UP from 5.48%. 1 yr ago – 5.87%
1 yr ARM – 5.29% w/ 0.6% in fees. UP from 5.10%. 1 yr ago – 5.42%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -5-1-08)
Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: As predicted a few weeks ago, average mortgage rates rose mainly over concerns of inflation. (Sometimes you get lucky...even a blind squirrel finds a nut once in a while). The Fed lowered the shortest of short-term interest rates, The Fed Funds Rate, down to 2% this week. The more important things to analyze from Fed changes are the statements they make following their meetings. However, sometimes these “experts” are motivated by politics more than economic policy and their statements are full of hog-wash. The financial markets are so efficient and so much information is available to so many people today, that The Fed can’t really feed the markets any bull. The markets often just spit it right back out.

For example, last August Fed leaders indicated we had seen the worst of the fallout from the Mortgage Meltdown of 2007. That was not obviously accurate as could have been motivated by politics and trying to ease market reactions as opposed to telling the truth.

My guess is that we are probably a little over half-way through this credit situation and one or two Bear-Stearns type situations are possible...where a major financial institution or two are deemed insolvent, broke, caput, dead... But don’t worry, The Fed will print money and bail them out. They always have and always will. But don’t worry about that, The Fed has the backing of the US Mint and can just print more money. But don’t worry, that won’t further deteriorate the value of the dollar and cause more inflation. (For new readers, that’s sarcasm. This is exactly what may happen). Many suggest that what the Fed has recently done is pure genious. I disagree and suggest that the markets should work themselves out and that banks that took too much risk should have to pay the price, and if that means shutting down, so be it.

Anyway, in my opinion The Fed will likely drop rates one more time at their next meeting. Comments from this past meeting suggest The Fed expects inflation to moderate in coming quarters but uncertainty about the outlook for inflation remains high and that financial markets remain under considerable stress and tight credit conditions, along with the deepening housing contraction, are likely to weigh on economic growth.

Consumer Confidence: Measures of consumer confidence remain at multi-year lows. Ask someone how they’re doing, and they say fine. Ask them about their neighbor, and they feel bad. These readings are usually lower than reality. Regardless, it’s going in the wrong direction. But, business cycles will do that.

Gross Domestic Product (GDP) – The largest measure of economic output in the US showed Q1’08 preliminarily growing at a 0.6% annual pace. Not recessionary, but not that great. Again, housing and other credit related sectors are impacting the overall economy. That’s really not too surprising.

Unemployment – Weekly unemployment claims came in at 380,000 new claims for benefits for the week ending 4/26. This is slightly above the 4 week average of 363,000.

Personal Income – For March, incomes rose 0.3% and for the last 12 months, up 4.0%. For April, incomes rose only 0.1%. Not enough to keep up with inflation. Average hours worked dropped as well.

Personal Spending – In good old US fashion, consumer spent more than they earned and spending rose 0.4% and for the last 12 months is up 5.3%.

Manufacturing – reports on manufacturing show a continued decline

Employment – April saw a net loss of 20,000 jobs, an improvement from the expected loss of 75,000. . As a result, the official unemployment rate stands at 5.0%. While still low, it’s not really an accurate measure as the "guv-mint" stops counting people as unemployed after their unemployment benefits expire. But, it’s very well possible that many of these folks aren’t really looking for work anymore anyway. But don’t worry, the government will print more money and provide welfare benefits. Whoops, that sounded to sarcastic and negative. Look for your stimulus check soon. Yahoo!!!!!

Next Week: More reports on manufacturing, consumer borrowing, retail sales and others are due next week. It appears rates may remain steady as not too much market moving news is scheduled to be released.

Thought of the Week: “We should be taught not to wait for inspiration to act. Action always generates inspiration. Inspiration seldom generates action.” - Frank Tibolt, Author

20080419 - Coco says "Bury Your Head"

Sat, 19 Apr 2008 06:14:09 PDT

30 yr – 5.88% w/ 0.4% in fees. UP from 5.85%. 1 yr ago - 6.17%
15 yr – 5.40% w/ 0.5% in fees. UP from 5.34%. 1 yr ago – 5.89%
5/1 ARM – 5.48% w/ 0.6% in fees. DOWN from 5.67%. 1 yr ago – 5.92%
1 yr ARM – 5.10% w/ 0.5% in fees. DOWN from 5.24%. 1 yr ago – 5.45%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 4-11-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary / Commentary: Across the board, rates are lower than 1 year ago. Long-term mortgage rates have remained fairly steady, although ticking up a touch, while short-term mortgage rates have improved slightly amid speculation that The Fed will lower rates again in the coming weeks. Moving in opposite directions? Yes, they are and here’s the reason why.

Short-term mortgage rates benefit from The Fed lowering their rate (The Fed Funds Rate) while long-term mortgage rates have reacted just the opposite. Can any students answer the question “Why”? INFLATION. The Fed lowering rates is doing nothing but causing inflation. Look at the price of dollar-denominated oil - $117/barrel! (By the way, it’s all priced is US dollars). Anyway, The Fed Actions of lowering rates are inflationary. Investors or buyers of bonds hate inflation…it erodes the value of their return over 30 years. So, to make up for it, they require more yield, or a higher interest rate. Since long-term mortgages are packaged and sold on Wall Street, they react the same way any other bond would…the price goes down and yield or rate goes up. Neat eh?

Also causing mortgage rates to increase this week, and most likely next week too, is the good performance of the stock market this week, up 4.3%. This was lead by Google’s better than expected earnings and Citigroup’s $12 BILLION in mortgage related write-offs. Amazingly, market participants viewed these mortgage related losses and “better than expected”. So, as money flows into the stock market, it usually comes from the bond markets. The selling of bonds causes the prices of bonds to fall. The falling of bond prices results in a higher yield, or rate. Mortgages are packaged and bonds, thus rates went up and likely will show up more pronounced in next week’s averages.

Retail Sales: March retail sales rose 0.2%, better than expected. This tends to be inflationary as well, but not at any alarming rates. Fed actions are much more dramatic and market moving. For the 12 months, retails sales show a rise of 2.3%

Producer Price Index (PPI): PPI is a measure of wholesale inflation and March’s PPI rose 1.1%, almost twice forecasted. INFLATIONARY !!!! For the last 12 month, PPI is up 7.1%. INFLATIONARY!!! Some experts suggest that these government produced numbers are somewhat “cooked” and if they measured inflation the same way as they did 10-12 years ago, this number would be more like 12-13%.

Industrial Production – a measure of industrial activity for March rose 0.3% and is up 1.5% for the last 12 months. This is good news for nation’s manufacturers. Not much impact on rates.
Building Permits: Building permits for March reported annualized rate of 927,000 units. Lower than expected and down 40.9% for the last 12 months. No surprise here: new construction has dramatically slowed.

Housing Starts: Following the same path as building permits, which have fallen 36.5% over the last 12 months.

Unemployment: Weekly unemployment claims have risen lately. Nothing too dramatic, but just a sign of weakness in the economy.

Next week: Existing home sales and measures of consumer confidence are the only real economic reports to be released. Since mortgage rates rose in the last half of this week and are not included in the above averages and unless something big happens early next week, the average mortgage rates will most likely show an increase next week, maybe as much as ¼ percent.

Thought of the Week: “Success is often achieved by those who don’t know that failure is inevitable.” Coco Chanel, Fashion Designer

20080330 - Simply Steady

Sun, 30 Mar 2008 06:27:23 PDT

30 yr – 5.85% w/ 0.4% in fees. DOWN from 5.87%. 1 yr ago - 6.16%
15 yr – 5.34% w/ 0.4% in fees. UP from 5.27%. 1 yr ago – 5.86%
5/1 ARM – 5.67% w/ 0.6% in fees. UP from 5.56%. 1 yr ago – 5.88%
1 yr ARM – 5.24% w/ 0.5% in fees. UP from 5.15%. 1 yr ago – 5.43%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 3-27-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Rates have improved since we last got together a few weeks ago….at least according to the averages. Both survey periods caught the markets at a good time. There was a blip on the radar which allowed the rates to show an improvement. Reality is that rates a touch higher than those posted above. This happens once in awhile whenever statistics and surveys are involved.

Oh well, bottom line is that rates are still low enough so that no one should complain. Market data over the last few weeks has come in about as expected, with housing still showing a slowdown.

Existing Home Sales – home sales were up in terms of units (i.e. people are still buying), but came as a result of lower prices. February home sales reported a 5.03mm annualized rate of sale. Only a 4.86mm rate was expected. Overall though, existing home sales are down 23.8% over the last 12 months and new home sales are down 29.8% for the same period.

Personal Income: Income rose 0.5% in February, higher than expected and up 4.6% for the last 12 months. This is somewhat inflationary and causes concern for the markets and can lead to higher mortgage rates.

Consumer Sentiment – Consumers aren’t feeling that well, at least according to these surveys. Most economists don’t put too much weight into these surveys, but it makes for good headlines sometimes. Those with jobs are experiencing higher wages, but higher bread, milk and gasoline...and soon taxes...have eliminated these gains (AND MORE). Fed actions of lowering rates have done nothing but make the prices of almost everything else rise.

Overall, the markets are still concerned about the credit crunch and what’s happening in the world’s financial markets and Wall Street. It’s a very interesting time. Conservative, well thought out financial plans are in order here. Take a flyer only if it is pure fun-money.

Next week: The big March employment report is released. This often has market moving potential. Otherwise, hang on, play it safe and go buy a home if you need one. Rates are low and it’s a buyers market. If you don’t need to sell your home, don’t.

Thought of the Week: "Chance favors the prepared mind.” - Louis Pasteur, Chemist

PS - I have the pool to myself this morning!

20080316 - Booooyyyynnnnngggg!

Sun, 16 Mar 2008 07:01:32 PDT

30 yr – 6.13% w/ 0.5% in fees. UP from 6.03%. 1 yr ago - 6.14%
15 yr – 5.60% w/ 0.5% in fees. UP from 5.47%. 1 yr ago – 5.88%
5/1 ARM – 5.58% w/ 0.6% in fees. UP from 5.34%. 1 yr ago – 5.90%
1 yr ARM – 5.14% w/ 0.5% in fees. UP from 4.98%. 1 yr ago – 5.42%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 3-12-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Booooyyyyynnnnnngggggg. If rates have done anything, they have bounced around so far in 2008. Kind of like the equities markets, but unlike gold, oil and other commodities which have done nothing but head North all year (i.e. INFLATION). Overall, mortgage rates across the board rose about 1/10th percent. In late January, average rates for a 30 yr fixed were just below 5 ½ percent and have bounced as high as 6 ¼ percent. The markets should be used to it by now with all this mortgage stuff hitting the fan and The Fed and “The Guv-Mint” trying to do their thing….getting involved in something they should leave alone. Overall, nothing new for homeowners and would be homeowners except rates increased slightly. Now is a good time to buy and bad time to sell. The old saying of "buy low sell high." This market is representative of the first half of this quote. If you're in the market and have cash flow, go for it. Cash flow controls mortgages, mortgages control real estate. If things are tight, be just that, tight. Better to be safe than sorry.

The Fed: Deep concerns about the viability and livelihood of some of the world’s largest financial institutions had some of the world’s central banks combine together with other lenders to keep others afloat. Some call this “creative financing” and something The Fed needs to do, while others have called it a “bail-out” of the banks. Whenever this type of thing happens, it’s certainly dramatic, but not necessarily good for you and me.

One thing that you always have to remember is that The Federal Reserve system is designed for one thing, and one thing only -- to maintain the viability, profitability and preservation of its member banks and to some extent, their European and Asian counterparts. Every move, change or policy they do is for that reason only. While The Fed may talk about stock markets, employment, blah, blah, blah, a little digging, reading and a short history lesson will teach you the origins of that Creature from Jekyll Island way back in the early 1900’s.

What has happened was critical to the markets, and that is, banks had stopped lending to other banks, so The Fed had to step in, and they did. When all is said an over, this week’s announcement by the Fed was nothing more than a creative way to cut interest rates and they accomplished it with this $200 billion lending line. This was apparently the right move at the time, and will do more for the markets than another rate cut. The problem is that the markets are going to continue to demand further rate cuts and US inflation will continue to rise. Further rate cuts by the Fed will cause a further drop in the dollar. Even higher inflation is coming to a door near you.

Trade: The international (im)balance of trade “shrank” to only $58.2 billion for January, down slightly from the expected $59.5B. For the last 12 months, we have imported $709 billion more than we have exported. While the lower value of the dollar may help this specific number by helping lower the cost of our exports, but in the long run it is never a good idea to have your currency become worth less. That is exactly what is happening by The Fed lowering rates and getting “creative” in the markets. It’s a band-aid on a severely, infected wound. The financial markets need to let a limb or two get amputated by the free-markets, but The Fed will have none of that. In other words, the free-market should be allowed to work and some of the banks should go bankrupt instead of getting “bailed-out”. Yup, I said it. The banks are getting bailed out of their bad decisions.

There’s another problem with the imbalance of trade. In order to “make things right” and balance things out, we need to import investment in our country from overseas. Well, that’s not been a problem for years. Those that sold us all those cheap toys and foreign made goods have reinvested their money by buying US Treasury bonds and other financial debt-instruments…so, the net was we imported more stuff, but we kept their money as well. It all balanced out, until…these foreign entities decide not to buy our bonds and take their money back home. What happens then?

Well, a whole lot of something happens. Interest rates rise in order to attract that money back. Get ready for higher rates. It may not be next week or next year, but it will happen. Not only have these huge, monster investors been getting poor yields, they’re also losing their back-sides by the dollar going down in value. So, yes, they sold us a lot of stuff, but they kept the money in dollars which has gone down in value for the last 20 years. How long can this continue? I know I’m sounding like a goof here, but it comes down to a quote I posted a few weeks ago; “Stop spending money you don’t have!” No matter which candidate gets in office next year, they’ve all said they will be spending more money. Yippee, higher taxes for us! Time to move on…

Retail Sales: Consumers are battening down the hatches. Retails sales reports showed a DROP of 0.6% for February, whereas “the experts” called for a 0.1% rise. Consumers are spending anymore…at least as measured by this one report. Over the last 12 months, retails sales are up 3.0%, but the trend is certainly reversing itself.

Gold and Oil: Hey man! Do you own any gold? Gold topped $1000/oz this past week. That is a clear signal of inflation. Those OPEC nations are making some money, eh? But, they’re losing a lot too because oil is priced in US Dollars…which is going down in value. Heck, the Canadian dollar is worth more than the US Dollar. That’s a drop of about 30% of the last several years.

Thought of the Week: "We should be taught NOT to wait for inspiration to start a thing. Action always generates inspiration. Inspiration seldom generates action." -- Frank Tibolt, Author

20080308 - Rates Improve

Sat, 08 Mar 2008 06:54:02 PST

30 yr – 6.03% w/ 0.5% in fees. DOWN from 6.24%. 1 yr ago - 6.14%
15 yr – 5.47% w/ 0.5% in fees. DOWN from 5.72%. 1 yr ago – 5.86%
5/1 ARM – 5.34% w/ 0.5% in fees. DOWN from 5.43%. 1 yr ago – 5.90%
1 yr ARM – 4.98% w/ 0.5% in fees. DOWN from 5.11%. 1 yr ago – 5.47%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 3-6-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Rates bounced all over this week, rising, lowering and finally rising again at the end of the week, although not apparent in the above chart. The survey above was completed on Thursday. Rates headed back North on Friday, a day after the above numbers were compiled. Weak economic news including weaker employment, slower manufacturing and lower consumer confidence reports fueled the improved rates. Poor economic news generally results in improved mortgage rates.

Employment: The big report released on Friday showed the economy lost 60,000+ jobs for February. A net gain of 25,000 was expected.

Housing: As everyone knows, the housing sector is having a large and negative impact on the overall economy. Bottom Line: if you’re in the market for real estate, have good credit and think real estate will be worth more 10 years from now, now is an EXCELLENT time to buy real estate.

Next week will feature reports on retail sales, consumer sentiment, industrial production, consumer inflation and housing starts.

Thought of the Week: "Pay no attention to what the critics say; no statue has ever been erected to a critic." -- Jean Sibelius

20080301 - Way to Go, Ben

Sat, 01 Mar 2008 08:37:46 PST

30 yr – 6.24% w/ 0.5% in fees. UP from 6.04%. 1 yr ago - 6.18%
15 yr – 5.72% w/ 0.5% in fees. UP from 5.64%. 1 yr ago – 5.92%
5/1 ARM – 5.43% w/ 0.4% in fees. UP from 5.37%. 1 yr ago – 5.93%
1 yr ARM – 5.11% w/ 0.7% in fees. UP from 4.98%. 1 yr ago – 5.49%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 2-28-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Rates went up across the board as news of higher inflation ripped across the wires this week. The big banger this week was Fed Chairman, Ben Bernanke, in his testimony to Congress flat out saying that The Fed will continue to lower rates even if the dollar devalues as a result. Kaboom! Commodity prices went to the moon and sure enough, the dollar went down in value against almost all other currencies and mortgage rates went up as well. No surprise here. Own any gold? You should. I know it sounds like I think I have all the answer…obviously I don’t. I’m just trying to share some info and be a little, repeat, little entertaining.

OK. OK. Chill out Jim. Sorry, no can do. But you’re a dork! Be quiet and let me get back to writing. (That’s weird, an internal dialogue from inside Jim’s head showing up here. Hmmm?). Anyway, long-term rates are higher than a year ago while short-term rates are lower. What’s the significance? Nothing more than what I have been trying to pound into everyone’s head for the last several years. The Federal Reserve does not control mortgage rates!!!!!!!!! I must have received two dozen comments/questions over the last week…“Does it make sense to wait to refinance? I heard The Fed is lowering rates.” Ahhhhhhhh!!!!

Seriously though, I cannot stress this enough -- The Fed does NOT control long-term mortgage rates any more than I do. IF ANYTHING, The Fed might have some small impact on short-term rates like 1-year adjustable-rate mortgages. That is evidenced by the fact that the current average 1-yr ARM is lower than it was last year, while the average 15 and 30 yr fixed (i.e. long term) rate mortgage is higher than a year ago. The difference? The Fed has lowered the Fed Funds Rate, the shortest of short-term rates…literally an overnight loan..over the last year and mortgage rates are all higher except the 1-yr ARM. See, no impact on long-term rates. In fact, just the opposite. But again, this is just a snapshot of rates, not a comprehensive examination of the entire financial world, and it’s just one man’s opinion…mine.

Don’t be surprised to see The Fed continue to lower the rates they try to control…that’s really a story for a whole book, but The Fed controls the Fed Funds Rate, the rate banks charge to one another for overnight lending…the shortest of short-term rates, literally overnight. Didn’t I just say that? Can you see how that compares to long term mortgages that are on the opposite end of the spectrum? The Fed tries to control overnight lending while mortgages are way down on the other side, 30 years out. Big difference and different influencers. As long time readers know, INFLATION has a huge impact on the supply and demand for mortgage backed securities which has a direct impact on mortgage rates. So….

The Fed: As stated earlier, Big Ben, during his chat with Congress told the wise people sitting before him, had the guts to say that the "Fed would continue to cut rates in the face of rising inflation" NO WAY? WAY. That's our fed Chairman, leading us down the road of destruction caused by rising inflation! What does higher inflation mean…..come on everyone, you know the answer…higher mortgage rates. Bingo. You win a prize!

Greenspan Returns: No, not to The Federal Reserve, but in the news. Big Al Greenspan told the Gulf State Nations, you know, the people with all the oil over there, that they should abandon their dollar peg. You see, oil is priced internationally in US dollars. With the dollar falling, they're losing a lot of money. You might think that they could decide to abandon that link at sometime in the future. They’ve rattled that cage before in the past, but you never know when things will change, especially after recent events. What blows about all of this, here we have the former Fed Chairman, who had his hands deep into this mess that started all this, now telling people to abandon the dollar! By doing so, demand for US dollars would certainly fall further. Goofball.

New Home Sales: January New Home Sales were lower by 2.8%. Not much news here but a continuation of a slowdown in housing. New homes sales are lower by 23.4 for the last 12 months.

Existing Home Sales: For January, existing home sales posted an annualized rate of 4.89 million, just above expectations of 4.8m. Still though 23.4% below a year ago levels. This is simply a return to normalcy as the excesses in housing over the last few years are wrung out of the system. Result: a buyer’s market and sellers, including more and more banks, are taking it in the shorts. You see bankers are just that, bankers. They don’t want to own the real estate. Let me give you an example of a series of transactions that just took place down the street from me.

Housing Story: Person A buys house in 1999 for $275k. Person A then sells house to Person B in 2004 for $450k. Person B put 10% down payment on home. Person B runs into trouble and tries to sell the home in 2006, does not sell and gets foreclosed on. Bank tries to sell house in early 2007 for $400k. They keep dropping the price all throughout 2007 and early 2008 until finally Bank sells property to Person C for $285k. The Bank can’t live in the home, doesn’t want to rent it, let alone own it, so they dump it. Moral of the story: if you want some real estate and you think it will be worth more in 10 years than today, how much real estate do you want to own. It’s a huge buyer’s market for qualified buyers. It’s not all bad news for everyone. It’s horrible news for some, neutral for others and glorious news for still others. It’s not what happens to you, it’s how you react. Make lemons out of lemonade, blah, blah, blah.

[Who does this guy think he is this week?]

Wholesale Inflation: Wholesale inflation came in a whopping 1.0% for the MONTH of January, that’s an annualized rate of 12% folks. Expected increases called for 0.4%. Over the last 12 months, wholesale inflation, as measured by this gauge, producer Price Index, is up 7.9%. What happens at the wholesale level eventually finds it way into the retail or consumer level. So, look for higher inflation in consumer numbers in the near future. All bad news for mortgage rates.

Consumer Confidence: As measured by the Conference Board, consumer confidence came in at a 75.0 reading as compared to the expected 82.0, down from January’s 87.3 and down 36 points from last year. People are not feeling too well.

Unemployment: Weekly claims rose slightly to 373,000 new applications from last week’s 354,000. The 4 week moving average is 360,500. Not much impact on rates.

Gross Domestic Product: The largest measure of our economy, GDP, showed preliminary number for Q4’07 rising 0.6%, which was in line with expectations. Over the last 12 months, this measure of economic growth shows a +2.5%. Not that bad, but certainly trending downward in a rapidly decelerating fashion.

The Bottom Line: Exact same as last week. The economy is slowing and The Fed is lowering rates, inflation and mortgage rates are heading North. Next week we’ll get reports on Personal Income, consumer confidence, manufacturing and the often big market moving monthly report, this time for February.

Thought of the Week: "Customers today want the very most and the very best for the very least amount of money, and on the best terms. Only the individuals and companies that provide absolutely excellent products and services at absolutely excellent prices will survive.” - Author, Brian Tracy

2008-02-24 Rates Inch North

Sun, 24 Feb 2008 07:08:06 PST

30 yr – 6.04% w/ 0.6% in fees. UP from 5.72%. 1 yr ago - 6.22%
15 yr – 5.64% w/ 0.5% in fees. UP from 5.25%. 1 yr ago – 5.97%
5/1 ARM – 5.37% w/ 0.5% in fees. UP from 5.19%. 1 yr ago – 5.96%
1 yr ARM – 4.98% w/ 0.6% in fees. DOWN from 5.00%. 1 yr ago – 5.49%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 2-21-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: “What THE FED does has very little impact on long term mortgage rates.” Have you heard that quote before? Long time Pinnacle Report readers have certainly learned that lesson. This is evidenced by the ¼ percent increase in long term mortgage rates (15 and 30 yr). The Fed has direct impact on the shortest of short-term interest rates; namely the overnight lending rates between banks. Fed actions have more influence on short-term rates and is evidenced by the lowering in this week’s average 1 yr ARM.

The spread between long and short term mortgage rates is beginning to widen. This week’s economic data showed higher inflation at the consumer level and a mixed bag on housing.

Inflation: Consumer prices rose 0.4% in January, which was in line with expectations. Measured by this item, prices are up 4.4% over the last 12 months. Inflationary reports are not good for bond holders. Mortgages essentially become bonds as they go thru their metamorphosis in the financial world. This had an impact and helped mortgage rates increase this week.

Housing: Building permits for new homes in January came in at 1.048m units. This was slightly higher than expected, but lower from December. Over the last 12 months, permits for hew housing starts are down 33.1%. This is nothing new in the market and had no real impact on mortgage rates.

Housing II: Housing Starts , as compared to just the permitting process, rose from 1.004m in December to 1.012 in January. This was lower than expected and over the last 12 months new home starts are down 27.9%. Again, not really a big surprise.

Unemployment: Weekly unemployment claims for the week ending 2/16/08 came it at 349,000, right in line with expectations and slightly lower than the week before. Not much impact on rates.

Leading Economic Indicators: Supposedly a precursor to economic levels 6 months in advance, many experts now feel it is a better gauge for today. The expected rate of growth was -0.1% for January. This had no real impact on mortgage rates either.

The Bottom Line: The economy is slowing and The Fed is lowering rates in an effort to “keep us out of a recession”. Many economists believe the US economy is already in a recession. The Fed is caught between lowering rates in an effort to spur on business borrowing and spending while at the same time trying not to further devalue the dollar. My observations suggest that The Fed will ALWAYS choose the devaluation of the dollar.

Next week reports on housing, inflation, GDP and incomes will be released to the markets. Odds are rates will increase a few hundredths of a percent and all will be right with the world.

Longer term view: Look for the Fed to continue to lower rates in the near future. This will likely result in the dollar continuing to devalue and mortgage rates to increase slightly over the next 6 months. In real estate, it’s a buyers market and rates are great…go get a good deal if you need some real estate. Otherwise, hang on to your hats, buy some gold and let’s hope companies are profitable so that people can keep their jobs…the linchpin of the economy, JOBS.

Thought of the Week: "Don’t worry when you are not recognized, but strive to be worthy of recognition.” - Abe Lincoln

20080216 - Wouldn't It Be Nice

Sat, 16 Feb 2008 07:00:38 PST

30 yr – 5.72% w/ 0.4% in fees. UP from 5.67%. 1 yr ago - 6.30%
15 yr – 5.25% w/ 0.4% in fees. UP from 5.15%. 1 yr ago – 6.03%
5/1 ARM – 5.19% w/ 0.4% in fees. DOWN from 5.21%. 1 yr ago – 6.01%
1 yr ARM – 5.00% w/ 0.4% in fees. DOWN from 5.03%. 1 yr ago – 5.52%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 2-14-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: This week’s economic data showed a mixed picture of the state of the economy. Labor productivity rose higher than market forecasts in Q4’07 while pending existing home sales fell for the second month indicating further weakness in home sales for January and February. As a result, mortgage rates were roughly unchanged this week.

Low mortgage rates and declining house prices contributed to the highest housing affordability numbers in December since March 2005. However, lending criteria have tightened since March 2005 so fewer borrowers are able to take advantage of today’s market conditions.

Wouldn’t it be nice if…

…the US actually got serious about U.S. energy independence with a program geared to 1) alternative sources of energy, 2) access to much more oil and natural gas in Alaska and on the Continental Shelf, and 3) developing massive deposits of oil shale in the West

…drive-by shootings were replaced by drive-by moonings

…the fiscal stimulus program was effective in helping the U.S. avoid or minimize a recession

…stronger Mexican economic growth would provide more good jobs in Mexico

…“far left” liberals and “far right” conservatives would back off a bit

…the outcome of many lawsuits was determined more by the facts and less by who has the deepest pockets

…mortgage finance activity returned to normal

…the Bush tax cuts set to expire in 2010 would be made permanent.

…the Iraqi people would take more responsibility for dealing with terrorists, allowing U.S. military personnel to return home

…politicians were elected based on experience and ability, not on who can spend the most money and sling the most mud

…Wall Street “high rollers” had greater legal and financial accountability for the financial market abuses and miscues of recent years

…the Administration and the Congress would stop bickering and take the modest steps required now to “fix” Social Security and Medicare for the future

…American military personnel could see their families more often

…the housing “bubble” on both coasts and in the SW would deflate gradually

…the national media was more balanced in its reporting—and not so negative

... if people actually understood the full role and purpose of The Federal Reserve (i.e. it always has to do with the bankers, not the economy, wages or the stock market)

…people would spend less than they earn

…we didn’t have a $9 TRILLION in gross national debt, and we weren’t spending nearly $1 BILLION a day just to pay the interest on that debt (Thanks politicians!)

…we could strike a reasonable balance between energy conservation and the need for new sources of energy

…America’s silent majority (our parents and grandparents) received greater respect for the enormous wartime sacrifices they made to help protect the freedoms we all enjoy today

…“government” would recognize that it is there to serve the people, and not the other way around

…members of Congress would finally recognize that reducing tax rates typically increases tax revenue…and increasing tax rates typically reduces tax revenue

…“old fashioned” common courtesy between people made a big comeback

…the problems in schools today were still spit wads, gum chewing, and truancy

…Social Security and Medicare taxes were less painful…four out of five American workers now pay more in these taxes than they do federal income taxes

…each long-term member of Congress was required to take a year off, start a new business with limited funding, and then deal with the complexities and hassles they have created

…primary and secondary schools had competition for teachers, students, and funding—just like colleges and universities

…we would all keep in mind that despite the problems and challenges we face in the U.S., this is still the greatest country in the world

Partially borrowed from Jeff Thredgold, Economic Futurist

Thought of the Week: "You have to put in many, many tiny efforts that nobody sees or appreciates before you achieve anything worthwhile.” - Brian Tracy, Author

20080209 - Gee, $40 and a mule.

Sat, 09 Feb 2008 07:21:18 PST

Pinnacle Report 2-9-08

30 yr – 5.67% w/ 0.4% in fees. DOWN from 5.68%. 1 yr ago - 6.28%
15 yr – 5.15% w/ 0.4% in fees. DOWN from 5.17%. 1 yr ago – 6.02%
5/1 ARM – 5.21% w/ 0.4% in fees. DOWN from 5.32%. 1 yr ago – 5.99%
1 yr ARM – 5.03% w/ 0.5% in fees. DOWN from 5.05%. 1 yr ago – 5.49%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 2-7-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Not much market moving news this week. That’s OK. Sometimes roller-coasters can make you sick. Going on a nice long drive on a smooth, slightly curving highway can sometimes bring some beautiful scenery and relaxing times. As a result, average mortgage rates remained very steady and didn’t move much this past week.

Manufacturing – The index from the ISM manufacturing report indicated a reading of 44.6. Any reading above 50.0 represents expansion, anything below represents contraction. This reading is down from 59.0 a year ago. This isn’t really a surprise to anyone, but does represent the first significant reading below 50.0 for the first time in several years.

Unemployment – claims for benefits was 356,000 for the week ending 2/2/08. About in line with expectations and right in line with the 4 week moving average. No real impact on mortgage rates.

That’s it for the data cupboard this week. Since my editor has allocated more space to this issue, I’ll think of things to write some more as I go along here. Hmmmmm….

White House Stimulus Package - The stimulus package coming out of Washington is expected to have a feature that will raise the conforming loan limit. In addition to the giving back of money to people that actually pay taxes and a gift of money to those that don’t, the increase in conforming loan sizes may help a good number of people in high-priced areas of the country.

Conforming loan limits are distinguished from jumbo loan sizes. Most states have a maximum conforming loan limit of $417,000, while high cost areas are higher. Anything under $417k can be sold to FNMA and FHLMC, quasi-government entities that provide liquidity to the mortgage market, and ultimately have lower rates than loans exceeding the conforming loan limis, also known as jumbo loans. In all their wisdom in Washington, they are going to raise these limits. What does this mean?

Borrowers in high cost areas…let me back up…”QUALIFIED” borrowers in high cost areas may have the opportunity to re-arrange their mortgage financing out of higher cost jumbo loans to lower cost conforming loan limits. Supposedly, this will help 200,000 people avoid foreclosure due to the lower cost of borrowing. While that’s a good thing, I can’t imagine that ½ percent savings on a $500,000 loan in San Jose is going to keep someone afloat.

From the more pessimistic side of my mind, I think this is really more of a ploy or scheme to help get more loans off the books of banks and into the portfolio of FNMA (Fannie Mae) and her cousin FHLMC (Freddie Mac). This way, if these loans do go bad, the bank doesn’t take the hit -- the US taxpayer is there to help bail these quasi government entities. Always happens – nothing is too expensive if it can be spread amongst the millions of taxpayers. Now don’t get me wrong…I love my country, but I understand, at least a little bit, how politicians do these things. Isn’t it great; look at us. “We’re doing something, we’re doing something.” Speaking of which: If the stimulus package, which returns our tax dollars back to us, is such a wonderful idea, why don’t the politicians just not take it from us in the first place? “Gee, $40 dollars and a mule.”

Hey! Do you want a cheap, fun vacation? www.CondoInBiloxi.com. Cheap flights out of Detroit, Flint, Chicago and Atlanta. Beaches, Casinos, Golf and Fishing. Girls Weekend Getaway. Boys Night Out?

Biloxi: When the Sun Goes Down Here, We’re Just Gettin’ Started” ©

Thought of the Week: "Stop spending money you don’t have!” -- Jim Casler

2008-02-03 A Reversal of Rates

Sun, 03 Feb 2008 09:45:06 PST

Average Rates

30 yr – 5.68% w/ 0.4% in fees. UP from 5.48%. 1 yr ago - 6.34%
15 yr – 5.17% w/ 0.4% in fees. UP from 4.95%. 1 yr ago – 6.06%
5/1 ARM – 5.32% w/ 0.4% in fees. UP from 5.13%. 1 yr ago – 6.04%
1 yr ARM – 5.05% w/ 0.7% in fees. UP from 4.99%. 1 yr ago – 5.54%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 1-31-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: “Daggummit! Wait just a gol darn minute Bubba! The Fed lowered rates AGAIN and mortgage rates went up…how can this be?” Ahhh Grasshopper, you seek answers you already possess.

Overall, average mortgage rates rose about ¼ percent as a result of market activities which included another ½ percent cut to short-term rates by The Federal Reserve and chatter about a $150 billion giveaway, whoops, I mean stimulus package, by the government…all in the name of trying to thwart a recession. Could these actions be considered inflationary? As long time PR readers might already realize, inflation is a root cause of long-term mortgage rates INCREASING.

New Home Sales: December New Home Sales came in at an annualized rate of 604,000 units, down from November and down 40.7% from one year ago. Ouch! This is a simple continuation of the 12-24 month trend of over-supply.

Gross Domestic Product: The GDP is the largest measure of economic activity. The advance guess at 4th quarter GDP came in at a positive 0.6% rate of economic growth, quite a bit lower than the expected 1.2% and significantly lower than the 4.9% for Q3’07. In other words, the economy has come to a screeching halt…at least as measured by this indicator. This should be considered non-inflationary and help mortgage rates stay low.

Unemployment: Continuing with the change in economic growth, a rise in unemployment claims for the week ended 1/26/08. There were 375,000 new claims for benefits, while the 12 month average is 326k.

Personal Income / Jobs / Wages: Personal Income reports for December showed a 0.5% rise in wages. For the last 12 months, personal income is up an inflationary 5.8%. Measured another way, average hourly wages are up 3.8% over the last 12 months. January showed net job losses of 17,000 jobs, however, over the last 12 months, just under a million jobs have been created. The trend is not our friend though. Jobs and employment, in my opinion, are the single biggest factor to our overall economy.

Michigan Housing Stats: Just for the fun of it, the number of units sold in 2007 is down 5.77% from 2006 while the average price is down 6.81% to $152,845. Areas of interest to our readership include:

Traverse City, units down 4.62%, average sales price down 3.42% to $205,990
Ann Arbor, units down 9.27%, average sales price down 4.43% to $247,462
Oakland County, units down 15.49%, average sales price down 12.34% to $203,482
Livingston County, units down 9.76%, average sales price down 10.26% to 206,688
Macomb County, units down 5.63%, average sales price down 13.99% to $136,868

Overall, Fed actions and economic reports demonstrating an increase in inflation helped cause mortgage rates to increase this week. Most notably are The Fed actions, how they are interpreted by the world's financial centers, what it means to the value of the dollar and the ability of the U.S. treasury to continue to attract the huge monies necessary to invest in our treasury debs (i.e. bonds) in order to support our ever-increasing bidget deficit. I'm starting to sound like Ron Paul! A HUGE concern is whether foregin investors will continue to purchase our treasury bonds to support our budget deficits. If they are not attracted to the investment anymore, (and why wouldn't they be?, they've only lost 10% on the dollar and even more so with rates declining...) then rates will need to increase in order to create more demand. That would mean higher mortgage rates.

Next week we will see reports from the manufacturing sector and some unemployment figures. Not a very busy calendar.

Thought of the Week: "There has never been another you. With no effort on your part you were born to be something very special and set apart. What you are going to do in appreciation of that gift is a decision only you can make." -- Dan Zadra

20080126 - WOW! Exciting Times. Meet Jimmy.

Sun, 27 Jan 2008 10:59:37 PST

Average rates continue lower.

30 yr – 5.48% w/ 0.5% in fees. DOWN from 5.69%. 1 yr ago - 6.25%
15 yr – 4.95% w/ 0.4% in fees. DOWN from 5.21%. 1 yr ago – 5.98%
5/1 ARM – 5.13% w/ 0.4% in fees. DOWN from 5.40%. 1 yr ago – 6.00%
1 yr ARM - 4.99% w/ 0.6% in fees. DOWN from 5.26%. 1 yr ago – 5.49%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 1-24-08)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: WOW! Center Stage: The Federal Reserve cut the Fed Funds Rate by ¾ percent and the stock markets are bouncing like a rubber ball dropped from the Sears Tower. The Fed move was extraordinary in both its size and timing. It is the largest cut since 1984 and also the first time in more than six years that the Fed took action outside of a regularly scheduled meeting. The last time was immediately 9/11. As a result, mortgage rates continued trending downward.

Mortgage Industry – It seems that the desired result has been achieved with this latest Fed action. Usually the market PRECEDES any Fed action. This time was slightly different though. It appears that the liquidity, or influx of money, to the mortgage market is resulting in lenders doing what their supposed to do – lend money.

The Fed: While the big R word, recession, has been bally-hooed about, the Fed’s Beige Book survey of regional conditions showed that 7 of 12 Fed districts showed increased economic activity. Overall, this specific report denotes slow economic growth

Retail Sales: For December, retail sales fell by 0.4% while the final November reading was a positive 1.0%. Waiting for January numbers might provide a better idea of what the trend really is at this time.

Housing: December Housing Starts fell 14.2%, the slowest pace since May 1991 and for 2007 overall, fell nearly 25%. Permits declined 8.1% and Builder Sentiment remained unchanged at a reading of 19. Overall, excess inventory needs to get off the shelves before any marked improvement happens.

Inflation: Have you noticed that food and energy prices are rising? No kidding Jim…and the moon is made of cheese! Wholesale inflation rose 6% for 2007 while consumer inflation rose 2.2% in 2007, according to official government data…which is always suspect. Inflation is at the forefront of discussion. The Fed rate cut may help cause more inflation as more dollars in the economy (which happens when they lower rates) are chasing a limited supply of goods…Economics 101.

The Fed II: The Fed is expected to cut rates at their next meeting and probably the meeting after that. The administration is looking to give away $150b, with a “B”. Yay, free money for everyone! Could these moves be inflationary too…Me thinks “yes”. With all this inflation talk, long term views call for rising long-term interest rates (mortgages), continuing weakness in the US dollar and rising commodity prices (i.e. gold). So while these Fed moves are certainly intended to improve the economy, the net-net bottom line is that it helps the bankers obtain cheaper funding, results in lower returns for "savers" and most likely further deteriortes the dollar. So instead of them hitting the Staples "easy" button, it appears more likely that the Fed really hit the "Panic" button...Oh well, since I can't control it, I'll observe and react the best I can and share accordingly.

Real Estate: It’s still a real estate buyer’s market and qualified borrowers are in a great position to take advantage of the market. Since many people have been removed from the market as potential buyers due to the loss of the previously aggressive loan programs, they must still live somewhere. How about a house you might own? The rental market is strong…more renters. So if you’re a supplier of rental homes, now might be a good time for you. Can you handle the cash flow? Cash-flow controls mortgages and mortgages control real estate. How much money will you make on real estate you don’t own?

Thought of the Week: “The path of least resistance is the path of a loser.” - HG Wells, Author

Meet my friend Jimmy. More to come on him later. He's cool.

20080105 - Where did all the jobs go?

Sat, 05 Jan 2008 07:51:00 PST

The numbers:
30 yr – 6.07% w/ 0.5% in fees. UP from 5.96%. 1 yr ago - 6.18%
15 yr – 5.63% w/ 0.6% in fees. UP from 5.65%. 1 yr ago – 5.94%
5/1 ARM – 5.78% w/ 0.5% in fees. UP from 5.75%. 1 yr ago – 6.02%
1 yr ARM - 5.47% w/ 0.5% in fees. UP from 5.46%. 1 yr ago – 5.42%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 1-3-08)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Happy New Year to All. Welcome 2008 and all its prosperity, happiness and joy that it brings to each and every one of you. Can you tell I’m starting the year off with a mindset of abundance, joy and high expectations? Why not? The contrary mindset just stinks.

Summary: It’s about a month since our last report. On average, rates are up about 1/10 of a percent from a month ago and mixed, but very near one-year ago levels. Rates are still near historic lows and as I’ve repeated in the past…if anyone complains about rates, they should be smacked! These are beautifully low rates, conducive to taking advantage of a great buyers market. If you think real estate will be worth more in 10 years, and you’re a long term investor and you have good credit, it’s a golden time in the real estate industry…especially if you’re a buyer. “How much money will you make on real estate you don’t own?” is a great quote that I’ve just recently picked up from author Robert Helms, co-author of the book, Equity Happens. I’m getting off topic..and it’s only the first paragraph…

Recent economic reports have showed a continuing slowdown in the economy which bodes well for an improvement (lowering) in long term interest rates in the next week’s survey. While nothing it guaranteed, next week’s averages will likely be a touch lower. Employment was woefully lower in December, manufacturing is still slowing and the latest housing data provides mixed signals in its direction.

Housing: While new home sales fell in November to the slowest pace since April 1995, 647,000 annualized units. Existing home sales rose by a small margin to an annual pace of 5 million units. Some of the latest forecasts call for total home sales continuing to decline in the first quarter of the year before starting a slow recovery. Sales of new and existing homes are projected to be 5.09 million in 2008, a decline of more than 11 percent from 2007.

Consumer Confidence: Consumer attitudes continue to be lower. During the week ending December 23, the weekly ABC News / Washington Post fell to a -23 reading, a near low for 2007. The Conference Board's readings of Consumer Confidence for December improved slightly from November to an 88.6 reading in December. Although improved, still low.

Mortgage Industry: The process of figuring out how many losses there will be as a result of the Mortgage Meltdown of 2007 will continue for the next several months. Qualification for new mortgage money will continue to tighten, albeit at not such a rapid pace of retraction we had over the past few months. Bottom Line: good quality borrowers have not been impacted and there is readily available money for those with the best and even average financial qualifications. Home sales can't really recover until mortgage markets are better functioning, and that won't happen before losses are all accounted for, a firm grasp of future risks are realized and the financial market players begin to trust one another again.

Employment: The often big, market moving employment reports are released on a monthly basis. This past Friday revealed the employment picture for December 2007. BLEAK! Forecasts called for 70,000 new jobs to be created in December, over 50% lower than November. The actual numbers were not even close. The report indicated only 18,000 new jobs were created in December 2007. Overall, a huge drop from November. While this is a negative report and will very likely impact average mortgage rates next week, it is often best to take a step back and gain a larger perspective of these things. For 2007, over 1.3mm new jobs have been created, which is not all that bad. Just as we report mortgage rates on a frequent basis, these monthly employment reports should be viewed as a simple snap-shot and not the end-all be-all. However, should the trend continue, then there is real concern. After-all, jobs are the lifeblood of everyone’s economy. The report also revealed that average wages rose 0.3% and that the overall unemployment rate rose from 4.8% to 5.0%. Overall, still a good number, however, the overall tone of the report and low new jobs numbers will likely help rates improve next week.

Thought of the Week: “How much money will you make on real estate that you don’t own?” - Robert Helms

20071208 - Avg Rates Down - Look out next week!

Sat, 08 Dec 2007 06:05:48 PST

30 yr – 5.96% w/ 0.4% in fees. DOWN from 6.10%. 1 yr ago - 6.11%
15 yr – 5.65% w/ 0.5% in fees. DOWN from 5.73%. 1 yr ago – 5.84%
5/1 ARM – 5.75% w/ 0.5% in fees. DOWN from 5.86%. 1 yr ago – 5.95%
1 yr ARM - 5.46% w/ 0.6% in fees. SAME. 1 yr ago – 5.43%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 12-6-07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: On average, mortgage rates followed the trend of US Treasuries and fell as weaker economic reports were released this week. Lower consumer spending and personal income for October were the notable items. Keep in mind though, these averages DO NOT include the last few days of the week, which included the big employment report for November, which is very often a market moving report. Rates did indeed increase on Friday however, as employment remained strong.

Employment: Non farm payroll employment continued to trend up in November (94,000), and the unemployment rate held at 4.7 percent. Job growth continued in professional and technical services, health care, and food services. Employment continued to decline in manufacturing and also fell in several housing-related industries, including construction, credit inter mediation, and real estate. Average hourly earnings rose by 8 cents over the month.

Worker Productivity: Worker productivity rose by an annual rate of 6.3 percent in Q3’07, the most since 2003, while labor costs fell 2.0 percent. Greater efficiencies and lower costs ease pressures for companies to raise prices and help keep wage inflation from expanding into the market. This is turn allows The Fed to feel better about lowering short-term rates because it could be argued that inflation is not a big risk. Inflation can often result when The Fed lowers rates, which results in more cash into the marketplace. More money chasing the same goods is an economic 101 recipe for inflation (i.e. rising prices). Currently, the futures markets have predicted an almost 100% chance that The Fed will lower rates in its December 11th meeting.

Outlook: Average rates will likely increase next week as the strong employment report boosted mortgage rates on Friday. Next week will feature reports on wholesale and consumer inflation, retail sales and balance of trade.

Thought of the Week: “If you can dream it, then you can achieve it.” Zig Ziglar

20071201 - Rates Improve

Sat, 01 Dec 2007 07:46:38 PST

30 yr - 6.10% w/ 0.5% in fees. DOWN from 6.20%. 1 yr ago - 6.14%
15 yr – 5.73% w/ 0.5% in fees. DOWN from 5.83%. 1 yr ago – 5.70%
5/1 ARM – 5.86% w/ 0.5% in fees. DOWN from 5.88%. 1 yr ago – 5.95%
1 yr ARM - 5.43% w/ 0.7% in fees. UP from 5.42%. 1 yr ago – 5.46%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 11-29-07)
Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Interest rates have been drifting lower this month as the “market” is concerned that the housing slump and changing credit markets could slow future economic growth.

Mortgage Industry: The mortgage industry and underlying credit markets continued get their shorts handed to them. The loose money from the past years is CONTINUING to reveal itself in reports, layoffs, bankruptcies and just plain turmoil in the lending arena.

While I don’t like to see bad things happen, I think this is a case of lenders getting what they deserve as compared to getting what they expected. Lenders ALWAYS do this, and why not, the government always bails them out. This is no different. Look back at history…they lend money to unqualified borrowers and then whine and cry when they don’t get paid, whether it’s the current mortgage meltdown, or billions to 3rd world countries. If they can’t pay, don’t give them the money! What happens next, the government comes in and tries to “save” everyone with programs and gizmos designed to save the banks instead of letting “the markets” work themselves out on their own. The banks get bailed out at the cost of the taxpayers.

That’s what the new, looser, FHA loan programs are designed to do. Banks can refinance “trouble” loans (those in default or late), shift them into an FHA insured loan so that when it does belly-up, the government will pay the bank the money anyway…after-all, its government insured. It looks good on the surface; “Look at what the government is doing to help Mom and Pop America. You know, letting them stay in their homes, blah, blah, blah”. And the taxpayer gets it in the shorts and the bank get away with their lending practices and don’t learn from their loose lending practices. Always has been, always will be. Look back at history. OK, off my soapbox.

Mortgage Industry II: Losses in the mortgage markets have also caught to even Freddie Mac which posted a $2 billion loss in the third quarter. Of course, the stock price fell about 30% after the announcement. A report this week also revealed that pension funds are starting to feel it as well. Orange County, Florida, removed its entire $370 million from the state-run investment pool, 2 days after learning the money market fund contained more than $700 million in defaulted debt? And Orange County isn't the only local government to pull funds... Dade County and Pompano Beach also made withdrawals.

This just in: 2 days later, the Florida Agency running the Investment Pool, suspended withdrawals! The Investment Pool was experiencing a "run" on their financial institutions! WOW! This is the tip of a crisis iceberg folks.... And it will only worsen.

What to do? check out your investments and determine your exposure.

I know this is sounds like all bad news. The good news. If you have good credit and need to borrow money, sign up and take advantage of the incredible buying opportunities in the residential housing markets and the super cheap money. If you borrow it, borrow it long term. These rates may not continue for very long.

Home Builders: The National Association of Home Builders released their sentiment index of members for November. While the reading of 19 was equally as bleak as was October's number, it's important not to overlook the fact that for the first time since February, the index didn't go down. Maybe the joy of the holiday season helped their moods, or maybe it was that Housing Starts posted an increase of 3% during October. While more expensive single-family home starts slumped another 7.3% during a tough month, more apartment buildings, townhouses and condos were started. Maybe housing is turning the corner. Hmmmm?

Consumer Sentiment: The University of Michigan index of Consumer Sentiment fell to a reading of 76.1 in the month of November, down from 80.9 in October. The weekly ABC News / Washington Post poll of Consumer Comfort fell two ticks to -19. Rising gas prices, a volatile stock market and $100/barrel oil seem to be unsettling.

Unemployment: New claims for unemployment benefits were 330,000 for the week ending November 17. Claims are near the highest levels of 2007.

Federal Reserve: The release of the minutes (what they said) from the October 30-31 Fed Open Market Committee (FOMC) meeting revealed part of the decision-making process which led to the recent ¼ percent cut in the Federal Funds and Discount Rates. There was one dissenting vote. Most participants expressed concerns about inflation pressures, particularly in light of rising commodity and energy costs and the falling dollar. If inflation isn’t controlled, the Fed will need to RAISE rates.

Bond Markets: Traditionally, in volatile stock markets, investors make a “flight to quality”, which means they sell their stocks and put money into bonds. This increased demand moves bonds prices up, which means….rates come down. (Long time readers already know about the inverse relationship between bond prices and rates…so anything that causes bond prices to go up will cause rates to go down). US Treasury bonds are the recipient of this flight to quality, while demand of mortgage investments (mortgage backed securities) is certainly lackluster. While mortgage rates have certainly loved lower, they haven’t dropped as rapidly as other, more desirable bonds. The traditional spread, or difference, between mortgage rates and treasury rates has increased over the recent mortgage market meltdown. Investors aren’t stupid…if they are to invest in mortgage securities, they want to get compensated for the obvious additional risk, thus rates remain elevated as compared to the safer US treasury bonds.

Outlook: Rates are super low and don’t have much room to fall any further.

Thought of the Week: “Decisiveness is a characteristic of high-performing men and women. Almost any decision is better than no decision at all.” Brian Tracy

20071117 - Biloxi here we come!

Sat, 17 Nov 2007 05:20:38 PST

The Big "self-promotional" item of the month is that Pinnacle is now licensed to conduct business in one of the most exciting real estate markets in the country, Coastal Mississippi.

30 yr - 6.24% w/ 0.4% in fees. UNCHANGED. 1 yr ago - 6.21%
15 yr – 5.88% w/ 0.3% in fees. DOWN from 5.94%. 1 yr ago – 5.87%
5/1 ARM – 5.96% w/ 0.4% in fees. UP from 5.89%. 1 yr ago – 6.04%
1 yr ARM - 5.50% w/ 0.5% in fees. UNCHANGED. 1 yr ago – 5.48%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 11-15-07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Rates have come down about 1/8 percent from our last report in mid October and very close to exactly where rates were one year ago, almost to the decimal point. I’ve been repeating this for a few years now…mortgage rates are incredibly favorable for anyone looking to finance residential real estate! There was a mixed back of economic reports and events this week that resulted in the market moving neither up or down in great fashion. Of course, anyone paying attention would have observed the gyrations in the stock markets and the gold, oil and other commodity prices over the last few weeks. Interesting times…

Existing Home Sales: The National Association of Realtors reported a surprise 0.2 percent gain in September's pending home sales index, which “might” suggests less decline in existing home sales for October and November. However, this index is still 24 percent below levels from one year ago. Additionally, mortgage applications for October hit a several month high.

Inflation: Inflation, Inflation everywhere and not a lime in my drink. Aren’t you tired of hearing about inflation? The only problem with trying to ignore inflation is that you end up ignoring one of the, if not the most important factor in understanding how and why mortgage rates move. You can see previous posts or send me an email to request our Special Report: "What Makes Mortgage Rates Move". "Is inflation rising or falling? There are “experts” on each side of that question. How can that be? It’s either rising or falling, right? Well, both sides can find evidence to support their claim of either rising or falling inflation.

Producer Price Index (PPI) – A measurement of inflation, the PPI rose 0.1% in October, down from a 1.1% rise in September. This is a trend toward the low-inflation side of things, but PPI is still a whopping 6% higher than prices one year ago. One could certainly argue that this is inflationary…the government does when it fits their needs.

Consumer Price Index (CPI) – Another measurement of inflation, the CPI, rose 0.3% in October, the same as September and over the last 12 months, the CPI is up 3.5%. Again, this level is considered inflationary by historical standards.

Consumer Sentiment - The Weekly ABC News / Washington Post poll of Consumer Comfort for the week of 11/11 fell to a -17 reading, down 2 points from the previous week and down 14 points from mid-May 2007, 6 months ago.

Mortgage Industry – The headline business reports have been featuring the huge write-downs (a fancy word for losses) of billions of dollars worth of mortgage backed securities on Wall Street. It has been estimated that $80 billion in bad loans has already been written off. Some estimates are also saying as much as $400 Billion will need to be written off. Regardless, credit will remain tight and only easily available to only the best qualified applicants until this all improves. This will serve to temper the real estate and economy in general for the near and mid-term future

Forecast – There’s not too much news that will hit the streets and a holiday shortened week will likely result in steady rates. Happy Thanksgiving. Gobble Gobble!

Thought of the Week: "In the confrontation between the stream and the rock, the stream always wins, not through strength but by perseverance." H Jackson Brown, Author

20071013 - Quick n Dirty - Rates Increase

Sun, 14 Oct 2007 13:47:16 PDT

.
30 yr - 6.40% w/ 0.4% in fees. UP from 6.37%. 1 yr ago - 6.37%
15 yr – 6.06% w/ 0.5% in fees. UP from 6.03%. 1 yr ago – 6.06%
5/1 ARM – 6.12% w/ 0.5% in fees. UP from 6.11%. 1 yr ago – 6.11%
1 yr ARM - 5.73% w/ 0.6% in fees. UP fom 5.58%. 1 yr ago – 5.56%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 10-11-07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Mortgage rates often move following the release of the impactful employment report every month. For September, the economy added 110,000 new jobs while July and August were revised upwards by a total of 188,000 jobs. This greater strength in the economy tends to lead to inflation.

As long time readers should know off the top of their heads; inflation, or concerns about future inflation, cause bond investors to demand higher yields (interest rates). Mortgages are packaged together in the form of bonds and sold on Wall Street. Anything that impacts bonds, usually impacts mortgage rates. When bond yields rise, mortgage rates typically follow. In VERY general terms, while certainly not always the case, when there is good news reported about the economy, mortgage rates tend to go up, and vice versa.

Overall, since The Fed lowered short-term interest rates ½ percent on September 18th, mortgage rates have INCREASED about 1/10th of a percent across the board. “But how can this Jimmy?” I can only reply with what I have been saying for years: “It’s not what the Fed does, it’s what they say”…Well, sort of, sometimes actions speak louder than words.

When the Fed lowered rates, they basically said they didn’t care about inflation and the continued decline of the value of the dollar. Now, there is much more to it of course, but the bottom line is that the lowering of short-term rates was an inflationary move and as I just stated above, this tends to raise mortgage rates.

I've been working on some big projects, thus the limited reports and podcasts. We'll get it crankin' back up soon. Meanwhile, enjoy the autumn season!

Thought of the Week: "People with clear, written goals, accomplish far more in a shorter period of time than people without them could ever imagine." -- Brian Tracy, Author

20070929 - Rates Inch North - Confused Borrowers

Sat, 29 Sep 2007 10:39:29 PDT

30 yr - 6.42% w/ 0.5% in fees. UP from 6.34%. 1 yr ago - 6.31%
15 yr – 6.09% w/ 0.5% in fees. UP from 5.98%. 1 yr ago – 6.06%
5/1 ARM – 6.15% w/ 0.5% in fees. DOWN from 6.21%. 1 yr ago – 6.08%
1 yr ARM - 5.60% w/ 0.6% in fees. DOWN fom 5.65%. 1 yr ago – 5.54%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 09-27-07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Mortgage rates are trending in different directions depending on where they lie on the time spectrum. Short-term rates are trending down, while long-term rates are trending up, leading rates toward a more historical norm in regard to the spread between long and short term rates. In the recent past, short-term and long-term rates have almost been the same, which is called a flat yield curve. We are now moving toward a steeper yield curve.

The Fed: The recent Fed drop in short-term rates will benefit those borrowers with existing adjustable rate loans that were about to adjust. As an example, a few weeks ago, prior to the Fed drop, a borrower may have had their rates adjust from a 5.5% to 7.5%. Today, that rate may only adjust to 7.0%. That’s good news in that less money will be spent on mortgage payments, possibly allowing some people to keep their homes instead of handing them back to the banks in the form of foreclosures. Another Fed drop would continue this savings for some borrowers.

However, there is a large downside to The Fed lowering short-term rates: potential rampant inflation, weaker dollar; seen the prices of gold and oil lately? How about that Canadien dollar? It's worth more than the US dollar! Instead of letting the excesses housing markets get wringed out naturally, The Fed is trying to save the bacon of banks that would have otherwise seen more foreclosures had The Fed not lowered rates. I am not a fan of watching people get their homes foreclosed on, but I am a fan of having banks get theirs when they never should have lent the money in the first place. I know I’m on a soapbox here, but why should the banks get bailed out all the time when they make bad decisions?

When trying to analyze the reason why The Fed does anything; understand that The Fed’s role is not to keep the economy string, keep employment high or keep the stock market strong. The only function of The Federal Reserve is to preserve the stability and profitability of its member banks. No one can logically argue otherwise. They may provide a bunch of bull to go along with it, but these recent moves were an attempt to keep loans performing and on the books as opposed to more foreclosures. This is likely not the end of Fed rate drops.

One more thing and I’ll move on. While I am not an expert at FHA lending policies, but I do understand that there are some new guidelines coming out soon that will basically loosen the credit guidelines on FHA loan, thus allowing more people to qualify for FHA loans. As you may or may not know, FHA loans are guaranteed by the government. If the loan goes belly up, the government pays the bank for any losses incurred as a result of any foreclosure. I predict that many banks will refinance many of the loans on their books into FHA insured loans. Everyone knows that a certain large percentage of loans currently on the banks books are destined to foreclosure…it’s just a matter of when, not if. So, if they can convert these loans to FHA insured loans, if they go bad, the government will pay their losses. When I write ‘government’, you should all understand that it really means, ‘tax payers’, which really means ‘you and I’. What seems like a good idea on paper will likely cost taxpayers millions and millions down the road. It will be blamed on something else, but it will be be bonehead government intervention meant to save the banks that will be the root of FHA losses. Look for those changes coming to a bank near you.

Mortgage Markets: The recent “crisis” in the financial markets seems to be easing a bit, however, there will likely be continued bad news for a while longer. This past week, one more bit the dust: NetBank. ING Bank will take over accounts starting Monday. While NetBank wasn't a huge lender, they were somewhat large nonetheless.

Inflation: Now that the big news of The Fed drop in short-term interest rates has run its course in the media, and by the way totally confused would be borrowers, inflation concerns have arisen. Would be borrowers often cannot understand how mortgage rates can rise when The Fed lowered rates. In addition, they read all these reports about rates going lower and the dribble coming out of the media these days. That’s why I’ve updated a recent report I have authored “Mortgage Rates and The Fed”. (If you want a copy, email me and I’ll sent it to you right away.)

Gross Domestic Product (GDP): The final reading for Q2’GDP reported a 3.8% increase in economic growth, down a little from the last estimate. This is inflationary and tends to result in higher long-term mortgage rates.

Construction Spending: Construction spending rose 0.2% in August, a little better than expected. Construction Spending on residential housing however fell 1.5%.

New Housing: New Home Sales for August were at a 837,000 annualized pace. There is a current supply of 8 months of inventory on the market. Prices have fell by more than 10% from July to August.

Existing Homes: August home sales fell to a five-year low of 5.50 million homes (annualized rate of sale). There is currently a 10 month supply of existing homes on the market while prices are just 0.2% below year-ago levels.

Consumer Sentiment: The weekly ABC News / Washington Post poll of Consumer Comfort improved four points to a -11 reading for the week of September 23.

Next week will provide reports from manufacturing, employment report, job growth and wage information. If reports are stronger than expected, odds are good that interest rates will likely rise.

Thought of the Week: "You control your future, your destiny. What you think about comes about. By recording your dreams and goals on paper, you set in motion the process of becoming the person you most want to be. Put your future in good hands -- your own." -- Mark Victor Hansen

20070922 - Big News! Fed Lowers Rates and Mortgage Rates Rise ????????

Sun, 23 Sep 2007 17:51:59 PDT

Snapshot: Average Rates
30 yr - 6.34% w/ 0.5% in fees. UP from 6.31%. 1 yr ago - 6.40%
15 yr – 5.98% w/ 0.5% in fees. UP from 5.97%. 1 yr ago – 6.06%
5/1 ARM – 6.21% w/ 0.5% in fees. UP from 6.17%. 1 yr ago – 6.08%
1 yr ARM - 5.65% w/ 0.6% in fees. DOWN fom 5.66%. 1 yr ago – 5.54%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 09-20-07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: The obvious big news this past week was The Fed lowering rates. Not mortgage rates, but the Fed Funds Rate. As you can see and as we often repeat here, mortgage rates are not influenced by The Fed, or more properly known as the Federal Reserve Open Market Committee (FOMC). What impacts rates more often is what they say, not what they do. This is evidenced by the fact that rates have actually gone up! Ever so slightly, but up. If The Fed controlled rates, one would conclude that a ½ percent drop by The Fed would equal a ½ percent drop in rates. Look above. Not true. On the surface and with all the media attention on mortgage rates, I know it may not make any sense to many, but it really does. To learn more, send me an email and I will send you a special report “What Makes Mortgage Rates Move”.

The Fed: How can mortgage rates possible rise after a Fed cut? A Fed cut is supposed to spur economic growth. The Fed didn’t cut rates to lower mortgage rates…they did it to save the bacon of a few banks that are getting squished. Remember, The Fed’s role is not to pump up stocks, sell homes or keep employment high, or even keep inflation in check. That’s what they pretend to do, but in all reality, the sole purpose of The Federal Reserve Banking System is to make certain that the nation’s banks remain liquid, viable and profitable….that’s it. All the other stuff is window dressing. If the Fed were really concerned about inflation, they would NOT have lowered rates. Look what happened to gold and oil after The Fed cut….to the moon baby! Anyway, off my soapbox.

Stronger economic growth has a history of raising inflation. Fears of inflation concern bond holders and they require a higher yield to purchase more bonds. Mortgages are packaged on Wall Street in the form of bonds. Anything that impacts bonds, impacts mortgage rates. The Fed lowering rates to spur on economic growth could lead to higher inflation, thus bond prices went down and yields, and mortgage rates, went up.

More Fed: Economic growth has slowed in recent months and inflation has been slowly cooling for a while, helping to keep mortgage rates steady for most of 2007. By lowering rates, The Fed made money cheaper for certain borrowers, notably banks. (See how this goes back to what The Fed’s real role is…think banks, banks, banks.) If the Fed's actions have the desired effect, economic growth should increase, which would likely create some form of inflation. The markets adjusted for this potential inflation and mortgage rates adjusted as well, again upward.

Market players should always be careful. You don’t always get what you want, but usually get what you deserve.
The markets have been whining about lower rates…gosh I want to smack people sometimes…look how low rates are these days. Come on...look! They’re lower than they were one year ago. The one main thing this move will do is help people that have ARM’s. Their rates won’t change as high as they were going to prior to The Fed cut. How many people will this help? Not as many as people tend to think. More people have fixed rate loans as compared to ARMs. Makes for some big headlines though!

New Construction: The National Association of Homebuilders survey reveals bleak outlooks from builders. Their index of member sentiment fell to a level of 20, the lowest September value in the history of the survey. Troubled credit markets in August simply added to the poor outlook. August housing starts fell by 2.6% to an annualized rate of 1.331m units and Building Permits fell 5.9% to a 1.307m annualized rate.

Inflation - PPI: The Producer Price Index for August fell 1.4% overall, but actually increased by 0.2% with energy and other volatile costs removed from the equation, the “core” rate. With energy prices rising, this number is very likely to reverse itself and head north. For the PPI, "headline" inflation is up 2.1% over the last 12 months, while "core" PPI is up 2.2% over the past 12 months. This was good news for The Fed and helped them in making their decisions as inflation appears to be 'in-check' when looking at some of these numbers.

Inflation - CPI: Headline Consumer Price Index fell 0.1% during August, while the "core" CPI rose 0.2% higher. CPI is up 1.9% over the last 12 months and the "core" CPI is down 2.1% over the last 12 months. This numbers have provided a glimmer of reasonableness for the Fed to lower rates. They can say, “see, inflation is in check”. Buy groceries or fill up your gas tank lately?

Consumer Confidence: The weekly ABC News/Washington Post poll showed a -15 reading during the week of Sept. 16, the highest level since the credit market disruption of mid-August.

Outlook: Next week will be full of reports. Measures of consumer attitudes, several local and national manufacturing reports, construction spending, home sales and the last look at Q2’07 GDP numbers are due next week.

Another implosion: Decision One, a subprime lender, closed its doors this past week. Overall, odds are good that rates will tick north a bit next week as everyone gets over the "big news" of The Fed. I know it’s hard for many people in today’s economy. I wish them well and good luck with future endeavors.

Thought of the Week: "You can't always control the wind, but you can control your sails."
- Toni Robbins

20070913 - Pinnacle Radio Returns

Mon, 25 Feb 2008 07:19:21 PST

Please forgive my rather lengthy absence from the podosphere. Today's episode of the 9-13-2007 Pinnacle Radio Report (16:08 15mb) discusses interest rates, the Mortgage Market Meltdown of 2007, more implosions to come, condos, fishing, "40 Under 40" and a few other tidbits. Enjoy.

20070824 - What's Goin Onnnnnn?

Sun, 26 Aug 2007 10:16:11 PDT

30 yr - 6.52% w/ 0.4% in fees. DOWN from 6.62%. 1 yr ago - 6.48%
15 yr – 6.18% w/ 0.5% in fees. DOWN from 6.30%. 1 yr ago – 6.18%
5/1 ARM – 6.34% w/ 0.6% in fees. DOWN from 6.35%. 1 yr ago – 6.14%
1 yr ARM - 5.60% w/ 0.6% in fees. DOWN from 5.67%. 1 yr ago – 5.60%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 08-23-07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Rates managed a slight improvement on the heels of a crazy week in the mortgage industry which featured a surprise move by The Federal Reserve last week.

New Home Sales: New Home Sales were up 2.8%, a big surprise given the lousy outlook for housing from analysts and the sour expectations from home builders themselves. Maybe we're seeing the housing market begin to stabilize. At least it's a bright spot in the otherwise gray and dreary news on housing and the crumbling sub-prime mortgage market. Demand for new homes will still be restrained by the rapidly changing mortgage markets.

Mortgage Industry: The rules for secondary mortgage market for Alt-A, sub-prime and jumbo loans have been getting rewritten on an almost daily basis. Many types of loans that existed just a few short weeks ago, have all but disappeared. The overall impact will be that less people will be able to get home financing, that otherwise would have been able to over the past several years. The long-term result will likely be positive as more and more responsible borrowers and lenders will create a more stable housing market.

Outlook: Next week will feature a few notable economic reports, namely existing home sales and inflation gauged by the PCE, or Personal Consumption Expenditure Index, which is closely watched by The Fed. A few other reports on consumer attitudes will also be released. The odds are that rates will remain steady over the next week as the mortgage markets steady themselves.

Thought of the Week: "I can complain because rosebushes have thorns, or I can rejoice because thorn bushes have roses." -- Source Unknown.

20070815 - The 2007 Mortgage Market Meltdown - Presentation

Wed, 15 Aug 2007 20:38:22 PDT

8-15-2007

Here's the hot news. Please forgive my long absence. Lot's happening. Anyway, here's the scoop on the current mortgage market. Click on The 2007 Mortgage Market Meltdown (power point presentation. approx. 20 minutes) Please allow a few moments for file to load.

20070727 - Rates Improve. More to Come?

Sun, 14 Oct 2007 13:47:42 PDT

30 yr - 6.69% w/ 0.4% in fees. DOWN from 6.73%. 1 yr ago - 6.72%
15 yr – 6.37% w/ 0.4% in fees. DOWN from 6.38%. 1 yr ago – 6.34%
5/1 ARM – 6.30% w/ 0.4% in fees. DOWN from 6.35%. 1 yr ago – 6.35%
1 yr ARM - 5.69% w/ 0.5% in fees. DOWN from 5.72%. 1 yr ago – 5.78%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 07-26-07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Rates held steady and managed a slight improvement on reports of continued weakness in the housing industry.

Mortgage Industry – The word of the week is “contagious”. Reports everywhere are talking about whether the sub-prime Implosion (as I have coined it) is contagious situation which can impact the conventional mortgage markets. Well….anything is possible and nothing would surprise me…nothing.

The troubles with high-risk credit securities arranged by Wall Street bankers had an impact on stock yesterday…did you see that? The Wall Street Journal reported that the “contagion” (there’s that word again) from the sub-prime mortgage collapse has creeped into the high risk corporate credit markets. Some corporations are struggling to finance acquisitions. Ironically, leveraged buyouts of recent weeks helped drive stock prices north. As Wall Street bankers are getting it handed back to them on these sub-prime loan investments, they now appear to be worrying about other high(er) risk corporate debt as well.

Overall, treasury and bond-market prices, including mortgage backed securities, rose as investors sought “presumed” safety in reaction to stock losses by moving money into bonds. As long time readers already know, as the price of bonds move up, the yield or returns go down. So in the end, mortgage rates improved slightly.

Existing Home Sales: As mortgage rates moved up during June and underwriting criteria became more stringent, sales of existing homes fell to a 5.75 million annualized rate of sale, a drop from May of 0.3%, an increase of 0.3% as compared to Jun ’06 but still down 11.4% for the last 12 months.

New Home Sales: New Home Sales declined as well during June to an annualized rate of sale of 834,000. Over the last 12 months, sales are down 22.3%. Sales prices also fell 0.7% from last month and are down 2% for the last 12 months.

GDP – Gross Domestic Product: The broadest measure of our economy comes in the form of GDP reports. Q2’07 GDP is estimated to have accelerated from Q1’07 as the "advance" GDP reported overall growth at 3.4%. This is quite a jump compared to the “final” GDP number for Q1’07, which was 0.6%.

Personal Consumption Expenditures (PCE) – This is the inflation gauge most watched by The Fed. For Q2’07, the estimate of 4.3% is somewhat quite alarming. However, spin-doctors would say, “but looking at the “core” measure of PCE (which leaves out food and high energy costs) rose only 1.4%, down from 2.4% in Q1’07. And yeah, why not leave out food and energy? Nobody uses that anayway…NOT!

Unemployment: Solid economic growth is keeping the job market strong. For the week ending July 21, 301,000 new applications for unemployment benefits were filed, one of the lower reports for the year. July's employment report is due out next Friday and it appears that June’s hiring data will show 132,000 new jobs.

Consumer Sentiment: The weekly ABC News / Washington Post poll of consumer attitudes rose from a -11 to a -5 reading for the week ending July 22. It will be interesting to observe how attitudes might change as a result of the decent size drop in stocks this past week. The U of M final reading of Consumer Sentiment rose to 90.4 during July, up from 85.3

Outlook: Next week will feature several reports including the BIG employment report for July, as well as Construction Spending and a few other notables. If the reports show a growing economy with stable inflation, there might be some room for mortgage rates to improve. Odds are that we will indeed see a slight improvement in rates. We’ll see…

Thought of the Week: "If you are patient in one moment of anger, you will escape a hundred days of sorrow." -- Chinese Proverb

20070721 - Rates incher North

Sat, 21 Jul 2007 06:53:32 PDT

30 yr - 6.73% w/ 0.4% in fees. UNCHANGED. 1 yr ago - 6.80%
15 yr – 6.38% w/ 0.4% in fees. UNCHANGED. 1 yr ago – 6.41%
5/1 ARM – 6.35% w/ 0.5% in fees. UNCHANGED. 1 yr ago – 6.36%
1 yr ARM - 5.72% w/ 0.5% in fees. UP from 5.71%. 1 yr ago – 5.80%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 07-19-07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: The latest economic reports did not impact mortgage rates as most loan products remained very stable. In addition, stock market indices are reaching new highs and housing data is still weak.
Mortgage Industry: The mortgage industry and market continue to evolve after the implosion of many sub-prime lenders. Overall, the mortgage industry and rates have slowly been increasing over the last 4 weeks. Overall, the demand for mortgaged back securities has diminished somewhat, thus causing rates to increase. In order to attract investors, yields, or rates had to increase. The spread between the “highest quality” 10-year Treasury bond and the average 30-year fixed rate mortgage has increased to 185 basis points (1.85%). This is the largest spread in the last year and a half. This is indicative of the perceived riskier mortgage market that investors have at this time in history.

Inflation: Producer Price Index: The Producer Price Index fell 0.2% and over the last 12 months has rose 3.2%. The refined "core" PPI, which excludes “the most volatile components”, rose by 0.3% and over the last 12 months has risen 1.8%. I don’t like the exclusion of certain items because in a small way, it appears to be a “cooking of books”. Just give me the numbers and quit trying to spin them.

Inflation: Consumer Price Index: The Consumer Price Index rose 0.2% in June and over the last 12 months has rose 2.7%. Excluding food and energy (and I know I repeat myself here…who doesn’t use food or energy?) the “core" CPI also rose 0.2% and over the last 12 months has risen 2.2%.

Housing: The National Association of Home Builders index of member sentiment moved downward in July to a reading of 24. Readings above 50 indicate a trend toward a growing market, while anything below is considered contractionary. Right now, it’s pretty low…. ½ way between neutral and jumping out of windows. But, the builders keep building…go figure? Housing Starts rose by 2.3% in June, climbing to 1.467 million annualized rate of growth. Multi-family units rose while single-family starts continued downward. Building permits fell 7.5%, suggesting a slowdown in future starts.

Consumer Sentiment: Consumer attitudes have been holding steady. During the week ending July 15, the ABC News / Washington Post poll of consumer comfort fell to a -11 reading
Unemployment: New applications for unemployment benefits fell this week to 301,000 new claims. Not much of an impact on mortgage rates.

The Fed: Every 6 months the Chairman of The Federal Reserve provides testimony to Congress. Fed Chairman Ben Bernanke noted that delinquencies and foreclosures are "problems that likely will get worse before they get better." His other remarks suggested that more lending regulations are coming to mortgage markets. Credit conditions, already tightened by market forces, are likely to get tighter as we roll through 2007 and beyond. Remember, it’s what The Fed says that impacts the markets, not what they do. The markets are usually way ahead of anything The Fed does or says. Everyone already knew that the credit guidelines for issuing loans were getting tighter as a result of increased delinquencies and the sub-prime market fallout.

Outlook: Housing is still a concern, oil prices remain fairly high, the stock market is flying high, which should cause a slight concern for those heavily invested. Next week we’ll have reports on home sales, some GDP reports, among a few other minor reports. Odds are that rates will remain steady next week with no major movement.

Thought of the Week: "Education is the ability to listen to anything without losing your temper or your self-confidence." Robert Frost, Poet

20070624 - Next Up? The Fed

Sun, 24 Jun 2007 19:40:14 PDT

30 yr - 6.69% w/ 0.5% in fees. DOWN from 6.74%. 1 yr ago - 6.71%
15 yr – 6.37% w/ 0.5% in fees. DOWN from 6.43%. 1 yr ago – 6.32%
5/1 ARM – 6.31% w/ 0.6% in fees. DOWN from 6.37%. 1 yr ago – 6.32%
1 yr ARM - 5.66% w/ 0.7% in fees. DOWN from 5.75%. 1 yr ago – 5.75%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 06/21/07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Mortgage rates eased this week due to market concerns about the housing and its overall impact on the economy.

Housing Starts: Housing Starts fell 2.1% to an annualized rate of 1.474 million units. Building Permits gained 3% to an annualized rate of 1.501 million units.
Builder Sentiment: The National Association of Home Builders index for June came it at a level of 28, near record lows.

Leading Economic Indicators: This index rose 0.3% during May. Overall, the LEI index has been almost unchanged for months.

Unemployment: Weekly unemployment claims rose to 324,000 new applications for benefits during the week ending June 16. There has been a slight upward trend in requests for benefits.

Consumer Sentiment: The weekly ABC News / Washington Post poll of Consumer Comfort fell one point to a -14 level during the week ending June 17. After higher levels near the end of the winter season, springtime has had the opposite trend with attitudes moving lower.

The Federal Reserve: The Fed will meet next week to discuss monetary policy. Currently, inflation remains under control and the economy seems to be growing slowly. This makes for a nice recipe of “Nothing for The Fed”. Odds are very strong that there will be no change to short-term interest rates. Remember though, it’s not what The Fed does, it what they “SAY”. So, the statement which follows the close of the meeting will likely indicate the economy is growing, housing remains challenged, and the labor market remains tight (i.e. strong employment) and The Fed will likely watch to make certain inflation stays under control and the economy doesn’t overheat.

Next Week: The Federal reserve meets, reports on New and Existing Home Sales, Consumer Confidence, Gross Domestic Product readings for Q1’07 and Construction Spending. Odds are that mortgage rates will remain steady, which is a welcome atmosphere as compared to recent weeks.

Thought of the Week: “Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.” Thomas Edison

20070609 - North--WIll They Go Higher?

Sun, 10 Jun 2007 18:29:10 PDT

30 yr - 6.53% w/ 0.4% in fees. UP from 6.42%. 1 yr ago - 6.55%
15 yr – 6.22% w/ 0.4% in fees. UP from 6.12%. 1 yr ago – 6.23%
5/1 ARM – 6.24% w/ 0.6% in fees. UP from 6.19%. 1 yr ago – 6.27%
1 yr ARM - 5.65% w/ 0.7% in fees. UP from 5.57%. 1 yr ago – 5.63%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 06/07/07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Mortgage rates rose again on fears of higher inflation, a tight labor market and higher average hourly earnings (inflationary). Economic news has been mixed the last few weeks; some reports showing slower economic growth, while others show just the opposite. This is called job security for an economist.

Employment: Labor markets remain tight and are contributing to the fear of inflation brought on by ‘wage’ inflation. Higher wages will purportedly cause higher inflation as prices will need to be increased to pay for these higher wages. Either that, or profit margins must decrease, or a combination of the two. However, if worker productivity increases, this will offset the higher wages because the higher productivity results in more “widgets” that companies can sell, thus offsetting the cost of higher wages. Well, the downward revision to Q1’07 didn’t help in that part of the equation. The latest report showed a 1% increase in productivity, down from the original 1.7% estimate. Lower worker productivity translates into higher labor costs relative to the amount of “widgets” produced and available for sale. This is a large concern for The Fed.

Consumer Sentiment: The weekly ABC News / Washington Post poll of Consumer Comfort fell again during the week of June 3 to a -15 reading.

Balance of Trade: The nation's trade deficit fell 6% to “only” $58.5 billion. Exports rose very little while imports fell slightly.

International Rates: Inflation concerns abroad resulted in the European Central Bank raising rates ¼ percent last week, up to 4%. This competition for bond market investor dollars is helping fuel the drop-off in bond prices, resulting in higher rates. A rate hike in New Zealand also added to the domestic sell-off in domestic bonds and mortgage backed securities, resulting in quick ¼ percent increase in long-term mortgage rates.

Outlook: Import and Export prices, reports on inflation (PPI and CPI), Retail Sales, Industrial Production and consumer confidence are scheduled to be released. Mortgage rates will likely remain stable or increase slightly; certainly not as rapidly as we’ve seen over the last 2 weeks.

Thought of the Week: “Success is going from failure to failure without loss of enthusiasm.” Winston Churchill

20070528 - It's What They "Say" That Matters

Mon, 28 May 2007 05:48:28 PDT

.
30 yr - 6.37% w/ 0.4% in fees. UP from 6.21%. 1 yr ago - 6.62%
15 yr – 6.06% w/ 0.4% in fees. UP from 5.92%. 1 yr ago – 6.23%
5/1 ARM – 6.02% w/ 0.5% in fees. UP from 5.92%. 1 yr ago – 6.21%
1 yr ARM - 5.64% w/ 0.7% in fees. UP from 5.48%. 1 yr ago – 5.61%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 05/24/07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Comments from members of the Federal Reserve (The Fed) raised inflation concerns in the market which in turn helped push mortgage rates higher (Does anyone remember reading somewhere “It’s not what The Fed “does”, rather it’s what The Fed “says” that causes rates to move”?). Gosh, I think I read those exact same words from a very wise man on more than one occasion. Ha Ha! (Ouch! I almost hurt my arm patting myself on the back.) Anyway, mortgage rates are now just above the high of 2007 set back in early February.

Bond Pricing & Yields 101: The stock market is flirting with new highs and some of the money fueling that growth is coming from selling in the bond markets. As long-time readers may already know (and new readers will soon learn), there is an inverse relationship between the price of bonds, and more specifically mortgage-backed securities, and the yield or interest rate on those bonds. As bond prices go down, rates go up, and vice versa. We are seeing this right now as bonds get sold, prices go down and hence rates go up.

Mortgages: Sure, rates have moved north, and at a good pace the last few weeks, but it might be wise to have some perspective. Interest rates have been very stable for last several years. The last time the average 30 year fixed rate was over 7% was 5 in 1992.

Consumer Sentiment: Have you heard? Gasoline prices are up. The weekly ABC News / Washington Post poll of consumer comfort fell to a -9 reading for the week of May 20.

Unemployment: New claims for unemployment benefits rose for the week ending May 19. The 311,000 new applications was the highest in about a month. The BIG May employment report is due out next Friday, which could have some market moving news associated with it.

New Housing: April sales for new homes came in at an annualized rate of 981,000, a 16% jump from March. Over the last 12 months, new home sales are still down about 10% from last year. However!, higher sales came at the expense of prices. The average sales price fell 15% from March.

Existing Home Sales: Sales of existing home sales fell more than expected to a 5.99 million annualized rate of sales for April. This is a 4 year low. Inventories rose to an 8.4 month supply of homes (i.e. at this rate of sales activity, it will take 8.4 months to sell all the homes on the market.).

Outlook: Next week we have a bunch of new data to help shape the landscape including revised GDP numbers, Personal Income and Spending, Construction Spending and….drum roll please… the minutes from the last Fed meeting. The latter could have the most market moving impact as well as Personal Consumption Expenditures (PCE), an inflation gauge, which is VERY closely watched by The Fed. Odds call for a continued slight increase in rates next week.

Thought of the Week: “A formula for success: Under promise and over deliver.” - Tom Peters, Author

20070519 - Equities Up, Rates Too

Sat, 19 May 2007 06:12:51 PDT

30 yr - 6.21% w/ 0.4% in fees. UP from 6.15%. 1 yr ago - 6.60%
15 yr – 5.92% w/ 0.4% in fees. UP from 5.87%. 1 yr ago – 6.20%
5/1 ARM – 5.92% w/ 0.5% in fees. UP from 5.82%. 1 yr ago – 6.23%
1 yr ARM - 5.48% w/ 0.7% in fees. UNCHANGED from 5.48%. 1 yr ago – 5.62%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of 05/17/07)

Note: These rates should be used for trend line analysis only, NOT for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate which direction mortgage rates have moved from week to week.

Summary: Mortgage rates moved North following last week’s Fed statements reiterating their continued concern about inflation. There is continued weakness in the new housing market. However, existing home sales for Q1’07 were up 2.4% from the previous quarter and mortgage applications for home purchases over the first two weeks in May were the strongest since January 2006

Mortgage Industry: The mortgage industry is quickly doing what it should have done earlier, namely limiting loans to those who actually qualify for the loan…imagine that! Loan applicants with no down payment and/or less than average credit will either need to somehow improve their overall financial picture, or simply wait until they have done so. This will continue to put a damper on the housing market. In the long run though, loans to solid borrowers that can repay their loans is a better situation as compared to one in which too many banks become sellers of real estate; a business they would rather not have found themselves.

New Housing: The National Association of Homebuilders survey of member sentiment reported a downward trend in their attitudes. The reading of 30 in the Housing Market Index ranks among the lows for the cycle and one of the lowest readings ever. However, Housing Starts for April rose by 2.5% to an annualized 1.528 million units started. However, building permits fell 8.9% to a 1.429 million annualized units.

Consumer Prices (Inflation): Headline CPI rose 0.4% in April, less than expected but still an inflation rate higher than what the Fed would like to observe. Over the last 12 months, headline CPI has risen by 2.6%, a reasonable rate of inflation. The "core" rate of inflation, excluding food and energy (long time readers should know my stance on that…why eliminate something that everyone uses?) rose 0.2% in April. Over the last 12 months, core inflation has 2.4%.

Unemployment: Applications for new unemployment claims were 293,000 for the week ending May 12th. This is the lowest number in 2007 so far. Tight labor markets are a concern for the Fed because of a fear of higher wage demands by workers, leading to wage inflation.

Consumer Sentiment: The preliminary reading for the University of Michigan survey of Consumer Sentiment rose 1.6 points to 88.7. The weekly ABC News / Washington Post poll of Consumer Comfort fell to a -7 reading, one of the lower readings over the last two months. Overall, a mixed bag of results here with no real impact on mortgages rates.

Outlook: Rates have been fairly steady over the last few months with no real market moving economic reports. The stock markets seem to be crankin’ it up, rates are ticking up here and abroad resulting in some upward pressure on mortgage rates. It appears this trend may continue and rates may move a little higher next week as well.

Thought of the Week: "Confidence is the most important single factor in this game, and no matter how great your talent, there is only one way to obtain it -- work." - Jack Nicklaus, Golfer.