When Will the Recession Really End?

Click on the title to link. Once again we have the "experts" predicting the recession will be over in three months because the GDP will grow. Can you say false signs. There are many, many other indicators that would speak contrary to this. I hope it is true...I doubt seriously that it is.

More Positvie Press for ABQ

Kiplinger's: 10 Best Places to Live and Work. Where’s the best place to hide during this economic downturn?
Kiplinger’s Personal Finance magazine evaluated U.S. cities for their growth potential, analyzing their ability to hold onto jobs even if the economy softens further.

With assistance from Kevin Stolarick of Martin Prosperity Institute, the magazine concluded that cities where there are a lot of white- collar jobs are surviving the downturn better than areas where much of the workforce is employed in manufacturing or service jobs.

Stolarick says these creative-class jobs tend to help generate new businesses and that increases the vibrancy of the areas where they hold sway.

This employment analysis combined with data about income growth and cost of living led Kiplinger’s to choose these 10 cities as the best places to live and work in today’s challenging economy:

1. Huntsville, Ala.
2. Albuquerque, N.M.

"The city and state crave high tech jobs, especially in the renewable-energy industry. Albuquerque is developing its film industry with the same zeal. Albuquerque also bills itself as a green city and, figuratively speaking, it is.
The city requires everything from homes to commercial buildings to be energy-efficient."

3. Washington, D.C.
4. Charlottesville, Va.
5. Athens, Ga.
6. Olympia, Wash.
7. Madison, Wis.
8. Austin, Texas
9. Flagstaff, Ariz.
10. Raleigh, N.C.

Source: Kiplinger’s Personal Finance (07/2009)

A Bit More About 4% Rates

One of the questions we get most often lately is: "We've heard Obama and others talking about doing something to cause rates to go down to 4%. Do you think this is going to happen and if so when and will it help me?"
Based on what's been said in the media, the question is completely valid; and we always welcome questions of any type. In this case, however, our only answer can be: it hasn't happened yet. It would take some fairly drastic action for this to occur. Of course in this current ecopolitical environment, drastic is no longer unusual. As far as we can tell, the government would have to subsidize the lending to the point of being the actual lender. It does not appear that the current mortgage backed securities environment will support rates this low.
One has to keep in mind that a mortgage backed security (which is the investment vehicle most mortgages end up becoming - including yours), is, in fact, an investment vehicle. Folks such as yourselves, and large institutional investors of course, purchase them in order to receive a certain expected fixed rate of return. And just like any other investment, the return must reasonable justify the risk.
Think of it like this: would you consider a mortgage to be a safe investment right now, considering the number of foreclosures and the rate at which values are dropping? Especially when you consider the number of folks who purchased homes at the peak of the market and didn't have to prove their income. Scary. ---- many would not. And as a result, they will expect a certain return on their dollars invested. Mortgage rates in the 4% range are not going to result in a high enough return unless things change in a hurry and investors feel better about these securities.
So, back to the need for FULL government intervention if rates are to fall to 4%. There have been many proposals put forward during the Stimulus Package negotiations; and one of those, proposed by Sen. John Thune of South Dakota was designed to reduce mortgage rates to as low as 4 percent for millions of homeowners, but was defeated on a vote of 62-35 - apparently a party line vote. (Click on the title above to read full related article).
This doesn't seem to indicate to us that they are in a hurry to lower rates to 4%, no matter what they are saying in front of the cameras. In the meantime, we'll be keeping an eye on things and letting you know the latest developments that could impact you - including any news about 4% interest rates. And please, don't hesitate to contact us with your questions.

Pathetic

I could not think of a title more fitting than the word "Pathetic" what the article I just read. It is linked above through the title. The article is about how the almost $200 billion given to banks has done little to nothing in stimulating lending. What else would you expect from a "stimulus" that was rushed through and not managed. They should be ashamed.
And for those of you who want to take this opportunity to blame the Bush Administration remember this:
1. Obama is trying to now push through his package. if they do not step back and work the details out prior to then we will be right back here again.
2. Both McCain and Obama backed this plan because it was a political "spotlight" on them.
3. You want more government involvement and help? Be careful what you ask for because you may just get it.
So I do not care what party you are affiliated with, they all should be ashamed for letting something like this happen. It is unacceptable, shameful and, well, pathetic.

Here Is The Latest...

As for rates, they continue to steady out a bit after going up after the last two weeks. They did not sky rocket, but moved about .25%. However, they seem to be inching back down. If you need a rate quote call us and we will help you analyze your situation.
As for the market, see the video below on the continued decline in consumer spending. The good news is people are saving more out of necessity. The bad news is, if we are not careful (and we have talked about this plenty), we will slide into a deflationary market where people are not spending, prices are dropping, rates are dropping, but people are losing their jobs because employers cannot afford the because people are not spending and buying their products. It is a vicious cycle that is hard to break.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Will The Proposed Stimulus Package Help?

Here are some expert opinions:

Visit msnbc.com for Breaking News, World News, and News about the Economy

ABQ Ranked #1, Again

Below is a recent blurb put out by KOAT regarding Smart Money Magazine ranking ABQ as the "top city in the nation ready to rebound in the housing market".
Dare we say it again...this is an incredible time to be buying homes, especially in ABQ. Press on, people!

Smart Money Magazine said Albuquerque's housing market appears to be in the best position to make a comeback.

It's all in the latest issue.

Albuquerque is the top city in the nation ready to rebound in the housing market.

Reasearchers at the magazine said nationwide the rate of decline in sales is slowing and that the government takeover of Freddie Mac and Fannie Mae could boost the housing market by making borrowing easier for buyers.

That's helping homeowners nationwide.

In Albuquerque, home inventories have leveled off and the number of homes on the market has remained level.

A local realtor said not to expect to put a house on the market right now and make a huge profit.

"Am I telling my investors to buy?" David Stafford, an Albuquerque realtor, said. "Yes but only if they're going to hold for two or three years at the least. If somebody buys now and they're going to sell next year they are not going to make money."

Experts caution not to expect a rapid rebound.

It could still take years for the housing market to recover entirely.

In Albuquerque, however Smart Money Magazine seems to think we are ready to start seeing an increase in sales prices rather than a decrease.

Government Oversight?

We almost hesitate to post a video like this because it can be frustrating. When people come up to us with ideas we always immediately ask them if they are willing to run with that and champion that "cause". So posting a video like this is sort of like saying, "We have a major problem here; we have no idea the solution." But we want to keep you in the loop with what is happening that is going to affect the economy, which will affect housing, which will affect mortgages and so on and so on.

Don't Believe the Media!

Please allow me to vent. The stuff we hear come out of the media's so called "experts" never ceases to amaze me. Take the following excerpt from an article (there were many others I could vent about) from a well known financial web site:

The yield-spread premium
One dirty little secret of the mortgage industry is the yield-spread premium. In return for arranging loans with inflated interest rates, some brokers receive fattened payments -- referred to as the yield-spread premium -- from lenders, says Allen Fishbein, the director of housing and credit policy for the Consumer Federation of America, an advocacy group.

Even a slight difference in rate -- say, 6.779% instead of 6.495% -- amounts to nearly $17,000 in extra interest over the life of a 30-year, $250,000 loan. To avoid getting suckered, ask your broker whether the lender pays a flat rate or a percentage commission based on loan terms. Also, obtain a copy of your credit score and use Fair Isaac's MyFICO.com to get a realistic estimate for a fixed-rate mortgage based on your score.

Dirty little secret?! Inflated interest rates?! Fattened payments??!! These people have NO IDEA what they're talking about. Now, I'm sure your 1st thought is "of course he's upset, he's a mortgage broker". The TRUTH is, I would have no problem with these "experts" (yes, I feel I must use quotes each time I use the word "experts") objectively educating the consumer. But the bantering you read above does no such thing. In fact, printing this is irresponsible.

Here's more of the truth: mortgage brokers are in fact compensated, in some cases, by the yield spread premium paid to them by lenders. Yield spread premium is synonymous with commission. I didn't realize that earning a commission in one's business endeavors was such a travesty. I'm pretty sure many other professions earn commissions, but please, correct me if I'm wrong. The real question is: what are you getting for the commissions paid? Are you getting a fair interest rate at fair prices (i.e. loan fees)? Are you getting the education and attention to detail you expect for one of the most important transactions of your lifetime? Are you getting the communication throughout the loan process so as to ensure there are no surprises?

If you've not received these benefits as part of your home loan process, then perhaps you've obtained your mortgage from the wrong company, whether or not there is a yield spread premium or a "flat rate" or any other form of compensation.

Most folks don't realize that over 2/3's of all mortgages are obtained through mortgage brokers. I have enough confidence in consumers to think that if mortgage brokers were ripping people off, this would no longer be the case. You see, while we are generally compensated by yield spread premiums, we can, in most cases, provide the same, if not better, rate and fee structure than any bank or credit union. And just as importantly, one would receive a level of service with our firm that they've never experienced with any other mortgage lender.

It is simply false to say that yield spread premiums automatically equate to higher rates. As in any industry, there are bad apples who do take advantage of this system, but the majority of us are doing everything we can to give our clients the absolute best combination of rate, cost and experience as we possibly can. We would be unable to continue our business if we thought this was not possible - our conscience would not allow us to.

So, if you come across an article or listen to an "expert" on television discussing this subject (or any other for that matter), be sure and take what they say with a grain of salt. Not that you need to be told that now days.

Amen...

We really have nothing to add to this; it says it all.

Recession Map: Best and Worst States

So we just received a call from a dear friend of ours who was telling us about a segment on Good Morning America regarding the countries economy. This was timely because it confirms what we just posted about ABQ below in the previous post about 45 minutes ago. We were one of only four states in the entire country said to be "bucking the trend" in this economy. We are telling you, people, now is a great time to buy a house in ABQ.

Click on the title of this blog post to link to the video.

AIG to Freeze Millions in Pay to Former Execs

On October 9 we posted a video about AIG and their elaborate spending on a retreat to figure out how to pay the government back 85 billion dollars. At that time we talked about how nothing was going to change for AIG unless they had a paradigm shift in their thinking. Well today an article came stating, "New York Attorney General Andrew Cuomo says American International Group, which is being supported by a federal bailout, has agreed to freeze millions of dollars in compensation and bonuses for former executives." Is this beginning of the shift? We shall see...

Click on the title of this blog post to link to the article.

Summary of the US

Concerns Over Deflation

Here is another great article today by our friends at the Mortgage Market Guide about recent deflationary concerns.

"We have received a number of questions recently voicing concerns about the possible effects of a deflationary environment on the economy and possible effects of a weaker dollar on interest rates. Let’s take a look at the prospect of deflation first, and yes it is a potential problem as pointed out recently by Fed Chairman Alan Greenspan.
Most people living today have never experienced a true deflationary environment. The last one was the Great Depression. Many economic historians believe the Great Depression was triggered by Fed interest rate hikes occurring precisely at the worst possible time. The Fed (along with many of the world’s major finance ministers) is very aware of the current potential deflationary problem and has pledged to take whatever steps are necessary to try and prevent a scenario of full-blown deflation from taking root. Here is a summary of key points describing what takes place in a deflationary environment:

• Deflation seemed to be a remote possibility several months ago, but has now turned into a real concern for the U.S. and global economy.
  
• Deflation is the actual decline in prices. Disinflation is a decline in the rate at which prices are going up.
  
• It sounds good for consumers, but it's actually harmful for the economy.
  
• A drop in prices hurts profit margins, and companies will try and reduce costs by cutting jobs or lowering wages.
  
• Such corporate behavior would lead to a drop in consumer and business spending, causing prices to fall further.
  
• Falling prices will hit all asset classes eventually, like real estate. If your real estate is worth less, you can't borrow as much against it, reducing your credit.
  
• Reducing credit leads to further deflation.
  
• Although Japan has been fighting against deflation for a long time, the U.S. can't apply what has been learned from Japan because the two are different.
  
• Japan is a creditor nation, while the U.S. is a debtor nation.
  
• For any debtor nation, you need some inflation to eventually inflate away your debt.
  
• Bonds are the best investment in a true deflationary environment.
  
• However, there is no guarantee a deflationary environment will occur at this time.
  
• Companies that are less vulnerable in a deflationary environment include ones with strong cash flows, and little debt.
  
• Investors should avoid companies that are involved in commodities, as they have no pricing power."

The Spa, Anybody?

So I am not one to turn down a massage, manicure and pedicure. However, I am not a significant player in and reason for the current financial crisis either. Apparently the folks at AIG still just do not get it. This is a fundamental problem with the government intervening in things like this...without a paradigm shift, mentally, by the leadership of these companies there will be no change. This video does not indicate much of a shift at all for AIG.
If you prefer to read the entire article click here.