Don't Get "Rate Greedy"

There is one constant any time rates are really low, people always think they can/will get better. And they vary well may, and sometimes do. But you really have to be careful to not get greedy about it. Rates are at 50 year lows, that is pretty awesome! So you really have to question what makes one think they are going to get much lower, if at all. And is it worth the risk? People often do not realize a couple of things.

1. A large move in rates (.25% down, for example) will generally have a small effect on you payment. Does it help? Of course. And having a large loan amount also makes a bigger difference. But it is a risk to wait for that kind of movement. A .25% drop in rates is not something that happens daily (generally).

2. Rates move up much faster than they move down. It has also really bugged us that lenders are much slower to better rates than they are to worsen them. And when they get worse they can get worse much quicker than they get better. So although rates may take some time to improve .25%, they can worsen .25% in the blink of an eye. So, again, you cost vs. benefit has to really be thought through.

Bottom line, you can certainly wait things out and hope rates keep going down. And you may very well get a better rate. But know the risks going into it, and don't get greedy. 50 year low rates don't come around very often; roughly every 50 years. :-D

Low Rates Are Dangerous

Click on the title to link. This is a very good article about how one guy has finally come out about the unsustainability of the current low rates. We have been saying that inflation will kick in and rates will go up. We certainly thought it would be sooner, but we cannot sustain the current landscape; no way. Take the time to read this because this will happen.

Rates Don't Work The Way You May Think

We often get the following phone call from people in the middle of a loan, "I saw on the news that rates have dropped to 4.57%, and I am locked at 4.75%. So can we drop my rate to that now?" The answer is yes and no, but it just is not what it appears.

1. When we lock someone at an interest rate with a lender we are committing to the lender that we are going to follow through and send them the loan. A few years ago it really was not such a big deal to lock and move the loan. But since the change in the industry hit two years ago, lock fall out (as it is called in the industry) is monitored very closely. If we lock loans with lenders then we are expected to deliver, and they closely monitor this. If our fall out rate is too high then they can make pricing worse for us (which makes rates worse for you) or take away our ability to submit loans to them. When you tell us to lock a loan you are committing to follow through also. So changing lenders is not something done without consequence.

2. If we are locked with a lender we cannot just "reprice" or lower the rate with them. Some lenders do have a feature where we can do this, but rates have to have really gone down for it to work. Anytime we lock we always lock with the lender who has the best rate at the time you tell us to go ahead and lock.

3. Related to #2, since we lock with the best at the time, just because rates have gone down does not mean other lenders rates are now lower. It may be that their rates are now even with the lender we have already locked at. Therefore, you still may have the best available rate.

4. The media is not a good source to get a feel for what rates are doing. In fact, they are a very bad source. Why? Because they are always behind what rates are actually doing at the time (they may be lower or higher than what they are reporting because they are typically a week behind reality). They also just throw out a rate. But what determines the "going rate" that they report? Well, if you take all the rates people are getting for the past week and throw them into a proverbial melting pot, then you will get the going rate. But in that pot you will have rates where people are paying no fees, people paying fees but no points, people paying 1 pt, 2 pts, 3 pts, etc. Throw all that together and you get a "going rate". So a reported rate of "X" tells you absolutely nothing about what people paid to get that rate. Your rate may be higher than the reported rate, but that is most likely because your rate is cheaper than that lower rate. We could absolutely get you that rate, but not with the terms you currently are at.

Does this all make sense? It is a bit deep, but just know that there is only one way to be sure of what rates are really doing...call us. You need to be asking those you trust what they are doing, not paying attention to main stream media. Like everything else in mortgages, you need education and analysis to know what is the best thing for you. That is why we are here; use us.

Fannie Mae's (the US Government's) New Rule

We just learned that, effective June 1 (thanks for all the warning, huh), any loan done as a Fannie Mae loan (which is most of them) will require a second credit report be pulled just before the loan funds. Which means that they are going to pull another report after your loan actually closes, but before they release the money to the title company.

They are doing this to ensure that you have not acquired any more debt since the process started. Seems fair, right? Well, as with almost anything the government touches, it is poorly thought through.

When your credit is pulled again you are going to get dinged, again, for the inquiry. What if your score was borderline for you getting a program and/or rate betterment, and your score now drops below the acceptable level for that? Does your rate now change? What if you don't qualify for the program now? Do we have to start all over? Or, worse yet, do you lose the loan? We are not sure how they are going to handle these situations, but they are going to have to be addressed. Stand by...

Mortgage Rates On A Roll

Click on the title to link to the video.

Refi Window Finally Ready to Close?

Who would have thought mortgage rates would be as low as they are for as long as they have been? Either way, it's common knowledge at this point, at least with folks in the industry, that rates for conventional loans (loan amounts less than $417,000 in most areas of the country) are artificially low by somewhere between .5% and 1%. This is the case due to the fact that the Federal Reserve has been purchasing mortgage backed securities for several months now.

Well, the Fed's Mortgage Backed Securities Purchase Program is slated to end in March 2010. In theory, this could result in a very quick jump in rates of .5% to 1%. To put this in perspective, consider that a 1% rise in rates could add more than $150 to a monthly mortgage payment for a $25,000 30-year fixed-rate loan.

So, if you've been considering a refinance either to make improvements to your current home, pay off some outstanding debts or simply to reduce your monthly obligations, the window to these historically low rates may be closing.

Rate Lock Advisory

Monday's bond market has opened in positive territory as investors prepare for this week's economic news. The stock markets have opened the holiday-shortened week in positive ground with the Dow up 74 points and the Nasdaq up 5 points. The bond market is currently up 12/32, which should improve this morning's mortgage rates slightly.

This week brings us the release of only four economic reports for the markets to digest, but three of them are considered to be important and one of those three is arguably the most influential report we see each month. In addition, these reports are being released over just three trading days.

There is no relevant economic data scheduled for release today. June's Consumer Confidence Index (CCI) is the first report of the week and will be posted late tomorrow morning. This index is important to the financial markets because it measures consumer willingness to spend, which is important because consumer spending make s up two-thirds of the U.S. economy. If it shows a sizable increase in confidence from last month, we can expect to see the bond market falter and mortgage rates rise slightly. Current forecasts are calling for a reading of 55.1, up slightly from last month's 54.9 reading.

Overall, tomorrow and Wednesday's data (Consumer Confidence Index and ISM index) should bring some volatility in trading and mortgage rates, but Thursday's Employment report is definitely the most important of the week. Its impact can single handily lead to an improvement or increase in mortgage rates for the week.

The financial markets will be closed Friday in observance of the Independence Day holiday, but there will be no early close for the bond market Thursday as has been the case previous years. However, it will still probably be a light afternoon in trading as traders head home for the long weekend.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Rate Update

The bubble in the mortgage markets finally and with super hyper speed, blew up today. After holding and holding, while the 10 yr note rate climbed, mortgage rates jumped today to levels not seen in many months. We have been warning the mortgage markets couldn't hold on forever while treasury rates increased. Mortgage lenders became way too complacent with hedging risk, believing apparently that the $1.25T the Fed committed to buy would keep mortgage rates from increasing.
Today, from almost the beginning mortgage markets looked very unstable. Yields on Fannie Mae and Freddie Mac mortgage bonds rose for a fourth day, after yesterday for the first time exceeding where they stood before the Federal Reserve announced it would expand purchases to drive down loan rates. It is finally hitting home that the Fed has a serious problem; the problem is how to keep mortgage rates down, the housing markets are the key to any economic recovery and one of the keys to getting the housing sector back on track is keeping mortgage rates affordable and low. It was widely thought that buying $1.25T of MBSs would do it. Not the case; we all know about the massive supply Treasury has to sell in the debt markets, as we have noted it is unlikely that can happen (raising $200B a month along the yield curve, not including T-bills under 1 yr) without higher rates and the potential of creating inflation fears. Today may be a Waterloo for the Fed; what to do? Buy more treasuries, buy more mortgages? Markets are not going to be placated by either move; the Fed can't keep it up and as the US debt increases foreign central banks, led by China, may make good on recent comments to stop buying US debt.
Who then will fund our deficits and the Obama Administration's aggressive fiscal budgets? The US is completely dependent on foreign investments to fund our debt and that point is beginning to take front page. Big hit in the equity markets this afternoon on the hard hits taken in the mortgage markets. Without lower mortgage rates the economy isn't going to recover at the pace recent thoughts had developed. If housing and home prices are not stabilized there isn't going to be much of a recovery based on the timeframe markets had been expecting. The $35B 5-yrs went at 2.310% with a 2.32 bid-to-cover and indirect take of 44.2%, the outing was solid. The results were against an average 2.13 cover over the past 16 auction since the start of 2008, and a 29.2% indirect bidder take. The market had been looking for a solid showing, and while this was less impressive than the 2-yrs, that was also expected. The market had been looking for a draw of 2.33% plus and liked the lower yield. More Treasury borrowing tomorrow; $26B of 7 yr notes will complete this week's $101B of borrowing. Markets will have two weeks to breathe before Treasury comes back with 3 yr, 10 yr and 30 yr bond auctions on June 9, 10, and 11. Tomorrow weekly jobless claims at 8:30 expected to be up 5K; and April durable goods orders (+0.5%). At 10:00 Apr new home sales are expected to be up 1.8%. The selling today adds to the technically oversold markets. Mortgage rates cannot stand against the increase in long term treasury rates. The spread between the 10 yr note and 30 yr mortgages came back in line two weeks ago as we reported, back to about 165 basis point from a high of 270 basis point six months ago.
Keep all rate locks locked and strap in for a significant increase in market volatility with mortgage prices swinging with treasuries in large daily increments.

Feds Leave Rates Unchanged

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

Rates and Purchasing

This is a dual update. First of all, rates continue to hold fairly steady. They are still in the high 4's to low 5's depending on the circumstances surrounding the loan.

And as we have said for some time now, it is a great time to buy a house. If you are a first time buyer it is especially a great time with low values, low rates and incentives. You can get up to $14,500 in money help to buy a house. Call us at 830-9685 and we will walk you through the details.

Market Update

This is a very long email update we received from a trusted source for us. We have posted small portions of this in the past. But I read it again this weekend and it is really, really good. So I decided to post the entire thing here for you. I cannot get the graphs to show up, so just ignore that. But if you want details on the economy and what may happen then you need to read this. Props to Calvin Hamler from Assurtiy Financial Services for a great summary.

It's been a while, folks, so I thought I would take some time today to write another market update that at least touches on some of the high points of what has come into focus in the economy and the mortgage markets the last few weeks. Economic data and headline-rocking events are happening at the speed of light these days, and it seems like volumes of commentary could be written on a single day or week's events. In this market update, I will do my best to pull focus all the way out to the mile-high view of the economy as a whole (especially since we are headquartered in Denver!), then zero in on commentary as it relates to the mortgage markets these days. I hope you find the economic and mortgage market data, analysis, and commentary somewhat useful as we all navigate these uncharted waters together.

I realize that sometimes I provide so much information in a single market update that it is like trying to drink from a fire hose, but the flow of information is just that rapid these days, and there seems to be a tremendous thirst for answers among all of us. I've done my best to break up this market update into sections that you can go to and read if you only have time to digest part of it and are looking to answer a particular question you may have been wondering about. In this issue, I will cover the following:

Are we in a recession or depression, and how do we know?
Leading economic indicator of the stock market versus the lagging economic indicator of GDP
Condoms and the worst form of economic cancer, known as "Stagflation" - got your attention, didn't I? J
Why mortgage interest rates still aren't in the 4's
What it all seems to suggest for the mortgage markets and outlook for rates
6. Perhaps a bright spot in all of the global economic chaos
Jump to whatever section floats your boat, or sit down and read the whole darn thing! In particular, I would encourage you all to watch the selected video clip links from Fox News and CNBC, at minimum - they're not mine, but the two I have selected are GREAT, I promise!

Also, for those of you that are interested, you can go the Assurity Financial Services, LLC Corporate News Center on our website and subscribe to the news feed to receive market updates that we post to our website periodically, if you're into this kind of stuff. The link to the Assurity Financial News Center is
here: http://www.assurityfinancial.com/blog/default.aspx. It also contains archives of past market updates - you can see that I have fun with these from time to time.

Many people have given us positive feedback that they find these market updates useful in running their businesses and advising their clients, or just to keep current and have another point of view to consider. Accordingly, we will continue to write them, so feel free to pass along to a friend if you think they might enjoy it, too! The information is free to you, so take it with a grain of salt - it's probably worth just about what you paid for it. J

So here we go . . .

THE "GREAT RECESSION"???
It seems we throw around the terms "recession" and "depression" rather loosely these days, doesn't it? Indeed, there doesn't seem to be a consensus of opinion if you read various media headlines, on whether or not we are even in a recession at any given point in time, or whether it would more properly be called a depression, let alone articulating the relative severity of either event in terms we can all understand.

I'll go ahead and simplify here - The generally accepted economic definition of recession and depression are as follows: A RECESSION is a two consecutive quarterly decline in real GDP growth. A DEPRESSION is a cumulative decline in real GDP of 10% or more. Remember that GDP (Gross Domestic Product) is that yardstick that we use to measure the health of an economy - it represents all of the goods and services produced by an economy in a given period. There are 4 main components to GDP: Consumer Spending (C), Investment Spending (I), Government Spending (G), and Net Exports (X) (what foreign countries buy of ours minus what we buy of theirs). Each of these components is assigned a variable, and therefore the composition of GDP is generally described by the simple economic equation C + I + G + X = GDP. At the risk of over-simplification here, simple math would suggest that if you want to increase or decrease the rate of growth of GDP (i.e. an economy), you simply increase or decrease one or more of the variables on the left hand side of the equation. I have written before that the only real disagreement occurs when considering which variables can and should be focused on the most, and the methods by which we might try to get one or more of those variables to move and positively impact GDP without having other negative consequences as a byproduct, like hyperinflation or world war.

So what's been going on with the economy, as measured by GDP, and how bad is it, really? Are we in either a recession or a depression (or neither), and how do we get some perspective on where we are relative to history, anyway?

The answer is that we are very much in the middle of a VERY NASTY RECESSION, and could be pointed toward the economic definition of a DEPRESSION, but we haven't quite arrive at depression levels yet. So, at this point, I'm going to call it, "The Great Recession". I offer you the raw data from the United States Bureau of Economic Analysis (BEA), which we taxpayers pay to keep track of this stuff for us. The BEA is a division of the Department of Commerce, and you can visit the BEA website at the following link, where you can surf for the latest GDP numbers and other economic goodies to satisfy the econo-nerd in you: http://www.bea.gov

According to the most recent numbers, 4th quarter 2008 GDP decreased at an alarming rate of 6.2%. This comes on the back of a 3rd quarter 2008 decline in GDP of 0.5%. So clearly we met the technical definition of recession (i.e. a two consecutive quarterly decline in GDP). However, we have not *yet* arrived at the technical definition of depression (i.e. a cumulative decline of 10% or more in GDP). But since even my 8-year old daughter can do the math that 6.2 + 0.5 = 6.7, you can see we aren't too far away from that 10% cumulative drop, either. We would only need 1st quarter 2009 GDP to drop by 3.3% to say that we have technically arrived at economic "depression". Stay tuned . . .

Now let's talk about relative severity - just how bad is it, from an historical perspective? The answer is, pretty darn bad. I found a very cool website that will satisfy the economic curiosity of many people, and that allows you to manipulate data in chart format in a very granular way. It's called economagic.com, and below is a chart I created on that website by simply plugging in 1930 to present as the data range for quarterly GDP growth to put things into perspective.

Yikes! What you can see from this chart is a couple of things. First of all, we only started gathering GDP data in the second quarter of 1947 - so we can't really compare GDP growth now to what happened during the Great Depression to get that relative feel of now versus the Big One (darn it!). At the same time, however, you can see that we are currently at one of the worst points in history since we have been collecting the data, approaching what some term the "mini-depression" of 1957-58 and almost on par with the second half of the "double-dip recession" of 1981-82.

Leading Economic Indicator vs. Lagging Economic Indicator: The stock market vs. GDP
Okay, so if GDP tells us the score of the game after it has already been played (i.e. is a "lagging indicator"), then what might we choose to look at to give us a forecast into the future (i.e. a "leading indicator")? I mean, all that most of us are really concerned about is what is going to happen tomorrow versus crying over the spilled milk of yesterday, right? That is, unless you are in a dysfunctional relationship, but I won't digress into psychoanalysis here.

The stock market is generally considered to be a pretty good leading indicator. Why? Because the nature of the market is that, at any given time, it prices in all current data, along with future expectations, discounted back to present value through the price discovery process. Supply (sellers) meets demand (buyers) for equities to establish the equilibrium point of prices, where trades are consummated for individual stocks. Various stock indexes, such as the Dow Jones Industrial Average, which consists of 30 blue-chip stocks that are considered to be leaders in their industry, show market expectations of how the economy will perform in the future based upon all of that available data plus future expectations. Charting indexes such as the Dow shows us that all important TREND, which can be used to extrapolate what may be expected to happen in the future. Generally speaking, we tend to see the performance of the stock market lead the performance of the economy, either up or down.

I don't think I have to interpret the below chart of the Dow Jones Industrial Average for you, as it is self-evident what the market thinks about the present state of affairs and immediate future of the economy, based on its current retracement of over 50% from its highs and trend sharply lower. Not to mention, the DJIA index was started back on October 1, 1928, so this actually does give us that relative historical perspective of now versus then that we might be looking for (or not want to consider, depending upon your perspective).

It seems that some call economics "The Dismal Science" for a reason, doesn't it? This recent trend following a path of an airplane that just ran out of fuel doesn't look very appealing!

One more fun fact here, since we are talking about stocks, the Dow, and "blue-chip" stocks that represent "industry leaders": We all know that General Motors didn't have such a great year in 2008, right? Historically, you may have heard some people quip that, "As goes GM, so goes the economy". GENERAL MOTORS LOST OVER $84 MILLION EVERY SINGLE DAY IN 2008. There is a saying on Wall Street that the worst thing you can do as a trader or an investor is to throw good money after bad. Shouldn't that apply to the government, who is spending money that isn't theirs? Heck, it isn't even ours (the current taxpayers), at this point - we're talking about spending money that hasn't yet been earned by our children and grandchildren, many of which haven't even been born yet!!! Enough said on that point . . .

Condoms and the worst form of economic cancer: "Stagflation"
I know, I know: When we talk about basic economic principals, we traditionally do so in terms of "guns and butter" (to describe the "production possibilities frontier", representing the tradeoff between various items that can be produced in an economy), but I'm going to exercise some creative authorship here and go with condoms and stagflation. If you read the whole section, you'll see how it all ties in. Take a walk with me here and open your mind . . .

Generally speaking, we spend most of our time worrying about one of two things related to our economy: Stagnant growth (decline), or inflation. I have written previously that the layman's definition of inflation is, "Too much money chasing too few goods". I won't go into the technical definitions of the various measures of the Money Supply (i.e. M1, M2, etc.), coupled with discussion of the "multiplier effect" in this market update, but suffice it to say that when the government prints money, LITERALLY, with its printing press, it increases the money supply - I think we can all grasp that one. All you have to do is compare the growth in M2, for example, to the growth (or decline) in GDP, to know whether what is happening at any given point in time is inflationary or not. If the money supply grows faster than GDP, you have more and more money chasing fewer and fewer goods and services - a scenario that is defined as inflationary. See, all of this economic stuff doesn't have to be open to opinion when you get down to the brass tacks, does it? Some of it is really fairly self-evident when you sit down and just take the time to think through it, and there are actually definitions for these terms that are thrown around in media and by politicians who generally don't have a clue what they are talking about. It's not all guesswork, speculation and opinion, as may first appear to be the case. Whether you find it refreshing or not, there is indeed some science to the dismal science of economics, after all!

Right now, what we are doing as a nation is printing money - quite literally manufacturing it out of thin air - and devaluing our currency in the process. Does anyone remember what happened to Germany during World War II when the German government kept printing more deutschemarks? People were bringing wheelbarrows full of money to buy a loaf of bread or even burning their deutschemarks to keep warm in the winter because the currency was so worthless. That's what happens when you print too much money and that ever-increasing money supply is used to chase a not-so rapidly increasing supply of goods and services from a broken economy - people bid up prices because they have all of this extra money to do it with! Ever since President Nixon took us off the gold standard, the U.S. government has had the ability to print money at will, without having to tie the U.S. dollar to the price and amount of available gold in the world, which is relatively finite in supply (most of the world's gold is believed to have already been discovered). The gun has been loaded, cocked, pointed at the head of the economy, and it feels like the slack is slowly being squeezed out of the trigger as we merrily print and spend away, thinking this is somehow the path to instant gratitude and prosperity, giving the voting public what they are so desperate for - CHANGE. Unfortunately, many people feel that there is quite possibly a generational sense of entitlement and social engineering that is getting in the way of clear-headed thinking in terms of what may be best for our nation in the long run, economically speaking. In other words, artificial short term gain, may come at the expense of long term pain. Almost everything in the world can be described in the language of economics, in one way or another.

We have to be careful what we wish for, because the wrong kind of change, especially if not founded on solid economic principals, will only serve to exacerbate the problems that are already gargantuan from an historical perspective. In some ways, rather than rushing in to "just do something", perhaps it wouldn't hurt us to at least pause for a moment and recognize there is also wisdom in the advice, "Don't just do something - stand there!" during times of crisis. Especially if we don't have a very well thought out plan (Treasury Secretary Geithner still hasn't clued the market in to the finer details of his plan, assuming he even has one). P.S. One thing the capital markets REALLY hate, just like you and me, is UNCERTAINTY. Hence the accelerating sell-offs even after the nation's historic election that just called for change.

There was an excellent clip on Fox News the other day that did a better job of putting the current growth in our money supply into perspective, along with the jeopardy in which we are putting future generations, than I could do here, so I would invite you to view this clip for yourself (on an empty stomach). It's done in the same fashion as Al Gore's "An Inconvenient Truth" and is called "Inconvenient Debt" and will make you gasp, I promise. They put up a chart based on data gathered from the Federal Reserve, and it really gives some perspective - you have to watch the whole thing. The link to this 4-minute video clip, which is now on YouTube is here: http://www.youtube.com/watch?v=lNS8IY_Td14

Some economists think that, by the government printing and spending money, it will stimulate the economy in the short term. After all, recall at the "G" in the C + I + G + X = GDP equation does in fact stand for "government spending". Many would argue that this is indeed true, provided that the spending is judicious and not wasteful, and that we have had various times in our country's history where the government was able to step into the equation and inject short term spending to prop up the economy. But notice that I said, "judicious and not wasteful". The increasing discontent on both sides of the political aisle these days is that more and more Americans believe the government is wasting our money (and our children and grandchildren's money) rather than putting it to good use. Many Americans are mad that banks, insurance companies, auto-makers, wall street companies, and even consumers that made poor financial decisions are being bailed out with the money that was generated by the rest of the participants in the economy that made the opposite decisions. Many are mad and are making the argument that we are going through one of those events that in fact defined this country's very existence and move away from the British empire - the concept of taxation without representation. Growing in popularity, this line of thinking was broadcast loudly by Rick Santelli on CNBC recently, to the chagrin of many.

Not everyone is all that excited to give GM the next $84 million to get through today, followed by another $84 million to get through tomorrow and another $84 millioin the day after that, or to pay for their neighbor's mortgage on a house they couldn't afford and perhaps should not have bought in the first place. If you haven't already seen it, and even if you don't agree with this line of thinking, you can hear the argument put very bluntly and succinctly by Mr. Santelli, who riskily broadcast on national television a call to action for a modern day Boston Tea Party by throwing derivative securities into Lake Michigan, by going to the following link: http://www.youtube.com/watch?v=bEZB4taSEoA. Even if you don't agree with Santelli's political views, the guy is very bright when it comes to analysis of the fixed income markets and capital markets in general, which is what he comments on for CNBC daily (from the floor of the Chicago Board of Trade), before he went off on this tangent that is being called in some circles, "The Rant of the Year". He's a pretty energetic Italian guy, and this was shocking to see someone being so bold on national television! At least freedom of speech seems somewhat alive and well for the time being!

WHY MORTGAGE RATES AREN'T IN THE 4'S:
Further to the idea that congress and others in government are wasting our hard earned taxpayer dollars and not exactly being on the up-and-up with their actions, I brought to light a point a couple of market updates ago that I am told is going to be published in the Wall Street Journal soon (stay tuned). That point was that, even though the Federal Reserve said they were going to step into the markets to purchase mortgage-backed securities, they have done so in a rather surreptitious and insincere fashion. What I mean here is THEY HAVE INTENTIONALLY BOUGHT, AND CONTINUE TO BUY, THE WRONG SECURITIES!!! Go see for yourself!!! You can go to the New York Federal Reserve website, http://www.newyorkfed.org/markets/mbs/archive_2009.html, and see that the vast majority of what they bought over the past few weeks was NOT the 4.00% coupon mortgage-backed securities that contain mortgage note rates generally from 4.25% to 4.875% they all told us they were committed to American's having. Oh, no - they bought a lot of 5.5%'s 5.0%'s, and a few 4.5%'s, all of which are actually backed by - you guessed it - mortgage note rates primarily north of 5%. THAT IS A LARGE PART OF THE REASON THAT WE DO NOT HAVE MORTGAGE RATES WITH A "4" HANDLE. Want to know why they did this? Think about it - you give the market a head-fake like you are going to buy mortgage-backed securities the support mortgage rates of 4.5%. The market then rushes in ahead of you and does the work for you (i.e. EVERYONE ELSE starts to buy those securities). Rates go down as a result of these broader-based market purchases. You actually buy the higher coupon mortgage-backed securities yourself to keep up the charade of making MBS purchases, but the ones YOU are buying actually pay off when the underlying mortgagors refinance due to the lower rate environment created by the other participants you faked-out in the market and YOU get your money back. At the end of the day, you haven't committed to do anything other than try to talk the market down so you could get your money back in a few short months - hardly the long term commitment to use MBS purchases to drive interest rates to 4.5% that we were all sold back in November and December. Wall Street sniffed this one out the minute one hand of the government didn't talk to the other hand and they posted the trade tickets on the New York Federal Reserve Website in the middle of January for all of us to see. Anyone remember exactly when the dead-low in mortgage rates was?!? It wasn't an accident. It is unconscionable that the government could have tried to get away with this and to have deceived the taxpayers and tried to deceive the markets like this - no wonder the markets are in a heightened state of turmoil and mistrust these days!!!

Coming full circle here to the concept of "Stagflation", this is about the worst kind of cancer an economy can experience. Stagflation is the simultaneous occurrence of stagnant growth and inflation in an economy. If you just arbitrarily print and spend money to stimulate the economy, but rather than making it really count you just squander the money, or you give the economy "too much of a good thing" by over-doing it, you have both stagnant growth (or decline) AND inflation. Ouch - that's what happened to the U.S. economy in the 1970's, and it wasn't fun. Many people are afraid that's exactly where we are heading with the most recent stimulus bill from the current administration, on the back of the TARP and TALF bailout funds authorized by the previous congress and administration. Out of the Democrat controlled congress + Republican President George Bush frying pan and into the Democrat controlled congress + Democrat President Barack Obama fire? Perhaps. It seems that politicians on both sides of the aisle have gotten this wrong and keep getting it wrong, at our expense. I know one thing - the constant in both equations is congress, and it's congress that spends our money. It is indeed hard to link many of the line-items in the recently passed stimulus bill, such as the $200 million Nancy Pelosi put in for condoms for sex education in California, to anything stimulatory unless one were to make a particularly lewd and arguably morbidly humorous reference. Of course, it just wouldn't be my style to do such a thing, so I won't make that link. J


Here are some quick facts about the mortgage and housing markets that you should have on the tip of your tongue:
Commercial and multi-family originations are down 80% from a year ago, according to the Mortgage Bankers Association.
Warehouse lending capacity is down 90% from 2007, according to the Mortgage Bankers Association
There are fewer than 30 wholesale mortgage lenders left in this country funding more than $100 million in residential mortgage loan originations per quarter. Assurity Financial is one of them.
As mentioned above, the U.S. government is buying the WRONG mortgage backed securities to support mortgage rates of 4.5% - STRIKE ONE FOR LOWER MORTGAGE RATES
Continued asset price (housing prices) deflation is bad for mortgage rates because investors are worried about deteriorating collateral - STRIKE TWO FOR LOWER MORTGAGE RATES

If the economy were to begin to recover, the surge in demand voted through all of the extra dollars that we just printed and pumped into the system will most likely be highly inflationary - STRIKE THREE FOR LOWER MORTGAGE RATES.
Since there are fewer lenders left, and investors are scared to death, everyone is demanding a higher return on capital to justify the investment. Hence, lenders aren't passing on all of the lowering in mortgage-backed securities rates to the consumer - they are padding their margins and building loan loss reserves. STRIKE FOUR FOR LOWER MORTGAGE RATES.

Foreign investors, China in particular, are getting cold feet when it comes to purchasing our debt. They can see the printing press is glowing red-hot and we aren't doing so well. STRIKE FIVE FOR LOWER MORTGAGE RATES.
If the stock market were to suddenly turn around and rally, that would make equities an attractive investment relative to fixed income investments such as mortgage bonds. The money going into the stock market has to come from somewhere, and one of those places could very well be from the funds already committed to the mortgage markets. STRIKE SIX FOR LOWER MORTGAGE RATES.
I'm not sure how many strikes we get in this game, because it's never been played before. And I don't know about you, but it almost makes you want to take your ball and go home, doesn't it? Unfortunately, folks, the house is burned down, too, so massive reconstruction is needed for any kind of security, even at the subsistence level.

Is there any bright spot in all of the global economic chaos???
Of course!!! Now that I've gotten you to buy into all of the doom and gloom arguments that the dismal science of economics seem to suggest, I will offer you a couple of rays of hope. First of all, we live in the greatest country on earth, the United States of America, and while she may be a bit tattered and torn at the moment, the possibility that hope springs eternal and that tomorrow can be a better day will always ring true provided that we continue to move more toward that social value of FREEDOM that we Americans hold so near and dear to us. Of course, that value is in inherent conflict with another value we all hold, EQUALITY, hence the division among party lines and constant back-and-forth political struggles that have shaped our country's history.

In other words, we can always CHANGE - as often as we choose to do so! Isn't that what this last election was all about? After all, change is a process, not a destination, and I think one thing everyone agrees upon these days is the need for change because the status quo isn't cutting it, and throwing good money after bad isn't the kind of change we need.

Secondly, as a contrarian that hopes to be worth my salt, I would offer that the kind of market action across all markets in all categories of asset types might be suggesting CAPITULATION. Think of capitulation as vomiting - or an overreaction from eating too much or being too excessive in general. Technically, when most declining markets reach a bottom, they experience an event of capitulation (massive, irrational sell-off) right at the very end when it feels as if all hope is lost. When you think about it, that actually makes a lot of sense; the people that are going to sell will have already sold, so there won't be as much downward pressure on prices from sellers! Fundamentally speaking, in order for markets to move higher, ownership of the underlying assets has to go from WEAK OWNERSHIP to STRONG OWNERSHIP (this process usually causes a market to trade in a sideways fashion as is called CONSOLIDATION if it takes a while to turn over the inventory). Perhaps we are almost there in the housing markets and the mortgage markets, along with some of the other capital markets. Hope springs eternal!

Oh, and on the topic of rate locks, I sure would advise you to LOCK 'EM IF YOU'VE GOT 'EM. That is, unless you are the one person on Earth right now with a perfect crystal ball. If you are, please drop me a line - it could be the beginning of a beautiful friendship!

Happy Hunting, and keep your chin up - it's always darkest before dawn!!!

Calvin Hamler, AMP - Managing Member, Assurity Financial Services, LLC

The Nation of Inflation

Click on the title about to link to the article. Jim Jubak, who we enjoy reading, has a recent article about our next big struggle. We have been saying it for some time now. And that struggle is...inflation. With all this ridiculous spending there are sever and several consequences. One of those will be inflation. So despite the fact that things are still not doing so hot in the USA, we will start seeing rising interest due to this. We think this will start happening no later than the end of this year. Stay tuned...

What does this all mean? Well, again like we have been saying, now is the time to act. Rates are low and house prices are down. Now is the time to buy or refinance, if you do it at all.

Rate Update

We know that many of you are hearing that rates are taking this steep dive. Believe us when we say that is not at all true. Have rates moved down slightly? Yes. But the movement has not been near what we anticipated with he Feds announcement last week. Frankly, the small move in rates has been rather disappointing.
If you want a quote for your particular situation call us at 830-9685.

Rate Lock Advisory

WEDNESDAY AFTERNOON UPDATE:

This week's FOMC meeting has adjourned with some extremely favorable news regarding the Fed's investment in Treasury securities and mortgage-related bonds. As expected, there was no change made to key short-term interest rates but the post-meeting statement did mention that economic conditions were worse now than at the time of their last meeting in January. They again mentioned concerns about deflation, meaning inflation is not a threat in their minds.

The big news was the size of the investment that the Fed is going to be making in mortgage-related bonds and securities. In a direct effort to push different interest rates lower, including corporate lending and residential mortgage rates, the central bank will be buying up to $300 billion in longer-term bonds over the next six months. They also said that they plan to purchase $750 billion in mortgage backed securities so free up more capital for mortgage lending. T his will likely give the housing and mortgage sectors a much needed boost.

The effect this news had on today's trading was extremely positive for mortgage shoppers. The stock markets have rebounded with the Dow up approximately 50 points and the Nasdaq up 25 points. Both indexes were well in negative territory this morning. The bond market has had an even better reaction to the news. It is currently up a whopping 4 7/32 (135/32) to drive its yield lower by .47%. That is a huge swing and should equate to a very significant improvement to mortgage rates shortly.

Earlier today, the Labor Department gave us the week's most important economic data with the release of February's Consumer Price Index (CPI). It showed a 0.4% rise in the overall reading and a 0.2% increase in the core data reading. Both readings were slightly stronger than expected, indicating prices at the consumer level of the economy were higher than thought. While that is bad news fo r bonds and mortgage rates because inflation erodes the value of a bond's future fixed interest payments, the market downplayed the data in this morning's trading, looking forward to this afternoon's FOMC results.

The Conference Board will post its Leading Economic Indicators (LEI) for February late tomorrow morning, but I suspect that today's rally and news will carry into tomorrow's morning trading and influence rates more than this report will. The LEI attempts to measure economic activity over the next three to six months. Current forecasts are calling for a 0.6% decline, indicating that economic activity will likely slow in the coming weeks. That would be good news for the bond market and mortgage rates generally speaking, but today's news will probably dominate trading tomorrow regardless of the results of the LEI.

If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my clos ing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Rate Lock Advisory

This week brings us the release of six economic reports to be concerned with. Two of the reports are considered to be very important, but nearly all of the week's releases have the potential to affect mortgage rates. With reports being posted each day except Tuesday, we will likely see a fairly active week in mortgage rates.The week's first data comes tomorrow morning with the release of two relevant reports. The first is January's Personal Income ad Outlays data at 8:30 AM ET, which gives us an indication of consumer ability to spend and current spending habits. Current forecasts call for a decline in income of 0.2% while spending is expected to rise 0.42%. A larger than expected increase in spending would be bad news for the bond market and could drive mortgage rates higher. Weaker than forecasted numbers should help push mortgage rates slightly lower tomorrow.The Institute for Supply Management (ISM) will release their manuf acturing index for February late tomorrow morning. This index measures manufacturer sentiment and can have a pretty large impact on the financial and mortgage markets if it varies from forecasts. It is expected to show a decline from January's 35.6 to 34.0 last month. This is important because a reading below 50.0 is a recession indicator, meaning that more surveyed manufacturers felt business worsened during the month than those who felt it had improved. If we see a weaker than expected reading, the bond market could rally. However, a higher than forecasted reading could lead to major selling in bonds, causing mortgage rates to rise.The Fed Beige Book is the next report scheduled for release and it will be posted Wednesday afternoon. This report details economic activity throughout the country by region. The Fed relies heavily on this data during their FOMC meetings, so look for a potential reaction during afternoon trading Wednesday. It probably will not cause a major sell off in the stock or bond markets, but could cause enough movement in bond prices to possibly improve or worsen mortgage rates slightly if it reveals any significant surprises.There two reports scheduled for release Thursday morning. The first is the revised Productivity index for the 4th Quarter of last year. The preliminary reading posted last month showed an annual rate of 3.2% increase in worker output. Analysts are expecting to see a sizable downward revision to the initial reading. It is expected to be cut to a 1.6% increase in output, meaning workers were not as productive as previously thought during the quarter. Employee productivity is watched fairy closely because a higher level of output per hour is believed to mean that the economy can expand without inflation concerns. January's Factory Orders will be posted late Thursday morning, which will give us a measurement of manufacturing sector strength. This data is similar to last week's Durable Goods, except this report covers orders for both durable and non-durable goods. Current forecasts are calling for a drop in new orders of approximately 2.1%. A larger than expected drop would be good news for the bond market and could lead to an improvement in mortgage rates.The biggest news of the week comes Friday morning when one of the single most important monthly reports we see will be posted. The Labor Department will release February's Employment report at 8:30 AM ET Friday. Some of the important portions of the report will give us the unemployment rate, number of new jobs added or lost and the average hourly earnings reading. The best combination for the bond market and mortgage rates would be an increase in the unemployment rate, a large drop in payrolls and little or no increase in earnings. Current forecasts are calling for 0.3% increase in the unemployment rate to 7.9% and approximately 615,000 jobs lost during the month.Overall, look for a fairly active week for mortgage rates. I suspect there will be some optimism leading up to Friday's Employment report, which is of concern to me. I believe the market is expecting to see very weak numbers Friday morning and has already built that into current pricing. The problem is that if it meets forecasts, or is even slightly stronger than expected, we could see bonds drop and mortgage rates rise. Because of this, I may be extending the lock recommendation to longer periods before Friday's data. Friday is undoubtedly the biggest day of the week, but tomorrow may also bring noticeable movement in mortgage rates. Please be careful this week if still floating an interest rate.If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if m y closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Rate Update

Rates continue to hang in there. They have been going up lately, despite continued poor economic performance because people are concerned about the ability of our country to fund all this bailout debt. Countries are not buying. As a result, that has been driving up rates in spite of nothing but bad news. Rates range from high 4's to low 5's, just depending on many factors.
News just came out that a"bail out" agreement has been reached. Stay tuned to see what this will do to rates.

Feds Should Keep Rates Low

Interesting stuff from the Feds today. They are making noise that they will keep rates low throughout the year. What is most interesting is the fact that they may be open to buying treasuries and mortgage back securities. If that happens, it should lower mortgage rates. This is a reason rates have been up a bit lately, because they are having a hard time finding buyers of these mortgage backed securities. Stay tuned.

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

Broken Record

OK, I know we preach this all the time but...you MUST work with a lender who will educate you on your options, help you evaluate those options and help you analyze which option to choose that best fits your situation. We cannot express enough how critical this is.

We just had a person walk into our office from our sign. That never happens. Literally, that is the first time in probably 5 years someone has done that since we are 100% referral based. This sweet lady was working with B of A and wanted to shop. We ended up meeting for about an hour analyzing in detail her situation. Here are some of her quotes from this meeting: "You guys are not typical loan officers, are you?" "You really help people understand their options." "I had no idea I could do that." "So that's what that means. I never understood that." "I will make sure and send anybody I know to you guys."

We are not tooting our own horn here (well, maybe a little) but want you to understand that traditional lenders are not in the business of helping you get the best loan for your situation. Traditional lenders are order takers, you tell them what you want and they do it because speed is king. They want you in and out as quickly as possible so they can be on their way. Folks, good service is not good enough. You must expect and demand unparalleled service. Service so good that you leave the meeting as that company's advocate. This woman would have gotten into a loan that was expensive and unecessary. Instead she left knowing exactly what her options were, and will end up structuring this in a completely different manner than she even knew possible. There is not much more fulfilling than having a client leave your office having watched the light bulbs go off all over the place. What a way to start the weekend.

Good Video On Refinancing

Click on the title to link to a good video about the refinancing going on right now. We agree with them that these low rates are not at all what is going to get the housing market back on track. Refinancing is booming right now; buying homes is way down. But, as we have continued to say, now is a perfect time to be buying a house because rates are low, and so are home prices. If you were to wait too long then you may miss out on both. It is not like the housing market is pushing up right now, but it is a "perfect storm" for buying a house also.
For those refinancing, just keep in mind that now is not the cheapest time to refi. Rates are very low, the lowest we can remember. But you must pay a point to get those rates. When rates were this low a while back you did not have to pay points to get those rates. So they are low, yes. But not cheap. However, what is different about rates this time is if you do not pay a point then the rate is way higher. So when you calculate the break even point by using the payment savings vs. the loan costs it is interesting to see that it is virtually the same whether you pay the point or not since the rate goes so far up if you do not. That said, it is essential then (and makes the most sense) to pay the point because then you are also saving more money due to the interest savings. Make sense? If not, call us at 830-9685 and we will walk you through it.
Lastly, remember this, you cannot get hung up the costs associated with refinancing. What, you say? There are two major factors in refinancing, rate and payment. Sure costs are important; we are not saying to ignor that because then you are paying frivolous amounts. But you could be paying very little in costs and not seeing much of a difference in payment and rate. You have to analyze how much it will save you, of course. But probably more importantly is how long will it take you to break even on the costs of the refinance. It is critical that you understand the importance of looking at the big picture of what the refi will do for you in the long run, and do not get so hung up on the costs. If a mortgage costs you a rediculous amount, like 30K let's just say for arguement, but you are making up that cost in 12 months then who cares what it costs. Do you see? If you make up the costs in a reasonable time frame then the costs are not near as relavant because of the savings you will experience long term. There are many, many factors that go into this analysis. So if you want us to run through your scenario for you then get in touch with us.

Rates Are On The Rise

The last week has been a tough week for rates. Why is it that rates are rising when there continues to be, primarily, nothing but bad news released? Well, that is not a short answer, but it is interesting (or at least it is to our sick little minds).
In the past, rates have followed 10 year bonds. As bonds were up (or the yield was down; they move opposite of each other)then rates were down. But rates have stopped following bonds so definitively. We are not sure exactly what they are following right now, to be honest. But we are looking into that.
The problem right now is as our government continues to bail businesses out that increases the debt the Treasury needs to sell. The typical buyers for that debt is other countries. Well, those countries have their own problems right now and are spending their money on their own country's problems right now. That means we are having a hard time finding people to buy our debt and, therefore, fund all this debt. That is causing rates to rise, as a result. Here is a good summary of it in this article.