Getting Things In The Mail To Refi?

Many of you are probably getting stuff in the mail making all these claims about rates and skipping payments. We continue to hear from our clients they are getting these things, and they typically talk about rates in the low 4's and getting to skip 2 payments.

Well, like you have heard before, if it sounds too good to be true then it probably is. You most certainly can get rates in the low 4's...if you are paying a fair amount in points and/or fees. And the whole skipping payments thing is just a ploy to get you to call. Any loan you do, no matter what type it is, you will "skip" at least a payment because you are paying interest at closing as part of your pre-paid fees.

Bottom line...if you care thinking about refinancing and want to see what reality is in an up front, honest, ethical way then you need to call us at 830-9685. Don't trust the letter you get in the mail, call us.

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

Should You Refinance or Purchase Now?

The motivation behind this question is always, "Will rates go lower?" Well, they certainly could (although, despite a huge move in the bond market yesterday due to the Feds announcement, rates have not improved near as much as we anicipated), but you really should be careful to bank on that.

Our concern now is that rates are going to go up, and maybe quickly, by the end of the year. Why? First of all, despite the Fed's announcement yesterday that they will buy up 1 Trillion dollars worth of securities and bad debt, the mortgage rates today are not down near to the level they should be by such a move. We have said it would take the government once again intervening to push down rates significantly. So far, however, that push down has not happened in a drastic manner.

Secondly, since our government thinks they are Paris Hilton on a shopping spree and continue to spend money like we have it, we are going to start to experience inflation. This will occur because the government is spending so much money (and incurring a load of debt never seen) that it is devaluing the dollar. They also are going to be forced to print more money. All of this is going to lead to hipper inflation. If this happens rates will shoot up, and probably fast.

All of this said, now is the time to move on whatever you have been thinking because we do not think this is going to last for more than 6 to 12 months. If you have a scenario you need looked at then make sure we check it out and analyze it for you before you get into a situation you regret. We are here to serve you.

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.

Why Aren't Rates in the 4's?

For those of you who continue to hear about these amazingly low rates, well here is a great summary of why rates have actually been going up and not back down into the 4's (and lower). This is from our friends at Assurity Financial Services.

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!!!

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.

Rate Update and Other Info You Need to Know

Rates continue to hold steady right now. As of this post rates are in the high 4's to low 5's paying 1 point (or 1% of the loan amount). Undoubtedly, you are hearing rates ranging all the way down to the mid 4's. We are telling you now that you cannot get there without paying more than one point. If you want to really know where rates are at then call us and we will keep you in the loop.

I had a client call today telling me they found a place that was doing 5% without any points. He even had me visit their website where I could see exactly what they said. So I went ahead and called them and shopped. Here is a very popular trick lenders play...when I asked the right questions regarding their rates and fees I learned there surely was not a point. However, they had a 1% origination fee. Folks, discount points and origination fees are one in the same. It is tomato tomatoe. They are not different, except by their title. Either way you are paying 1% of the loan amount to buy that rate down. This is a pathetic effort by these lenders to mask what you are really paying. And the reason they do it is because you have been trained by this industry to ask, "Am I paying any points?" The answer in this case was, "No" because you were paying an origination fee; but they are not going to tell you about that until further down the line when you think it is too late. Just know, it is NEVER too late to back out.

Here are three major things that will affect your interest rate:
1. Credit Score.
2. Loan To Value (LTV).
3. Purpose of loan. Are you pulling cash out? If so, this will hit your rate. And keep in mind that those of you with a first and second mortgage that you want to combine, if the second was not part of the original purchase of the house then your new loan is considered a cash out refinance even though you are not getting cash back.
Your rate will be directly impacted by there three factors the most.

Also, a big guideline change we are dealing with now is that your Debt To Income (DTI) ratio cannot exceed 45%. DTI is the percentage of your income that goes to pay debt. There are compensating factors that will allow you to go over this limit, but you have to meet three of them in order to be considered. This is a fairly substantial change that is affecting some people's ability to get qualified.

Bottom line, if you or anybody you know is interested in buying a house or refinancing then have them call us first so we can walk you through the process and help you evaluate what is best, and what is the truth.

Will Rates Drop More?

Click on the title above to link to the article. Rates, as of this blog post, are lower than they have been in probably over a year. However, the Feds are talking about "forcing" rates down to stimulate borrowing. Do we think they will end up doing this? No. But it is worth keeping a watchful eye out for because you never know and want to be ready. We will certainly continue to monitor this potential development.
Know this, we do not believe if the Feds do it this will end any sort of housing crisis going on. The crisis is because people are in mortgages that they cannot refinance out of because the lending guidelines stiffened and changed so fast that they were left in the dust. Now those people are literally toast because they have a mortgage that is either adjusting now, or they simply cannot afford it, and they cannot refinance. They other issue is the values of homes in certain parts of the country have been hit so hard that these people are way upside down on their house. So, again, they could not refinance if they want.
This potential lowering of rates will help two people:
1. First time home buyers because money will be cheaper. They still have to qualify with stiffer guidelines, but cheap money none the less.
2. People who just want to lower their rate and payment who are not in any of the scenarios described above.
Bottom line is this...it will help stimulate the flow of money, which in turn will battle deflation, which is a big problem should it rear its ugly head. BUT, this will not have a lasting and/or significant effect on the housing crisis. It certainly will not hurt it, but it will not get us out of this mess.

Should You Lock?

This is a sample of the daily rate lock advisory we offer for you. If you would like to receive this please let us know and we will get you on the list.

Rate Lock Advisory - Thursday Oct. 30th

Thursday's bond market has opened in negative territory following the release of a stronger than expected GDP reading and early stock gains. The Dow has risen 132 points while the Nasdaq has gained 30 points. The bond market is currently down 17/32, which will likely push this morning's mortgage rates higher by approximately .375 of a discount point.

This morning's big news was the preliminary reading of the 3rd Quarter Gross Domestic Product (GDP). The GDP is considered to be the benchmark measurement of economic growth because it is the sum of all goods and services produced in the U.S. It revealed a decline of 0.3%, its worst reading in seven years. It also was only the fifth time in 17 years that the quarterly GDP has fallen. However, analysts were expecting to see a 0.5% decline, therefore, the numbers weren't as bad as expected. Also contributing to this morning's losses was a key inflation reading in the data that showed a larger than expected increase. This raised some inflation concerns and contributed to the weak opening in bonds.

The Labor Department posted weekly unemployment figures this morning, saying that 479,000 new claims were filed last week. This was nearly unchanged from the previous week, but was slightly higher than forecasts. However, there is no comparison between the importance of this data and the GDP. With the GDP being considered a very highly important report, the markets ignored the weekly claims figures.

There are three reports scheduled for release tomorrow. The first is the 3rd Quarter Employment Cost Index (ECI), which tracks employer costs for salaries and benefits. Rapidly rising costs raises wage inflation concerns and may hurt bond prices. It is expected to show an increase in costs of 0.7%. A smaller than expected increase would be good news for bonds and mortgage rates.

September's Personal Income and Outlays report will also be posted early tomorrow. This data gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is bad news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. Analysts are expecting to see an increase of 0.1% in income and decline in outlays of 0.2%.

The week's last report comes at 10:00 AM ET tomorrow when the University of Michigan updates their Index of Consumer Sentiment for this month. Current forecasts show this index remaining nearly unchanged from this month's preliminary reading of 57.5. This index is important because it helps us measure consumer confidence, which is believed to indicate consumers' willingness to spend. Since consumer spending makes up two-thirds of the U.S. economy, any related data is considered to be important.

If I were considering financing/refinancing a home, I would.... Float 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 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.

The Feds Lower the Prime Rate Again

At this rate there will be nothing left to cut soon. The prime rate is at 1% now, which is the lowest it has ever been. The only other time it was this low was in the 1950's when Eisenhower was President. But desperate times call for desperate measures (and we assure you the Feds are desparate).
Below is a video analysis of all this activity today. Just remember, as we posted on Oct. 16, the Feds lower the prime rate does not usually mean lower mortgage rates. In fact, as is more typical, rates rose today. Mortgage rates will typically move more on rumor with the Feds then it will with what they actually do. This cut was fully expected and rates, as a result, have been going up quickly over the last week. If the Feds would not have cut the prime rate then mortgage rates would have probably gone down. Our economy moves on emotion (more than you can imagine).
We are always happy to walk you through this odd part of our economy. Call us anytime.