It’s been an up-and-down morning in the markets today on the heels of this morning's weak Jobs Report. The Labor Department reported that the US economy shed 62,000 jobs in June, which is slightly more than estimated. Job losses in April and May were also revised to show an additional 52,000 jobs lost in those months.
The Initial Jobless Claims report also came in--showing more weak signals in the labor market, as layoffs have breached levels typically associated with recessions. Despite expectations of a slight decrease, the unemployment rate remained at a four-year high of 5.5%.
In other news, as expected, the European Central Bank raised its key lending rate by .25% to 4.25% in an effort to rein in escalating inflation in the 15-nation Eurozone. It will be important to see how this news impacts our markets in the weeks ahead.
So far this morning, Stocks have rallied, which has caused Bonds to fall below a key level of support. Therefore, I recommend locking. The Bond market closes at 2 pm Eastern Time today and will be closed tomorrow in observance of Independence Day. Have a happy and safe 4th of July holiday!
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© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved. |
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On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.
More commonly, it's called the "jobs report".
The jobs report is a sector-by-sector look into the U.S. economy and whether businesses are hiring -- or firing -- workers. This is one of the reasons why its release is so hotly anticipated each month -- the jobs report can reveal a lot about the state of the U.S. economy.
Last month, the economy shed 62,000 jobs.
Now, many people will assume that job losses like this are terrible for the U.S. economy. Sometimes, that's true.
This month, it's not.
Given the ongoing tug-o-war between inflation and recession, markets are somewhat pleased with the June job loss figures because job losses reduce the likelihood of inflation in the U.S. economy.
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Inflation is considered by many -- Ben Bernanke included -- to be among the top threats to the U.S. economy -- it devalues the dollar and leads to increases in the Cost of Living.
Inflation also threatens home affordability because mortgage rates tend to rise when inflation is present.
June's job losses -- while bad for those impacted -- is helping to relieve inflationary pressures on the economy and that is boosting markets performance this morning. Stocks are slightly up, and mortgage rates are slightly down.
(Image courtesy: The Wall Street Journal)
The ADP Employment report was released this morning, showing a dismal reading of 79,000 jobs lost last month, which is the biggest loss since November 2002. Job gains for May were also revised lower. Initially, Mortgage Bonds traded higher on the negative news, but have since come off their highs.
Since there are no economic reports due today, the Bond market will likely take its direction from Stocks--which are pretty flat right now. But things can change quickly in today’s market, so I will monitor the situation closely.
The big news of the week will be tomorrow's Jobs Report. With a slow economy, emptier malls, soaring food and gas prices, and other news like Starbucks closing over 600 stores, the market remains stressed. These factors lead me to believe that the Jobs Report tomorrow will be inline with expectations of a more negative report. Since the negative news would likely give Bonds a boost, I advise floating into tomorrow's report.
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© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved. |
In the summer of 2005, sub-prime mortgage lending was at its peak. Rates were relatively low and lending guidelines were relatively loose.
At the time, the "standard" sub-prime mortgage product was the 3/27 ARM.
The 3/27 had a few basic traits:
- A fixed, 3-year "starter rate"
- Every six months thereafter, the mortgage rate changed
- The formula by which it changed was (4.999 percent + the 6-month LIBOR rate)
If the loan was interest only, it usually converted to principal + interest at the first adjustment, too.
Because the summer of 2005 was the peak of sub-prime lending, it makes sense that the summer of 2008 is the peak of sub-prime adjusting.
For homeowners with adjusting sub-prime loans, there is some (relative) good news out there.
Today, the 6-month LIBOR hovers near 3.15 percent, meaning that an adjusted mortgage rate will be in the neighborhood of 8.15 percent.
This is versus the rate of 10.30 percent that sub-prime borrowers faced last summer when LIBOR was much higher than it is today.
Adjustments of any size can strain a household budget, though, so if you're a sub-prime borrower and your pending adjustment will cause financial strife, be proactive -- talk to your lender before you miss a payment.
Lenders are often more willing to talk with "current" borrowers than with delinquent ones.
(Image courtesy: Washington Post)
Stocks are under selling pressure this morning, which is moving Bond prices slightly higher. Essentially, investors are fleeing to the safe haven of government Bonds. This is sending Treasuries soaring and giving a modest lift to Mortgage Bonds.
Also adding pressure to Stocks around the globe are rumors and speculation about the potential for an Israeli strike on Iran’s nuclear production in the future.
Overall, Mortgage Bonds continue to bump into and test a tough level of short-term overhead resistance. For now, I recommend floating, as we watch the activity in the markets.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
As flood waters ran through Iowa and other Midwestern states, the nation's corn supply was thought to be in danger.
Prices spiked in the wake of the floods, adding to the already-peaking grocery bills that many Americans are now bearing.
But yesterday, in a surprise report, the Agriculture Department said that many farmers had over-planted corn earlier in the season in order to cash in on corn's rising market value.
The abundance of planting is offsetting a portion of the flood damage and this year's harvest is now predicted to be the second highest on record.
For Americans in need of a home loan, this is terrific news because more corn supply means lower food prices and that puts a hold on at least one source of inflation.
Inflation is the enemy of mortgage rates.
The revised outlook for this year's corn supply is now so much better than it was yesterday that the price of a corn bushel fell by 30 cents at the Chicago Board of Trade -- the maximum allowable amount by rule.
Now, rapid movements in the price of corn may not seem relevant to everyday life, but even the smallest of details about the economy can trickle down and impact you as a homeowner.
The strength of the housing market may be correlated to consumer confidence and consumer confidence is definitely tied to the Cost of Living. And the same goes for the mortgage market -- it's all related to inflation.
With a surprise crop of extra corn, things may look just a little bit better.
Source
Corn Crop Largely Intact, Despite Floods
Scott Kilman
The Wall Street Journal, July 1, 2008
Mortgage rates improved last week, marking the first time since mid-May that has happened.
The rate drop is the result of how mortgage markets interpreted the Federal Reserve's Wednesday press release.
In it, the Fed said:
- Inflation pressures should lessen soon
- Growth should remain steady this year
- The credit market is currently fragile
Separately, none of this was news to the markets. But considering all three statements together, investors grew nervous of leaving money in the stock market -- specifically in financials.
Post-Fed announcement, there was a wave of selling that dropped the Dow Jones Industrial Average nearly 20 percent from its October 2007 high.
As stocks sold off, though, mortgage shoppers were benefiting.
Rates ticked down in the Fed announcement's wake because the mortgage bond market acted as a "safe haven" for traders. More demand for mortgage-backed bonds caused rates to fall, accented by a favorable run very late in the day Friday.
This week, the momentum may continue, or it may not. There is a lot to capture traders' attention in this holiday-shortened, four-day work week.
The biggest data release of the week will undoubtedly be Thursday's Unemployment Report, but there are also two Fed speakers stumping, as well as Treasury Secretary Paulson speaking about the economy.
As the week goes on, more and more traders will be leaving for the long weekend so expect rates to move with greater force as Thursday afternoon gets nearer. And, if stocks haven't regained favor with investors by then, expect that mortgage rates will have a good week.
A Home Equity Line of Credit is bank product that grants homeowners access to the equity in their home at anytime, usually using checks.
Often called a HELOC, these equity-based credit lines function very much like credit cards:
- The rate is adjustable, tied to Prime Rate
- There is a minimum monthly payment
- There is a pre-set spending/credit limit
But different from credit cards is that a HELOC is "guaranteed" by real estate and with real estate values in question nationwide, many banks are exercising a little-known clause in the HELOC contract.
With alarming frequently, banks are reducing the pre-set spending limits on their active equity lines. Via USPS, lenders are notifying homeowner with $100,000 HELOCs that their new HELOC limit is $25,000, for example.
And the banks aren't being discriminate based on payment history or local real estate conditions, either -- it's happening everywhere with equal force.
The good news is that banks will accept appeals on HELOC reductions on a case-by-case basis.
One way to appeal a HELOC reduction is:
- Call your lender's Customer Service line. Do not send an email.
- Politely ask why the HELOC limit was reduced. Listen carefully to explanation.
- Explain why you would like your HELOC reinstated. Acceptable reasons may include home improvement projects or improper home valuation by the lender.
- Be prepared to write a formal letter, if asked. Address the issues explained in #2.
Banks will typically not reinstate a HELOC if a borrower has been delinquent on payments, or lives in a severely depressed neighborhood. However, because lenders rely on computer models to assess risk, it's always a good idea to ask.
Sometimes the Human Element of an appeal can work in your favor.
The Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent this afternoon, as expected.
In its press release, the Federal Reserve noted the co-existence of inflation and recession.
On inflation, the Fed said that energy and food prices are contributing to an "elevated state" of inflation, but that it expects price pressures to ease "later this year and next year".
On the topic of recession, the Fed seemed a bit more concerned.
Overall, markets reacted favorably to the press release; both stocks and mortgage rates showed signs of improvement in the statement's wake.
Source
Parsing the Fed Statement
The Wall Street Journal Online
June 25, 2008
http://online.wsj.com/internal/mdc/info-fedparse0806.html
It’s Fed Day... and there's a lot of anticipation surrounding the Fed’s Policy Statement coming at 2:15 Eastern Time today.
The Fed is in a tough spot with the economy performing sluggishly, the housing market struggling, consumer confidence being low, and costs and oil going up. Therefore, it is unlikely that the Fed will change rates today, as it turns its attention more to monitoring inflation.
In other news, New Home sales for May were reported at 512,000, which is inline with expectations. However, overall, the report suggests that the new home market is still struggling.
So far today, Bonds continue to trade in a wide range. But with the impending announcement by the Fed later, technical indicators will likely take a back seat. For now, I recommend floating as we wait to see what the Fed says in its Policy Statement. If anything changes, I will notify you immediately.
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© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved. |
The Federal Open Market Committee adjourns from its 2-day meeting at 2:15 P.M. ET today. It's widely expected that the group will leave the Fed Funds Rate unchanged at 2.000 percent.
However, it's not what the Fed does today that has markets so interested. It's what the Fed will say.
One of the Federal Reserve's roles is to promote stability in the U.S. economy by protecting it from two major threats:
- Inflation
- Recession
The Federal Reserve's primary weapon against both of these hazards, though, is the same -- the Fed Funds Rate. To combat inflation, the Fed raises the Fed Funds rate. To fight recession, it lowers the Fed Funds Rate.
But in today's economy, there is evidence of both inflation and recession meaning that the Federal Reserve is likely to leave the Fed Funds Rate unchanged for fear of setting the economy too far towards either threat.
Therefore, markets will be left looking for clues in the carefully-worded press release signed by Federal Reserve Chairman Ben Bernanke and the other voting members of the FOMC.
If the Fed admits added vigilance against inflation, it's expected that mortgage rates will fall because inflation causes rates to rise. By contrast, if the Fed harps on the downside risks in the economy, it's expected that mortgage rates will increase.
Either way, today's press release should be a market-mover.
If you're currently floating your mortgage rate or are deciding between different lenders, be aware that mortgage rates will enter a period of extreme volatility this afternoon.
It may be prudent to complete your rate shopping before 2:00 P.M. ET.
Mortgage Bonds are trading in positive territory so far today, as the Stock market moved lower due to news from UPS and Dow Chemical.
This morning, delivery giant UPS issued a profit warning. The news raised concerns in the Stock market and overall economy because less shipping indicates less sales and continued weakness in the economy. Dow Chemical also announced that it will have to raise product prices by as much as 25% to compensate for the rising cost of energy. Coincidentally, oil prices are once again pushing record levels at $139 per barrel.
Today begins a two-day Fed meeting, which will result in the Fed's Rate Decision and Policy Statement at 2:15 Eastern Time tomorrow. I believe the Fed will hold the Fed Funds Rate at 2%. I’ll be watching this development closely--especially the Fed’s accompanying Policy Statement, which may indicate a rate hike is coming in August.
Overall, Bonds are trading comfortably between a tough overhead ceiling and a floor of support. For now, I suggest floating, as we watch to see if Bonds improve more.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
Most homeowners make four housing-related payments each month:
- Principal on a mortgage
- Interest on a mortgage
- Taxes on the real estate owned
- Insurance for the real estate owned
Collectively, these payments are known by the acronym PITI but don't let it fool you -- a homeowner's monthly expenses are still called PITI even if one or more of the elements doesn't apply.
For example, a homeowner with an interest only mortgage does not pay principal each month.
Additionally, condo owners typically don't pay homeowners insurance -- they pay a monthly assessment and/or maintenance fees to an association instead.
But regardless for what it stands, determining a comfortable PITI should be every homeowner's starting point when looking for a new home. PITI is the monthly housing cost, after all, and by knowing what fits in your budget, it's a lot easier to compare homes and their related expenses.
It's certainly better than asking the bank "how much home can I afford" -- all that's going to tell you is the P and the I. As a homeowner, you need to know all four.
PITI is most commonly pronounced pee-eye-tee-eye.
(Image courtesy: Contractor-Books.com)
Stocks begin today at their lowest levels since March--reflecting the weak economy, but also a possible good entry point for investors.
With no economic numbers due out today, the number one subject for the week is the Fed meeting and rate decision due on Wednesday at 2:15 Eastern Time. The Fed is expected to pause after seven rate cuts, as concern over inflation lingers. This concern is expected to show up in the Fed statement, which will also be released Wednesday afternoon.
A stronger stance against inflation by the Fed could help Mortgage Bonds; therefore, I recommend we float cautiously. But sentiment could change, so I will monitor the situation as the week progresses.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
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Mortgage rates edged higher for the fifth straight week and the benchmark 30-year fixed-rate mortgage is now at a 10-month high.
One reason why rates are spiking is because the temporary jolt from higher energy and food costs is starting to look like a longer-term trend.
For example, high energy prices get a lot of press, but its 19.4 percent increase since last year is dwarfed by the 64.8 percent increase in the price of grains over the same period of time.
Eventually, as businesses spend more because of these rising costs, they have no choice but to pass those costs on to consumers.
This very topic figures to loom large this week as the Federal Open Market Committee gets together for a 2-day meeting, adjourning Wednesday. The overwhelming expectation is that the Federal Reserve will hold the Fed Funds Rate steady at 2.000 percent.
However, it won't be what the Fed does that should impact mortgage rates this week, but what it says. The Fed's press release will hit the wires at precisely 2:15 P.M. ET and markets will look for clues about how Ben Bernanke & Co are viewing inflation and its impact on the sagging U.S. economy.
If the Fed indicates that fighting inflation is its primary goal, expect that mortgage rates will fall because inflation and mortgage rates tend to go in opposite directions.
Conversely, if the Fed says it promoting growth in the economy is paramount and that the country can sustain additional inflationary pressures for now, expect that mortgage rates will rise.
There is other data hitting the wires this week including:
- Consumer Confidence (Tuesday)
- New Home Sales (Wednesday)
- Existing Home Sales (Thursday)
- Personal Consumption Expenditures (Friday)
Of all of these data points, only Personal Consumption Expenditures should have a major impact on rates. PCE is the Federal Reserve's preferred inflationary measurement.
As your personal Certified Mortgage Planning Specialist I am always in search of ways to add value to our relationship. As our lives evolve it is very important that I can offer more and more benefit to you…my valued clients and referral team members. Therefore I will continue to look for ways to help you in Mortgage Planning, Equity Management and Wealth Creation.
Today I want to introduce to you a new and exciting addition to the services I offer. It is called the Avail Credit Coaching Program. It is designed to help increase your credit rating by creating a credit coaching plan designed specifically for your personal situation. It is a one year program that will prepare your credit for mortgage lending or any other financing you may need.
You may be saying to yourself, “I don’t need credit coaching, my credit is fine”. That may well be true, however if you think hard I am sure you know of someone it may help. Whether they are looking for a home or not does not matter. Everyone wants to have a better credit rating.
Change their life! Pass this information on to them and you just may secure their financial future for which they will be forever grateful.
While most “credit repair” firms charge anywhere from $900 on up to $7200 annually, I can offer my clients The Avail Credit Coaching Program for an investmnt of only $399! That is less than half the cost of the cheapest “credit repair” companies.
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I want to thank you for your trust and look forward to continuing to advise you on your biggest asset…your home.
Please, do not hesitate…call now to start the path to financial independence and find out how to get started with Avail today!
As always you may reach me at 877-536-9287.
Happy 1st day of Summer!
Bonds are getting a boost this morning, as Stocks are trading lower on news that financial giant Citigroup predicts more writedowns and losses.
In other news, oil prices bumped higher once again after news of a potential strike at a Chevron plant in Nigeria, which is Africa's largest oil producing nation. If oil prices continue on their current path, it may apply selling pressure to both Stocks and Bonds.
Today may be an extremely volatile day for the Stock market, since contracts for a variety of options and futures expire. With no economic reports due today, Bonds will likely take their direction from this activity.
For now, I recommend floating, as Stocks are moving lower for the time being. But, be prepared to act quickly if the situation reverses.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
Flooding in the Midwest has displaced thousands of families and caused billions of dollars in damages.
It may also cause mortgage rates to rise.
As the extent of the damage becomes more clear, prices for grain and livestock are soaring. For example, a host of dietary staples are suddenly more expensive at the supermarket, including:
- Meat
- Pork
- Chicken
- Dairy
- Eggs
Rising food prices are considered inflationary and inflation tends to make mortgage rates rise.
But of all the foods that are increasing in price, it's corn whose price is rising the most -- up 70 percent so far since January. This is mostly because flood waters damaged up to 3 million acres of harvest in Iowa, our top-producing state.
Corn, of course, is a primary feed for livestock, so rising prices make it more expensive for farmers to raise hogs, cows and chickens. These higher costs get passed along to consumers and contribute to a higher Cost of Living around the country.
After facing (and adjusting) to rising gasoline prices, Americans are facing higher costs again -- this time at the supermarket. And if food prices don't recede with the flood waters, Americans may find that they're getting hit in a third place -- right in their mortgage rates.
Source
Hog Farmers Face a Perfect Storm
Ilan Brandt, Joe Barrett
The Wall Street Journal, June 20, 2008
(Image courtesy: The Wall Street Journal Online)
Mortgage Bonds opened to the downside this morning, then recouped their losses before slipping back a bit.
In today's headlines, the number of first-time unemployment claims fell last week, signaling an improvement in the labor market. Continuing jobless claims are also down a bit, but still well above this time last year.
Also this morning, comments from the Agriculture Department added to inflation fears by announcing that the cost of grain and fuel will raise the price of cereals, baked goods, sweets and poultry more than expected.
Currently, Mortgage Bonds are testing a key level of resistance. For now, I suggest floating. But as usual, I will stay on guard for any changes.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
Home buyers are often surprised when a "rate quote" from the morning won't be honored in the afternoon. Sometimes, the assumption is that the loan officer is just being sneaky.
This couldn't be less true.
Rate quotes change in the middle of the day because mortgage markets are in constant flux. All day, every day -- just like stocks.
And like stocks, a mortgage bond's morning price will likely "expire" before the day ends.
One way to visualize this is to look at today's Microsoft's stock price:
- At 9:30 A.M. ET, the price was $28.46
- At 9:38 A.M. ET, the price was $28.72
Over the course of 8 minutes, the stock rose by 26 cents and the "9:30 A.M. quote" was no longer available. For example, you couldn't call your stock broker at 9:38 A.M. and place an order for the 9:30 A.M. price because the price had changed.
Mortgage rates behave the same way.
Throughout 2008, mortgage rates have changed mid-day more frequently than in the past. On more than half the days, morning rate quotes were no longer valid in the afternoon. And, on at least 5 separate occasions, rates changed 4 times in just one day.
It's not typical, but it does happen.
So, if you're talking with your loan officer in the morning about a rate quote, be prepared to do all of your shopping in a compacted amount of time, and then be ready to make a decision.
By the time the afternoon rolls around, after all, that rate quote may well be expired.
Stocks are starting out the day under selling pressure after earnings reports from FedEx and Morgan Stanley were released. FedEx Corp reported lower than expected earnings and Morgan Stanley’s quarterly earnings plunged as investment banking slowed. Mortgage Bonds are trading higher on this news and may look to build on yesterday's gains in the absence of any economic reports today.
In other news, Bonds may be reversing higher from an "oversold" state--which may confirm that they hit bottom on June 13th and are now bouncing back up.
Since Stocks are under a lot of pressure today and Bonds are performing nicely, as your Mortgage Advisor I recommend floating for the time being. I'll keep you posted if anything changes.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
A "Housing Start" is a new home on which construction has commenced and in May, Housing Starts fell to a 17-year low nationally.
At first glance, this may seem like a negative for the already-battered U.S. housing market.
It's not.
Falling Housing Starts reflects the broader real estate market and shows us that builders are working hard to get their already-built homes "off the books".
It would be foolish for them to build new homes now -- each new unit makes selling the existing ones tougher.
So, when we look at the figure objectively, we can see that Housing Starts reaching a 17-year low is actually good news -- real estate prices are based on Supply and Demand, after all.
With Housing Starts touching new lows, we can infer that there will be fewer new homes coming on the market in the coming months and that should help support higher home values nationwide for everyone.
(Image courtesy: The Wall Street Journal Online)
The Bond appears to be bottoming out over the last couple of days and prices are bouncing higher so far today.
This morning, the Producer Price Index--which measures inflation--rose slightly more than expected in May and had its biggest gain since November, as higher fuel and food costs heightened the threat of inflation. Core PPI--which excludes fuel and food--matched economists' projections. However, the 7.2% increase over this time last year is steaming hot and has to raise some eyebrows.
In other news, the Commerce Department reported Housing Starts in line with expectations, but at the lowest since March 1991. Building Permits were reported slightly better than expected. Overall the soft housing report gave Bonds a little boost.
This morning's boost is encouraging, so I recommend floating for now. But be ready in case this fickle market takes a turn.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
Each month, University of Michigan researcher survey the U.S. population about their thoughts on the economy -- is it improving, it is worsening, is it staying the same.
May's consumer confidence survey registered it's lowest reading since 1980.
Given the recent headlines, that shouldn't be surprising:
But despite all of that, the American Consumer appears to be taking the economy's hiccups in stride.
For example, last month, retailers around the country reported rising sales levels that doubled what economists expected. This isn't supposed to happen when consumer confidence is falling as fast as it is, right?
But, a closer look at the retail sales data shows that discount retailers such as Target and Wal-Mart led the charge higher. So, although consumers are feeling worse about the economy, they're still spending money.
And when they do, they look for value.
For home buyers, this should sound familiar because it's every real estate agent's mantra right now -- "there's a lot of good values to be had." It's why some homes are getting multiple offers within days while other languish on the market for months.
The difference lies in the perceived value of the home.
Home buyers are actively looking for "good buys" and when they find them, they're quick to make an offer. It's why the housing market is showing pockets of strength despite low consumer confidence levels overall -- everyone's snapping up the bargains.
(Image Courtesy: Wall Street Journal Online)
"Prices are trading slightly lower so far, after last week's sharp decline in Mortgage Bonds.
This morning, oil prices hit an all-time high just under $140 per barrel--despite news that Saudi Arabia will increase oil production by 200,000 barrels per day from June to July. Also in the news, inflation in Europe is at its highest level in 16 years. Inflation, even abroad, can negatively impact our long-term Bonds, so I am following this very carefully.
Today, members of the Fed--including Chairman Ben Bernanke--are speaking. Their comments may possibly help prices later today.
For now, I recommend floating to see if the market improves. In today’s volatile environment, rate is an important part of a mortgage decision, but not quite as important as building the lowest cost loan strategy over time--which is what I will help you do."
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
Mortgage rates moved higher last week on lingering concerns about inflation, the fourth straight week in which rates rose.
Mortgage rates are now as high as they've been since October 2007.
Because inflation devalues mortgage bonds, market players are quick to unload them when signs of inflation are present.
Last week, there were several such signs:
- The American Consumer is spending undettered despite economic uncertainty
- The Cost of Living is rising faster than expected
- The Federal Reserve reports that some business are passing higher costs on to consumers
Hence, the higher mortgage rates.
This week, only Tuesday registers as a "big data day" with reports on housing, productivity, and Producer Price Index -- the "Business Cost of Living" report.
There will be four members of the Federal Reserve speaking, though, and that will add some volatility to the market. Fed Chairman Bernanke is among the speakers, addressing Congress this morning at 10:00 A.M. ET.
So, expect mortgage rates to continue to jump and dip this week, taking their cues from inflation. More inflation means higher rates and a slowing economy should cause rates to retreat.
(Image Courtesy: LA Times)
I’m happy to report some good news today, as Mortgage Bonds have reversed their negative trend and are showing an improvement since the day’s open.
In other news, the Consumer Price Index (CPI) was reported today a bit higher than desirable. Overall, however, Core Inflation is holding steady--even as food prices soar. Given this, and after a nice bounce off support levels yesterday, I anticipate continued improvement.
For today, I suggest we float. As always, I’ll be watching the market closely and will inform you of any changes.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
RealtyTrac released its most recent foreclosure statistics and if you only read the headlines, you think the entire country was on the verge of losing its homes.
The underlying data tells a different story, however.
More than half of the country's foreclosure activity in May 2008 was tied to just 4 states in the union:
- California (28 percent)
- Florida (14 percent)
- Arizona (5 percent)
- Michigan (5 percent)
In other words, the majority of mortgage defaults are coming from a small minority of states.
See, between 2002 and 2006, California, Florida and Arizona were very popular with real estate speculators, many of whom over-extended themselves on real estate; and Michigan's economy has been decimated by job losses in the auto and manufacturing industries.
In addition, these 4 states are among the nation's most populous. It makes sense that they are distorting the national statistics.
On a local level, the news is not so grim. Not only did 20 states show a reduction in monthly foreclosure activity, but many more fell below the national foreclosure average. That type of story, though, doesn't make for good headlines, is all.
Search the full May 2008 foreclosure report for yourself on RealtyTrac's Web site.
Bonds are under selling pressure today, after Fed member Charlie Plosser had some tough words to say about inflation and the Fed's role.
Also adding pressure to Bonds was a surprisingly good May Retail Sales Report, which came in double expectations at 1%. Excluding autos, sales rose 1.2%--which is the biggest rise in six months. Upward revisions to the previous month's figures added even more strength to the report, helping money to flow from Bonds to Stocks.
In other news, initial jobless claims jumped to 384,000, well above expectations of 370,000. Stocks, however, continued to trade higher, so Bonds did not get a boost from this news.
Currently, Bonds are trading at an important level of support. For now, I recommend floating, but I will be watching closely for any changes in the market.
© Copyright 2001-2008 The Mortgage Market Guide, LLC. All rights reserved.
When homeowners borrow more than 80 percent of a home's value, mortgage lenders often require a corresponding insurance policy called Private Mortgage Insurance.
PMI provides a cash payment to lenders in the event of a homeowner defaults.
But because PMI policies are designed for high LTV loans only, they usually contain cancellation options for when home equity percentages reach 20 percent or more.
In other words, PMI can be temporary.
There is a caveat, however: Lenders will not automatically remove mortgage insurance when LTV falls below 80 percent -- the onus is on the homeowner to initiate a formal request.
Earlier this decade -- when home values were soaring -- many PMI-paying homeowners recognized their equity growth and successfully petitioned out from PMI.
Many other homeowners, however, forgot.
So today, as home values stagnate or depress in different U.S. markets, homeowners eligible for cancellation may find that both their home equity and their right to cancel have vanished.
PMI helps makes high LTV loans possible, but there's no reason to pay it longer than necessary. If your current mortgage requires PMI payments and your loan-to-value lurks below 80 percent, contact your mortgage lender to start the PMI cancellation process.
Or, if you're unsure about your home's value and the 80 percent threshold, call or email me anytime and I can help you connect with somebody to give you the answers you need.
