It’s become an all-too-familiar phrase this year: “Mortgage rates post new record lows.” But aside from that favorable happenstance, what other positive can be found on which to focus in the housing market? Delinquencies, foreclosures, underwater homeowners, borrowers with sub-par credentials and more have been a continuing story for years now, and there is little abatement in those areas. Even record low mortgage rates have limits in how much assistance they can offer, but we may see a new push to help long-term rates even lower in the weeks and months ahead. Whether or not it will do much good remains an open question.

The Federal Reserve conducts a two-day meeting next week to discuss what can be done to stimulate an economy which clearly needs some help. While the Fed might consider a new round of bond or mortgage-backed security buying, the beneficial effects of those programs ideas are believed to largely spent. Instead, two ideas which seem likely to get the most play are changing the mix of the duration of holdings on the Fed’s balance sheet (called “Operation Twist”), which would see the Fed trading in maturing short-term bills and notes in favor of purchasing more longer-term bonds, and/or lowering the interest the Fed is paying banks to park excess funds with the Fed itself.

The concepts themselves are pretty simple. Changing the investment mix means that short-term rates (already near zero, and so hard to force lower) might increase slightly as the Fed purchases fewer of them, while long term rates might decline as the Fed willingly buys these bonds, which will tend to push their prices up and their yields down. Rather than compete against the Fed, this change might push investors to seek out higher yielding “risk” assets, taking money away from the safe haven of Treasuries and putting it to work it the private economy, which in turn might provide some boost to economic activity.

At the same time, lowering the yield banks are earning by keeping money parked and out of circulation might see banks instead pushing to lend or invest in elsewhere in the economy, which might make more money available for lending, and at possibly easier the terms for certain kinds of borrowers, most probably business borrowers.

How much benefit will come from this is a matter of speculation, but there is potential for it to boost GDP growth by a couple of tenths of a percent or so. Given the weak state of the economy — presently hovering around a 1% GDP rate — any boost would be welcome, but any new Fed program is certainly not a panacea for what ails the economy. Perhaps there are other ideas which may come to light when the Fed meeting ends on Wednesday, and more radical ideas may certainly be considered by the Committee, but these seem most likely to come at the moment.

Next week, the focus will be on the Fed and the few housing-related indicators which are due. An improved stock market firmed up interest rates as the week came to an end, and that suggests that we’ll see mortgage rates firm up a little bit next week, probably just enough to lift us off record lows. Of course, a wildcard in the forecast is the Fed; if something unexpected comes in the statement which will come on Wednesday, some additional volatility in either direction might occur.

Please note that the interest rates quoted below are based on over 26 different variables and are subject to change at any given time, depending on current market conditions and borrower’s ability to qualify. 

Thank you for your continued business and referrals!  Please see commentary, current rates and article below… Have a great Memorial Day Weekend!  ~ Rob

It’s official! No, not that Summer’s here, although the unofficial start of Summer comes with Memorial Day on Monday. Rather, it’s fairly clear that the economy has officially downshifted from a reasonable growth rate at the end of 2010, and present trends don’t suggest any imminent uptick.

Of course, a stumbling economy brings lower mortgage rates, so even if few are interested in buying homes, at least some folks my get a new opportunity to refinance the ones they own.

Forecasts called for the re-reading of the first quarter Gross Domestic Product report to show an upward revision, from the meager 1.8% annualized rate it revealed last month to perhaps 2.2% for the period. That failed to occur, and the preliminary GDP estimate remained at just 1.8% for the first quarter of 2011. Keeping in mind that the first quarter ended some two months ago next week, and rummaging though the various economic indicators which have become available over the last eight weeks, it seems that the second quarter has not improved much (if at all) on that puny pace.

After struggling mightily to crack below the 400,000 mark earlier this year, weekly unemployment numbers have now remained above that level for the last seven weeks, so improvement in the labor market is still more of a nope than a reality. The 424,000 new applications filed at state windows during the week ending May 21 was a 10,000 turn in the wrong direction. Certainly, there are explanations – lingering effects from the Japan disaster, jobs dislocated by flooding or tornadoes – but the numbers tell a tale of too many folks losing jobs for whatever reason and for whatever period of time.

Of course, folks without jobs don’t buy homes. It would appear that even folks with jobs are staying away, too. New Home Sales did bounce 7.2% higher in April when compared against March, but the 323,000 annualized rate of sale was certainly nothing to get excited about, since something on the order of triple that would be closer to normal. Inventories has fallen to just 6.5 months available, and the 175,000 actual units on the market is the lowest figure in almost 50 years. Eventually, when demand for new homes does return, a strong spate of homebuilding is to be expected. Here’s hoping it comes sooner than later, but 2012 seems to be the earliest at this point for the turn in homebuilding.

Optimism among consumers is returning… sort of. The weekly Bloomberg Consumer Comfort Index rose a single point during the week ending May 22, “climbing” to minus 48.4 from minus 49.4 a week prior. Among other things, high gasoline prices and tough labor markets are keeping moods quite dark. On the other hand, the University of Michigan Surveys of Consumer Sentiment points to hoped-for brighter days ahead. Their indicator added 4.5 points during May to move to 74.3 for the month and slowly taking back a 10 point swoon of a couple months ago. However, the rise was all predicated on better times to come, since the ‘current conditions’ portion of the report was just about flat.

So far this year, the recovery has failed to meet expectations. In the coming weeks, the Federal Reserve will step away from just one program of extraordinary support, and there are divided opinions about what will come next. Will rates rise or fall? Big bets are being placed on both sides, no doubt. Will the economy falter further, requiring some form of Quantitative Easing III? Some observers are suggesting that this can’t be completely written off at this point. Whatever the case, we will move away from the certainty of the Fed’s involvement and into a less-certain period, at least for a while. At present, interest rates are sliding gently as things continue to show signs of slowing. More uncertainty brings risk, and risk usually brings higher interest rates.

As to what happens, we’ll need to wait and see. For now, mortgage rates are even more favorable than they have been at any time in 2011. If you can, it might be a good time to get your purchase or refinance done reasonably soon. Next week, we get both end-of-the-month and first-of the-month information, including the employment report. It’s a holiday-shortened week, and there doesn’t seem to be a likelihood of a big economic surprise on the horizon, so mortgage rates will probably continue to drift.

Along with a leveling of gains in equity prices over the past couple of weeks, at least some money has come back into bonds, taking the top off of a spike in mortgage rates which saw the conforming 30-year fixed-rate mortgage run from 4.32% on October 22, 2010 to as high as 5.09% on February 18 of this year. This week’s average of 4.74% for that most common instrument is almost exactly halfway between those two bookends.

But even if inflation isn’t a great concern, prices certainly should be, and may be at the heart of the recent decline in rates.

It should be noted that popular measures of inflation only gauge the rate of change of prices, not the actual price levels themselves. It’s also worth noting that everyone of us has a personal inflation index, since your choices and purchases dictate whether you are affected by the rising price of an item or items. After all, if you don’t smoke, you don’t care that the price of cigarettes has increased by 100% over the last few of years… but if you did, those increases might affect your spending patterns. You might cut down spending in other areas, try to use coupons or change to a less-expensive brand, for example. On the other hand, though, if you’re not purchasing a computer, you don’t care that you can get a much faster, more powerful computer for the same price you paid for your older, slower one, which counts as a price that is declining.

There are some more or less universal price increases which affect everybody. Although there are others, food, energy and clothing costs are at the top of the list. These day-to-day items do matter, since increases in them absorb a considerable portion of the consumer pocketbook on the most regular basis, and are largely unavoidable. People need to eat, heat their homes and transport themselves from place to place and cover themselves to some degree. With incomes only increasing meagerly, these increases eat up more and more of a share of available income, and should the become too costly, other spending patterns can become affected.

Prices may rise to a level where they are consuming income at a most painful clip… then level off. Measures of inflation may show the increases, month after month, and of course investors become concerned and interest rates may rise. However, when prices level off, the rate or change falls to just a small increase or even to no increase at all, inflation concerns wane to some degree. In this way, even though the rate of change has returned to more favorable levels, actual prices paid by consumers are still at levels which create changes in their spending patterns.

Mortgage rates are a good reflector of both the current and potential economic climates. As prospects rose last year and it looked as though we’d be running a closer to full steam by now, both underlying and mortgage interest rates marched higher. As the reality dawned that we’re in for a slow slog of a recovery, and that a full or more robust recovery isn’t coming real soon, interest rates have stepped back down, and with the “unofficial” start of Summer starting to loom in the windshield — Memorial Day just a couple of weeks away at this point — we could be in for a slow Summer, and one which won’t even have the Fed’s QE2 program to distort it.

Not that we expected them to, but mortgage rates went down this week. Now that we’re a near-equilibrium — halfway between valley and peak — do they really have the legs to keep falling? Absent an additional sign of considerable economic slowing, probably not, and they may find a home at these levels for a little while.

The massive earthquake in Japan, followed by an indescribably destructive Tsunami which in turn triggered perhaps an unprecedented nuclear crisis may have far-reaching political and economic effects. In the middle east, political unrest is creating near civil war in Libya, and rising oil prices threaten to slow an already tepid domestic recovery.

All these troubles and others are to the benefit of US mortgage shoppers, who would be well-advised to take advantage of rates which are approaching 2011 lows.

The Federal Reserve Open Market Committee met this week, and no change to policy came and none was expected. In the statement which accompanied the close of the meeting, the Fed did note at least some concern about price pressures or at least acknowledged them. “The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation” noted the Fed. The did say that they expect these effects to be “transitory” but the trends in inflation all seem to be pointing upward at the moment, even if the actual levels are still fairly low.

Prices of imported goods rose by a stout 1.4% in February; excluding rising petroleum prices left a 0.6% gain. The increase isn’t particularly troublesome by itself, except that it was the fifth straight month of better than 1% increase in the cost of goods coming onto our shores. At the same time, we are exporting some cost increases to the rest of the world, too, as goods destined for exports rose by 1.2% during the month. A world still awash in monetary liquidity — with more added this week by the Bank of Japan — does seem to set the stage for price increases.

That was reflected in the Producer Price Index for February. The 1.6% increase was better than double forecasts, driven higher by food and energy increases again. Excluding them, the core rate of inflation rose by just 0.2%, but increases of 5.8% in the headline figure and 1.9% in the core measure are both on an upward path at the moment.

Much the same could be said about costs at the consumer level. The Consumer Price Index rose by 0.5% in February, a little more than was expected, with the core rate coming at a milder 0.2% rise for the month. Over the past year, consumer prices have increased now by 2.2%, and just half that much when food and energy are excluded from the mix. Although still low, the trend over the past year has moved from declining to flat to increasing, with more pronounced increases coming in the most recent period.

Inflation matters to mortgage shoppers because it pushes interest rates higher. Holding a long-term fixed-rate investment — like a bond or a mortgage loan — exposes an investor to the potential for loss, since the value of the investment is eroded over time by inflation. If you invested your money expecting a real (after inflation) return of perhaps 2%, and if you expect inflation to run at a 2% rate, your actual return would be zero. You would ask for a higher yield at the outset… and that higher yield would be someone else’s mortgage rate (or possibly even yours). Managing actual inflation and inflation expectations are among the Fed’s charges, and timely policy changes can make certain neither get out of hand. At some point, probably not all that far into the future, the Fed will need to make changes, and will probably be pushed there by mounting inflation expectations and concerns from investors.

It almost goes without saying that increases in mortgage rates are unwelcome in a housing market struggling to find traction. The National Association of Home Builders index of member sentiment did manage to rise a tick to 17 during March, but the move was insignificant, hardly above the trend of the past four months. Sales levels and traffic were unchanged from February, with only rising hope about the next six months driving the indicator upward. How even that much enthusiasm was created is a puzzle, when considered in the context of a Housing Starts report for February which sported a 22.5% decline. Single-family starts slumped by almost 12% for the month, and multi-family initiation caved as well. Permits for future activity — the drive of the HMI above — declined by more than eight percent.

A spate of warmer weather (at least compared to January) during February for much of the country led to a decline in Industrial Production, which eased by 0.1% for the period. Although not enough to overcome the 4.5% decline in utility production, mining output sported an increase for the month, as did manufacturing production, and the recovery should continue to power forward, probably led by factories as it has been for much of the recovery so far. To that end, localized manufacturing reports from The New York and Philadelphia Federal Reserve Banks both showed gains for the month, with the Philly Fed’s indicator rising to levels last seen in the 1980s. Both reports noted firm to rising input costs but gains in employment opportunities in one area were met by diminished offers in the other. If production and orders keep moving ahead, more jobs will surely follow at some point.

While that is still hoped to be the case, at the moment we’ll have to content ourselves with a slight decline in jobless claims. During the week ending March 12, “only” 385,000 new applications for benefits were filed at state windows. The gentle and general downward trend in new benefits claims continues to point to a gradually improving labor market, but it is a very slow improvement given now six to seven quarters of rising economic output.

As with the global troubles above, that’s also to the benefit of mortgage seekers. Although rates have moved off of last year’s levels, they were generated by a nascent, unsteady recovery which might have slipped into deflation. Six months or so later, and concerns of inflation are more the order of the day, and while challenged by troubles, the durability of the recovery no longer seems so much in doubt.

At some point, and probably at a faster-than-expected pace, interest rates will begin to move higher. Time may not cure all the woes which affect both us here and especially those abroad, but it does allow for time to become accustomed to them, to learn how to work both in and around them, and ultimately to focus on the longer term’s prospects. Next week’s got a fairly light calendar of economic data again, but we’ll get a look at new and existing home sales, a final review of 4Q10 GDP, an indicator of consumer moods and an economic reference point. Stock markets found some opportunities to rally on Friday, by just a little, but only a resolution of the nuclear trouble in Japan might cause much of a move in interest rates. Here’s hoping that comes as quickly as possible, even if it will mean slightly higher mortgage rates. Absent that, rates should be pretty flat next week.

Rob Kanyur Senior Loan Officer NMLS 204420 BK 0018295 Wallick & Volk Mortgage Bankers 7033 E. Greenway Parkway, Suite 290 Scottsdale, AZ 85254 602) 361-1587 – Phone (888) 676-7807- FaxRob@wvmb.com www.RobKanyur.com

Insurance Mistakes to Avoid: Don’t Risk Being Underinsured

Too many Americans mistakenly believe that the coverage limits of their home owners insurance policy are linked to the market value of their home, according to the Insurance Information Institute.

In the I.I.I.’s 2011 Insurance Pulse Survey, conducted by the Opinion Research Corporation, nearly half (48%) of survey respondents came to that incorrect conclusion.

“The real estate value of a home, that is the price you can buy or sell it for, has absolutely nothing to with the amount of insurance needed to financially protect the home owner in the event of a fire or other disaster,” said Jeanne M. Salvatore, senior vice president and consumer spokesperson for the I.I.I. “Reducing insurance coverage because the market value of a home has decreased can result in being dangerously underinsured.”

One out of three respondents to the Pulse Survey reported that they purchased less home owners or auto insurance as a way to save money. A better strategy would be to take a higher deductible, which can substantially reduce insurance costs. Home and car owners can then put the savings into a purchasing the right amount and type of insurance for their specific needs, pointed out Salvatore.

Another way to save money is to comparison shop, something that seven out of 10 Pulse Survey respondents said they did to save on both their home and auto insurance needs.

Read more: http://www.houselogic.com/news/articles/insurance-mistakes-avoid-dont-risk-being-underinsured

Mortgage Interest Rates for Fixed Rate Mortgages*

Rates as of Friday, March 18th, 2011

*Rates are subject to change due to market fluctuations and borrower’s eligibility.

*INTEREST RATES ARE BASED ON PURCHASE MONEY, PRIMARY RESIDENCE, 30-DAY LOCK, CURRENT INVESTOR GUIDELINES. AT LEAST 1.250% POINTS MAY APPLY, RATES BASED ON LOAN AMOUNT >$200K,<417K, MIN FICO 760, SUFFICIENTLY DOC’D INCOME & ASSETS REQUIRED. PREPAY PENALTY MAY APPLY. INFORMATION DEEMED RELIABLE BUT NOT GUARANTEED. RECIPIENT TO VERIFY ALL INFORMATION. ROB KANYUR AT WALLICK AND VOLK MORTGAGE BANKERS. LICENSED ORIGINATOR 204420 (602) 361-1587 BK 0018295

I admit this one peaks my interest, as we have been hearing for quite some time that there is a new wave of foreclosures about to hit the market.

At the end of December 2010, I was in a meeting where someone from Fidelity National was sharing and stated they had been in meetings with the big 4 banks who said that in 2011 they would begin dumping this inventory on the market. And why 2011…it’s a “non-election” year.

So here we are in March 2011 with all the same issues surrounding foreclosures that we have been experiencing for years and still no “flood of inventory.”

Well, last week I was on a call with a loan officer from Bank of America in our area and we were discussing our Phoenix/Scottsdale real estate market overall and what the impact of rising interest rates would be versus declining home values. I shared that I felt it would basically be a “wash” because even though the rates will have an impact, values will decline enough that they will offset each other.

His comment was that he disagreed and said he really wouldn’t even purchase right now because of what is getting ready to be released on to the market. He went on to share that the bank had just completed their “forensics analysis” and after first quarter 2011, they would begin bringing all this inventory to market.

I then made mention of what I had heard at the end of the year from Fidelity and he confirmed that was correct.

It peaked my interest further, so I asked just how much inventory are they planning to release that he thinks it would have that big of an impact on home prices.

With that question, he suddenly had a memory lapse and his response was “I don’t know for sure”, but I just know it’s going to make a difference, which left me confident that he did know the number.

But like Gary said in his article mentioned above, ”I’ll believe it when I see it”, as we have been hearing about all of this for a very long time…but my ears and eyes are definitely more open starting in April 2011.

Mortgage interest rates held fairly steady this week, but the focus on the economy shifted away as news of a massive earthquake and tsunami captured the headlines. How great or lasting any economic impact will be remains to be seen, but there was word of a “repatriation” of cash to Japan from selling some holdings of Treasuries on Friday, but the overall effect was on interest rates was mild.

After a substantial rise which began in October 2010 and crested in December, rates have remained fairly flat overall, pulled in different directions by an economy which is growing at a meager pace. A clue that financial markets are healing comes in the form of narrowing differences between benchmarks such as the ten-year US Treasury (a virtually risk-free investment) and more risky products like residential mortgages. To be fair, Treasuries yields remain low as the Fed continues its QE2 program to support the economy, but the yield markup over Treasuries (called “spread”) for things like first mortgages has returned to near normal.

The recent pace of the economy isn’t exactly a one-step forward, two-steps back sort of affair, but there does not appear to be forming the kind of momentum which will produce a hot spike in the economy. More likely, the slow-growth pattern we’ve seen in the recovery seems likely to persist, and new challenges to the period just ahead, in the form of oil-related drag, waning enthusiasm and the end of Fed-engineered stimulus seem more than sufficient to temper any flare of growth or inflation which could form, at least for a while yet.

Mortgage rates have been generally been in a plateau since January, and we’ve wandered in about a quarter-percentage point range since then. There isn’t much likelihood of a breakout next week, when we’ll get a look at price pressures from imports and exports as well as producer and consumer price indexes, a look at housing markets in the form of builder sentiment and housing starts, industrial output and a couple of regional manufacturing outlooks, plus a forward looking indicator. A few basis points in either direction seems most likely.

Rob Kanyur Senior Loan Officer NMLS 204420 BK 0018295 Wallick & Volk Mortgage Bankers 7033 E. Greenway Parkway, Suite 290 Scottsdale, AZ 85254602) 361-1587 – Phone (888) 676-7807 – Fax Rob@wvmb.com www.RobKanyur.com

Closing on Your Home: Are You Walking in Blind?

By the time you arrive at the table to close on your home purchase, you’re tired. It’s been a long haul to get to this point, and the last thing you want is any kind of surprise.

Particularly if you’re a first-time home buyer, knowing ahead of time what to expect at closing can help ease any anxieties you may have, and ensure that you get your keys with no unforeseen hiccups.

The good news is, if you have worked with a trustworthy real estate agent and have chosen a reliable mortgage lender, you should anticipate a smooth settlement. All the professionals you’ve been working with are helping you get through the final steps of the transaction.

“Buyers should not expect any surprises at the settlement as long as they have carefully reviewed their Good Faith Estimate (GFE(, shopped for their title services and compared written estimates of closing costs,” says Todd Ewing, president of Federal Title and Escrow Co. in Washington, D.C.

Read more: http://www.foxbusiness.com/personal-finance/2011/03/09/closing-home-walking-blind/#ixzz1GMA7M9zs

Mortgage Interest Rates for Fixed Rate Mortgages*

Rates as of Friday, March 18th, 2011

*Rates are subject to change due to market fluctuations and borrower’s eligibility.

*INTEREST RATES ARE BASED ON PURCHASE MONEY, PRIMARY RESIDENCE, 30-DAY LOCK, CURRENT INVESTOR GUIDELINES. AT LEAST 1.250% POINTS MAY APPLY, RATES BASED ON LOAN AMOUNT >$200K,<417K, MIN FICO 760, SUFFICIENTLY DOC’D INCOME & ASSETS REQUIRED. PREPAY PENALTY MAY APPLY. INFORMATION DEEMED RELIABLE BUT NOT GUARANTEED. RECIPIENT TO VERIFY ALL INFORMATION. ROB KANYUR AT WALLICK AND VOLK MORTGAGE BANKERS. LICENSED ORIGINATOR 204420 (602) 361-1587 BK 0018295

A few highlights are:

• Up to 95% LTV with no monthly premium mortgage insurance (NO PMI)
• No premium to interest rat
• Maximum loan size $417K
• 680 mid-credit score
• DTI (debt to income ratio) up to 45% (after 45% requires a score of 720)
• Most loans allow buyer to float-down interest rate – with no charge – AFTER the loan is locked

I just had a closing last week wherein my buyer used this program. We were able to secure 3% in seller paid closing costs, which in this case did cover the upfront PMI charge, and there was enough left over to cover the cost of his inspection and Home Warranty. He did a 15 year loan and because of the “float down” that is allowed AFTER LOCKING the loan, he got an interest rate of 4.5%.

Obviously, this loan program may not work for everyone, but I wanted to let you know that it is available. Having no PMI can save you several hundred dollars per month on your payment, so that is really a great savings.

And for those of you needing financing above $417,000, one of my other lenders has JUMBO FINANCING up to $900,000 at 80% LTV:

A few highlights are:

• Up to 80% LTV
• Maximum loan size $900K
• 740 minimum credit score
• DTI (debt to income ratio) max of 45%

And for those of you needing a lower down payment, FHA is still available at 3.5% down and a minimum credit score of 620.

Certainly things have changed in financing, and my last three clients were surprised at how challenging the loan process has become, but I have excellent lenders who have all been able to successfully close for every one of my clients and for that I am very grateful.

If you would like further information on these loan programs, or any other mortgage or Phoenix/Scottsdale real estate information, please do not hesitate to contact me!

Burt Carlson
Mortgage Consultant
Smart Financial Mortgage
Phoenix, AZ 85016
(602) 803-9660 (cell)
burt@gosfm.com

To read any of my articles please go to http://www.examiner.com/x-39888-Phoenix-Real-Estate-Financing-Examiner.

This past Monday I started a new job with Money Management International (MMI) as an MHA (Making Home Affordable) Specialist helping homeowners with their loan modifications. This is a great opportunity for me and I am very excited about it. Unfortunately the demands of the job will not allow me time to do my best on the update. As a result I will no longer be doing it. I want to thank all of you for your kind words over the last year and a half and wish you the best of luck in the future. As for the future who knows maybe I’ll fire up the update down the road!

Burt Carlson
(602) 803-9660
burt@gosfm.com

To read any of my articles please go to http://www.examiner.com/x-39888-Phoenix-Real-Estate-Financing-Examiner.

How I see it $: Since so much of what happens in the U.S. is influenced by the rest of the world I thought I’d provide a few headlines from the week. The French Budget Minister said last weekend that maintaining France’s AAA rating is a “tough objective”. Monday the ECB said the potential loan losses for its banks could be as much as $240 billion in the next 18 months. Tuesday the Chinese Central bank said its housing problems are more severe than the U.S. faced before the financial crisis because the housing bubble is combined with “social discontent”. Thursday Hungary warned that its deficit could be higher than the 3.8% of GDP target set by the EU. The government blamed “fiscal skeletons” left by the previous Socialist administration. The deficit could go as high as 7.5%. Today the U.S. jobs report drove markets lower as market volatility continues to worry investors.

In the U.S. the state of New York continues to struggle with its budget as it delayed paying $2.5 billion in bills as a short term way to stay solvent but the state’s budget director warned it could get worse in August and September if things don’t change. If you have any comments or thoughts please e-mail me at
burt@gosfm.com.

Interest Rates

Retail rates remained below 5% for yet another week and it does not look like we will see upward movement any time soon. The bad news is that applications to purchase homes are down sharply even with great rates and beaten down home prices. Makes one wonder what it is going to take to get buyers back in the market.

Note that actual market rates vary geographically and by lender, credit score and Loan to Value. Source: Federal Reserve Statistical H.15.
http://www.federalreserve.gov/releases/h15/data.htm

Mortgage Industry

• Bank of America announced its “Principal Reduction Enhancement” program this week. The plan is an earned principal forgiveness loan for borrowers who are at least 20% underwater. The bank said its plan will be a first step toward reaching the federal loan modification target of housing expense being no more than 31% of income. The stated reason for the program is to combat strategic defaults. A bank executive said “There is a huge incentive for customers to walk away”. Ya think!
• The Federal Home Loan Board (FHLB) of San Francisco may have losses on its $20 billion MBS portfolio of nearly $5 billion which would wipe out its $1.5 billion in equity. The FHLB system has 12 institutions across the country and if the San Francisco banks equity is wiped out it would only be the second time in the 77 year history of the system that a bank “failed” (Pluris Valuation Advisors/American Banker).

Good News

• Pending home sales increased 6% in April the third consecutive monthly increase (NAR).
• Construction spending increased by 2.2% in April from March. This was biggest monthly increase since August 2008 (Commerce Department).
• U.S. service sector index of 55.4 in May indicated expansion for the fifth consecutive month (ISM).

Statistics of Interest/Concern

• U.S. manufacturing index slipped to 59.7 in May from 60.4 in April (ISM).
• Non-farm productivity rose at 2.8% for first quarter 2010 down from the previously announced 3.6% (Labor Department).
• The U.S. budget deficit for FY 2010 will be 10.6% of our economy the largest since 1945 (White House).

Foreclosure Headlines

• Fannie Mae delinquency of 90 days or more declined to 5.47% in March from 5.59& in February the first decline since early 2006 (Financial News Network).
• The average borrower in foreclosure has been delinquent 438 days before eviction is final this is up from 251 days in January 2008 (LPS Applied Analytics).

Jobs Update

• The May jobs report showed an increase of 431,000 jobs but only 20,000 were in the private sector with most of the jobs created by adding census employees. The jobless rate declined to 9.7% and the under employed rate also declined to 16.6% from 17.1% in April (Labor Department).
• Initial weekly jobless claims declined by 10,000 to 453,000 (Labor Department).
• Continuing jobless claims rose 31,000 to 4.67 million (Labor Department).
• Four week moving average for jobless claims increased slightly to 459,000 (Labor Department).
• The pace of job losses edged slightly higher in May as employers announced plans to cut 38,810 jobs just slightly higher than April (Challenger, Christmas & Gray).

Key Indicators

Source: www.cnbc.com/markets/commodities

Burt Carlson
Mortgage Consultant
Smart Financial Mortgage
Phoenix, AZ 85016
(602) 803-9660 (cell)
burt@gosfm.com

Food for thought: Clearly one of the challenges to economic recovery is getting people back to work. You may want to check out the Job Market Headlines below. Note the reference to the 318,000 people who are no longer getting extended unemployment benefits. Did these people find jobs or, more likely, are they still looking for work and are no longer getting unemployment benefits? Gentle readers these jobless statistics are for one week.

Interest Rates

This week’s retail mortgage rates remained at the 5% level and maybe a tick below.Some analystsare now saying that the Fed’s support of mortgage rates which ends in March may not mean higher rates in the near term. This is due they say to the markets calm response to the increase in the discount rate (what the Fed charges banks for emergency loans) and the pull back of some other liquidity measures. Some argue that the Fed’s exit from the mortgage market is already “priced in” and the Fed has indicated that it might start the support again if warranted. On the other side of the equation is the Fed has not indicated when it will start selling the billions of dollars of MBS it currently has on its books. The good news may be that demand is down at the moment but that could lead to higher rates at some point as the Fed attempts to attract buyers of its MBS.

Note that actual market rates vary geographically and by lender, credit score and Loan to Value. Source: Federal Reserve Statistical H.15.

Mortgage Industry Update

• Freddie Mac reported a larger than expected fourth quarter 2009 loss of $6.5 Billion up from last year’s loss of $5.4 Billion. For all of 2009 the mortgage giant lost $21.6 Billion much less than its 2008 loss of $50.1 Billion. The company ended the year with $4.4 Billion in net worth which means for now it will not need a capital infusion from the government/taxpayers. Since it was put into receivership in September 2008 (essentially taken over by the government) it has received $50.7 Billion in tax payer funding.
• Rates on jumbo loans have declined in recent months from high’s of well above 7% to just below 6% recently says Informa Research Services. However, the qualifying and down payment requirements while slightly better still remain stringent.

Good News

• Friday the Commerce Department reported fourth quarter revised GDP was 5.9% up slightly from the previous number and the highest increase in six years. However, inside the numbers the consumer portion shrank from 2% to 1.7%. Consumer spending makes up about 70% of GDP.
• The Case Shiller U.S. Home Price Index declined .2% in December and declined 3.1% for all of 2009. The trend in downward home prices is improving as indicated by Q1 2009 decline of 19%, Q2 2009 decline of 14.7% and Q3 decline of 8.7%.
• The Federal Housing Finance Agency (FHFA) said Thursday that home prices in the U.S. declined 1.5% in 2009.
• The National Association for Business Economists (NABE) says it expects the economy to “remain firmly on track” and grow at 3.1% in both 2010 and 2011.
• The FDIC said that in the fourth quarter 2009 bank profits were $914 million compared to fourth quarter 2008 losses of $37.8 Billion.

Statistics of Interest/Concern

• New home sales fell to a record low in January according to the Commerce Department. Sales of newly built homes declined 11.2% to the lowest level since 1963. It was the third consecutive monthly decline.
• Existing home sales fell 7.2% in January but year over year they actually increased 11.4% according to the National Association of Realtors (NAR).
• The Commerce Department said that durable goods (ex transportation) fell .6% in January after posting an increase of 2% in December. The forecast was for an increase of 1%.
• According to Real Capital Analytics across the country at the end of 2009 there were 340,000 apartments units worth about $28 Billion in delinquency or foreclosure.
• According to the East Valley Tribune there are 70,000 developed vacant lots in the Phoenix metro area but only 8,000 new homes were sold in 2009. In December there were only 479 new homes sold in the metro area.
• The Conference Board’s Consumer Confidence Index fell sharply in February to 46.0 from January’s 56.5. This was the lowest level in 10 months.

Foreclosure Headlines

• Fiserv and Moody’s Economist.com forecast home prices will decline another 6% in 2010 and be mostly flat in 2011. The reason Economy.com founder Mark Zandi says is foreclosures. The latest estimate for foreclosures in 2010 is 4.5 million this after 2.8 million in 2009.
• First American Core Logic reported that 11.3 million or 24% of homeowners with mortgages were upside down at the end of 2009. Nevada led all states with 70% and Arizona was second with 51% of homes upside down.

Job Market Headlines

• Initial weekly jobless claims were up 22,000 to 496,000 the forecast was for 455,000. Note: Since the recession began in December 2007 payrolls have declined every month except for November 2009.
• The four week moving average of initial claims was 473,750 up slightly.
• Continuing jobless claims were up slightly to 4.617 million.
• The number of people getting extended unemployment benefits declined by 318,000 to 5.5 million.
• About 2.7 million jobless workers will lose unemployment benefits by the end of April and 6.3 million have been unemployed for more than six months.
• A Gallup report released this week said that almost 20% of the U.S. workforce lacked adequate employment in January (government data says it is 16.5%) and was struggling to make ends meet.
• The number of jobs needed to absorb new entrants into the labor force (population growth and immigration) has been estimated between 100,000 and 125,000 per month. This would neither add nor subtract from the work force it would simply keep pace with normal economic conditions. The National Association for Business Economists (NABE) forecasts about 50,000 jobs will be added per month in the first quarter of 2010 and will average just over 100,000 for the remainder of 2010. The current estimate for unemployed is 15 million and underemployed 8 million.

Comments/Observations

The data suggests that the housing market remains fragile even with the extension of the buyer tax credit and continued historical low mortgage rates. Don’t be fooled by the strong GDP number as consumer confidence struggles, the job market is a mess and the outlook for more foreclosures is ugly. Policy makers need to focus their attention on creating programs that generate jobs and soon because time is our enemy.