20090611 - To The Moon, Baby!

30 yr – 5.59% w/ 0.7% in fees. Up from 4.91%. 1 yr ago – 5.97%
15 yr – 5.06% w/ 0.7% in fees. UP from 4.53%. 1 yr ago – 5.20%
5/1 ARM – 5.17% w/ 0.6% in fees. UP from 4.82%. 1 yr ago – 5.70%
1 yr ARM – 5.04% w/ 0.7% in fees. UP from 4.69%. 1 yr ago – 5.09%

(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -6-11-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.


Mortgage Rates: Rates have popped up quite a bit over the last few weeks. I guess this goes to show you that even a blind dog finds a bone once in a while. I figure, if I keep predicting something enough times, eventually I’ll be right. What am I talking about?

For the last few years, one of my biggest concerns has been the appetite or desire for buyers of our country’s debt…bonds...to continue. Without the continuous purchase of this debt, interest rates would have to rise in order to attract the money to keep buying. As long time readers may recall, what happens in the bond market directly impacts mortgage rates. Mortgages are eventually converted to bonds and sold as mortgage backed securities, MBS. These MBS investments compete with any other investment for investors’ money. Investors have choices where to put their money, right? If they’re interested in bonds, they can buy US government, municipal, corporate and mortgaged backed. or they can go a whole other route like guying GM's Hummer division, the Sears Tower, Gold, Oil, Food, etc. US government debt is (or at least was) considered the safest investment in the world. THIS appears to be changing, and changing fast.

As the US government debt load balloons with bailout after bailout and spending spree after spending spree, the perceived risk of lending more money (via the purchase of US government bonds) to the US has grown. As a result, investors like China and Japan are not willing to pay as much for this investment, so the price goes down. When the prices of bonds go down, the yield or return goes up. That has happened rapidly the last few weeks. Fixed rate mortgage rates closely track what happens in the US government bond market, specifically the 10 year bond. Not always and sometimes there are anomalies, but usually they track closely with one another, with the government bonds being the big dog on the porch. Where it goes…others follow.

So, government bond yields have risen quite a bit this year and have really accelerated over the last few weeks. Chatter about the quality of the US as a borrower is weighing heavily on the markets. As a result…mortgage rates have jumped quite a bit too.

Is this a one trick pony, or the beginning of a longer term trend? Me thinks this is the beginning of the beginning…but in reality, what do I know, I can't even use proper grammar? Let’s review some recent economic stats:

Housing: Existing Home Sales are up? Yay!!!! Or not? I didn’t realize this, and I’m sure most other people didn’t as well. Existing home sales are reported as such whenever there is a "signed contract" for a home sale. It is NOT measured by the actual "closing" of the transaction. For example, Buyer A and Seller X sign a contract to buy/sell a home and for whatever reason, the transaction never closes. Imagine that Buyer A applies for a mortgage. He is not approved, the transaction never closes. This still gets reported as a sale. Did it actually sell? No. Does this seem crazy? Yes. So, don’t always believe what is reported…even here. Do your homework. Is this a cooking of the books by industry insiders?

Latest reports show housing sales are up. I don’t think so.

Local appraisal company, IRR Residential Axiom, reported that single family residential unit sales over the last 12 months in Grand Traverse County Michigan are 10.32% lower than the previous 12 month period. That's not so bad. Prices are also down 10.02%. Now, these are just statistics! Everyone’s situation is different and depending on the market segment and location, the numbers will certainly vary. For example, waterfront activity is down 30.77% from 12 months ago and prices are down 8.76% in GT County and there is a 45+ month supply of inventory on the market. Ouch! That's not the worst though, Emmet County sales are down 82%, prices are down 31% and at this pace, it will take almost 6 years to sell the inventory on the market. All is not lost, Charlevoix County sales are only down 45%, but prices are up 7%. Remember, these are all just statistics…Contact mgarrett@irr-residential.com to be added to their email distribution list for similar type reports.

Mortgages: The recent voluntary moratorium by mortgage lenders on foreclosures earlier this year has been lifted. Banks are now starting to foreclose on homes in an accelerating fashion. May 2009 saw an 18% increase from May 2008. 1 in 398 homes with a mortgage received a foreclosure notice. While it was reported that foreclosures were down in Jan and February; March, April and May have seen 30%+ increases in foreclosures from the same periods in 2008. Not good and more are coming.

Employment: Jobs are key to economic stability, let alone growth. Always has been. Always will be. Unemployment, as reported, has risen 3.9% and 5.37 million jobs have been lost in the last 12 months. This too is a figure that gets manipulated by the government. If it was reported the same way it was calculated just a decade ago, the rate would be another 2% higher.

People without jobs eventually have a hard time paying their mortgages. Higher mortgage delinquencies/foreclosures will greatly impact future housing prices. When banks must sell and buyers are far and few…prices must be dropped in order to move this inventory…either prices fall further, or banks become landlords instead of sellers.

If you must sell, DROP YOUR PRICE and sell the house NOW!!!! It’s going lower. :-(

Where are mortgages rates headed and why?

The yield on the 10 year T-Bond has risen to its highest level since October 2008. The amazing part is that even with the government buying $19 billion of their own bonds, rates still rose to an average yield of 3.99%. Next up is the sale of $11 billion in 30-year bonds. 30 year bonds have also risen to their highest level since October 2007. Since mortgage rates closely track these investments, borrowing just got more expensive. More expensive means less demand…I don’t think that will help housing prices either.

After years and years of low rates, borrowing costs are rising, for individuals and the US government. Other nations that have purchased these bonds over the last several years appear to be wising up, or demanding more return for their risk. Uncle Sam is quickly becoming a sub-prime borrower. Either rates rise, the dollar falls, or these creditor nations take their ball and play another game by investing their money elsewhere…

Russia's central bank says it may switch out of U.S. bonds and into IMF bonds. Russia's Finance Minister Alexei Kudrin says Russia will buy $10 billion in IMF bonds. While not a huge percentage of their portfolio, it's still a strong statement. China floated an idea earlier in the week about buying $50 billion in IMF bonds. Brazil said it will buy $10 billion worth of IMF bonds. If they’re not buying our government debt, they’re not buying our mortgage debt either.

LESS DEMAND = LOWER PRICES = HIGHER RATES.

Is this the start of a trend, the middle of a trend, or the end of a trend? The balance of power in the global financial system is shifting. It favors real resource producers and creditors, not borrowers and spenders.

This recession (some call a Depression) was caused by too much credit and massive bad investment. It will not be cured by government spending. We already have excess capacity, especially in industrial production. Lower interest rates sounds like a decent idea, but it won’t and hasn’t worked. What business wants to borrow more money, even if at lower rates, when they don't need to? Why expand production when there is already too much to begin with and demand is stagnant in most parts of the world and falling in the rest?

Besides, what does a government really accomplish when it manages to artificially increase consumption with lower rates or through confiscation…oops, I mean higher taxes and redistribution? Increased consumer spending primarily benefits the producers of consumer goods. Those producers are in China and the developing world, not America. It's true that local retailers may profit. But the bulk of the profits go back overseas anyway.

At the heart of this bad policy is the fallacy that prosperity comes from consumption. Ever met someone that spent their way to prosperity and accumulated wealth? Didn't think so. Spending money doesn't create wealth. Prosperity begins with capital formation (saving) and production (manufacturing….actually making something that people want).

For some reason, somewhere, things got all messed up. People seem to think wealth begins with consumption and spending. This change from a manufacturing country to a financial services based country has failed. It’s turned out to be a world history making mistake. As America produces less and borrows more, the buyers of its bonds and dollars will continue to defect to better investments in other places…

Gold, Oil, Food, Energy and basic Resources like farmland, agriculture, forest land, water, etc. It’s back to basics.

Thought of the Week: “Try to become the kind of person that people would follow voluntarily, even if you had no title or position.” Brian Tracy

20090527 - A Month of Sunday's - We're Toast!

Mortgage Rates: Rates have been up, down and all around. The party may be over. Today, Wednesday May 27, 2009, witnessed mortgage rates jump about ½ percent. Oh well…we knew it couldn’t last forever. Last Thursday, 30 yr fixed mortgages rates averaged 4.82%...the same as when we last met in late April. Next week, look for some upward changes.

Why all the fuss Big Jim? Well, does anyone remember me talking about investors’ appetite for all the bonds the US government is going to have to peddle in order to pay for the trillions of dollars in debt? Well, do ya? I thought so….well, the chickens may be coming home to roost. But I could be wrong…and most likely will be.

Mortgage rates and all interest rates are heading higher for multiple reasons. However, mortgage rates are still low, under 6%. But so are housing prices and employment.

So what’s happening? Let’s try to ‘splain’ what we see…at least from the cheap seats.

Housing: Home prices fell 19% from a year ago, according to the Chase-Shiller index. But at least volume was higher by 2.5%, led largely by the sale of foreclosures…you see, lenders must sell the homes on their books. The average Joe, at least has somewhat of a choice. As more and more people lose their jobs, less and less people will be able to afford their house payments. Can anyone see the writing on the wall?

Consumer Confidence: For some bizarre reason, consumer confidence ‘apparently’ rose last month. Why? What are these people thinking? Maybe they’re not. The markets chose to ignore the Housing data and instead focused on the consumer…after-all, they supposedly represent 70% of the market. The other 30%? Government spending. (Pssst…I say they represent 100% of the market…the government spends our money anyway, don’t they?)

Equity Markets: The markets were up 150+ points the other day. The state with the biggest economy in the nation is going broke…California. So is the nation's biggest manufacturer. GM. Profits are falling and the government is racing to put in place a form of “state-sponsored” capitalism much like Mussolini's Italy or Peron's Argentina. Doesn’t seem to make sense that the market sare rising from this news…but what do I know? Today they were down 150+ points.

Panic Mode? Flight to Quality? - The markets are trying to determine what is happening. Odds are we may go all the way to 10,000 on the Dow. It would be a classic “Sucker’s Rally”. But what the heck do I know? Many investors have been buying US Treasuries, thinking this was a good investment, the safest in the world..a place to park your money to ride out the storm. Problem: The people stoking the fire are from the government. I’d think twice about that. Lending 101: The buying of US Treasuries is the same as lending money to the US government. Recently, investors have been so scared and bid up the price on government treasuries (thus reducing the yield) that for 90 day Treasuries, you’d earn a whopping zero percent. Odds are, that won’t happen again....probably not in our lifetimes.

Anyway, when deciding to lend anyone any of your hard earned money, or those of your clients, you’d generally look at the borrowers’ balance sheet, right? Let’s do that now, look at the US government. Call me a gloom and doomer, I don’t really care. I’m a realist and I’m not going to be on this bus when it goes over the cliff.

The US government balance sheet has a lot of assets and lot of liabilities. When you add them all up, you get a really big number...one with a BIG negative sign in front of it. In 2009, the US is expected to bring in roughly $2 trillion and spend almost $4 trillion. Not a recipe for success, is it? In order to pay for all this spending, the government will do one of two things, or a combination thereof:

- Print more money out of thin air
- Raise interest rates to attract buyers of our debt

Either way, the dollar becomes worth less and less. In fact, the largets holders of US dollars, the Chinese, have quietly making deals with other trading nations to make direct exchanges in money as opposed to the more normal route of exchanging Chinese remnibi/yuan, for US dollars, then exchange the dollars into the trading countries' currency. Me thinks the Chinese understand what is going on here are saying..."Screw this! We don't want no stinking dowwars!" and they're bypassing the system altogether. They now have currency swap agreement with 6 other nations. The future of the dollar is being scripted for everyone to see.

Yeah Jim, those are all a bunch of numbers and a lot of mumbo jumbo, what does it mean for me, the average Joe? I’d suggest that things will be much worse before they get better. Hunker down, save your money, get out of debt, teach your children to speak Chinese and kiss your bosses rear-end every day because without a job, odds are you will be toast!

Thought of the Week: “What must happen, will.”

20090325 - Look in the Mirror for Leadership

30 yr – 4.98% w/ 0.7% in fees. DOWN from 5.15%. 1 yr ago - NA
15 yr – 4.61% w/ 0.7% in fees. DOWN from 4.72%. 1 yr ago – NA
5/1 ARM – 4.98% w/ 0.7% in fees. DOWN from 5.08%. 1 yr ago – NA
1 yr ARM – 4.91% w/ 0.6% in fees. UP from 4.86%. 1 yr ago – NA
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -3-19-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.


Mortgage Rates: Rates are up. Rates are down. Who cares if you can't borrow money for any number if umpteen reasons prevent you from improving your situation....no job, crushed house values, stupid rules about making too much money, not making enough money, etc. It seems that the most people getting any assistance are people that are late on their mortgages. Reqrding failure. Super!

Rates improved this week after the Treasury announced they would spend a TRILLION to help Wall Street Banksters work they’re way through this “rough patch” in the economy. Rates may go lower in the future, or they may go a lot higher…especially after the Chinese and Russians are starting to rattle the cages, calling for a replacement of the US dollar as the world’s reserve currency. Bottom Line: things are unstable and anything is possible.

Bailout Plans: Washington is causing so much unpredictability in today's financial world, it is amazing that they are confused, or at least play like that on TV, about the reasons why things aren't getting better. Sometimes they seize companies and sell them to their buddies, sometimes they inject billions, sometimes they let companies fail. Hmmmm...what's the baromter used for such decisions? No one knows. Nobody knows what the rules will be and as a result, only fools would expose new capital to the US financial sector at this time. Again, the politicians wonder why things have stopped. Doh!

Personal Finances: People need to prepare and prepare wisely and without haste. The future is still uncertain...that's never going to change... and if anyone is pinning their hopes on politicians to solve this, let alone solve anything, they deserve what's coming. Red, Blue or otherwise, it's a shame. Meanwhile, I'm getting off this runaway bus, it's fast approaching the cliff.



I heard the audio to this video the other day on the radio. I searched the internet and found it. I thought it was interesting and wanted to share it. Some of you will love it. Some of you will hate it. Some of you could care less. So be it.

Happy Easter.







Thought of the Week: "That which must happen, will happen."

20090312 - Getting Tooken

30 yr – 5.15% w/ 0.7% in fees. UP from 5.07%. 1 yr ago – 6.03%

15 yr – 4.72% w/ 0.7% in fees. UP from 4.68%. 1 yr ago – 5.47%

5/1 ARM – 5.08% w/ 0.6% in fees. UP from 5.07%. 1 yr ago – 5.34%

1 yr ARM – 4.86% w/ 0.6% in fees. UP from 4.81%. 1 yr ago – 4.94%

(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -3-5-09)
Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates. For example, credit score below 740, higher rate. Refinance, higher rate. Cash-out refinance, even higher rate.

Mortgage Rates: Rates have remained somewhat steady, increasing slightly over the last few weeks. The outlook calls for slight increases in weeks and months to come as the supply of the debt that exists in this world creates competition by those looking to sell this debt. Investors have choices when purchasing debt-related investments (bonds)….US government, municipal, corporate, etc. Pssst…in case you haven’t heard, there’s a lot of debt to be piled on the taxpayers by the US government. This debt doesn’t just magically appear…someone has to loan the money…these are the investors of which I speak.

As the government tries to issue more and more debt, this creates competition amongst debt issuers, namely government, mortgage and corporate bonds. What is the investing world’s appetite for these debt securities? Who knows, but with more supply, the likely result will be lower prices. Lower prices on bonds results in higher yields (i.e. interest rates). In order for the world’s investors to buy this debt, interest rates will have to go higher and higher in order to continue to attract this investment money.

Rates are going up. Next week, next month? Who knows…but the laws of supply and demand, just like gravity, cannot be repealed by speeches of hope & change and the political shenanigans by politicians…right or left.

The Federal Reserve: In a speech this past week, Helicopter Ben Bernanke (so called for his past statement that said if they have to, the Fed can just print money and drop it from helicopters) stated that a recovery would "remain out of reach" if the major financial institutions were allowed to fail. In other words, The Fed is not going to let any banks fail...at least none that are on the "preferred" list. Continuing, if the banking sector is stabilized, a recovery later this year is not out of the question (and I have some land I'd like to sell you in Florida). Once the banks find their footing, the Fed chairman says, "then I think there is a good chance the recession will end later this year and 2010 will be a period of growth.". What an amazing turnaround that would be, millions losing their jobs, billions in profits falling off corporate income statements and trillions in wealth lost...so far. Deluded optimism?

USA Balance Sheet: Forbes says the entire U.S. financial industry is "effectively insolvent" and everyone is pointing the finger at capitalists. Yes, they are rotten, sumbags…no doubt about it. BUT, the people who now pretend to save us from them may even be worse. At least these Wall Street people made their money by honestly misleading investors. Even Bernie Madoff made his money by defrauding investors, one at a time. Heck, some say these people should be elevated to government positions to help in the chicanery.Now, the whole mess has been turned over to the big boys. Now we're getting the shaft and fraud on a much bigger scale…"We’re Getting Tooken". Trillions of dollars are being given out by politicians. AIG, for example, has been described as 'where taxpayers' money goes to die.' But it doesn't really die in AIG…it travels goes down the line to pay off debts to the big boys still in the game...Merrill and Goldman Sachs. It’s reported that Goldman was actually in the room with the feds made the decision to 'rescue' AIG. Goldman may not have mentioned it at the time, ooops, but AIG owed Goldman billions of dollars. Now, the taxpayers bailout AIG so that Goldman can get its money. It’s really quite simple…the banksters are getting their money, one way or the other.

Getting Tooken - select the play button. Audio only.

Inflation: And when you think things can't get any stranger, we see this type of stuff being touted by the mainstream press, mainstream finance professionals and policymakers. A perfect example was a quote in this week's Australian Financial Review. Now, keep in mind, this isn't coming from one isolated member of the finance industry. It is the mindset of most in the finance industry, and the mindset of virtually 100% of those that advise politicians. The quote was from Adam Carr, senior economist at ICAP Australia:

"I think when you print money, it becomes very attractive [for investors] to take advantage of the fact that money is just given away for nothing."

Printing money? Sure, that solves everything…

This just drives home the point when we speak of $20 loaves of bread. Policy makers are actually pushing ahead with the ideas that bring us closer to this reality.

Consumer Spending: The current mindset says... “The economy isn't growing because consumers aren't spending. If consumers aren't spending they must be saving. If consumers are saving that is why the economy isn't growing. Saving is bad, spending is good, the economy must grow. Grow Grow Grow!” Well, who can argue with that?

Washington Solution: At first, policy makers lowered interest rates to help induce borrowing and spending. That's apparently not working. Next, they could simply print money and give it away for free, right? Sure they can, but if they give it away to the new “savers” of the world, they won't spend it...so, that's a bad idea. Nope, there's only one solution to make sure that the money goes to those who truly know what to do with it. ...drum roll please ..........

Give it to federal, state and local governments. They know how to spend money.

Angry About Losing Money? So is Ward...



Outcome: However, the big losers will be those that the government claims it is trying to help, individuals and business. The individual will lose out because they will be burdened by the combination of the devaluation of their earnings and savings, and the increase in prices. Small businesses will be denied the chance to take market share from companies that would have otherwise failed.The government is notoriously bad at doing stuff and the unintended consequences of their actions will be rampant inflation. Maybe, just maybe, some will be able to take advantage of this situation and come out on the other side much stronger.

Quote of the Week: "Like a leech on the back of a water buffalo. The animal may be strong and fit; but put enough leeches on him and he'll wither like a dried up grape.".

20090304 - The Foreclosure "Fix"

Today was supposed to be the day that the details of the foreclosure fix that was originally announced by the White House on 2/18/09 were to be revealed. Well, "the fix" is in alright.

The ambitious and complex foreclosure-prevention program could end up helping fewer homeowners than originally advertised because of tough eligibility restrictions, likely delays in execution and possible legal challenges. The program is designed to help delinquent borrowers, but it's also is supposed to help certain people that have seen their home values go down and can't refinance as a result, but otherwise have solid payment histories.

a. the details on how this is to be implemented are lacking. No plans. No directions have been offered.

b. lawsuits are going to fly all over the place

c. there are so many strings attached that no lenders are going to want to participate.

Let me take each one and make a few comments:

a. No details have been provided. Simple enough. How is the government ever going to come up with an efficient processes, complete details and oversight to implement something that will impact 7 to 9 million individual, unique circumstances that are connected with each individual and unique mortgage. It cannot be accomplished.

b. Not having a full understanding of the mortgage industry allows bureaucrats to have "pie in the sky" dreams of utopia. Here's the deal though...

Mortgages are originated by loan officers "on the street". The loans are then sold either individually or in bulk to other lenders. Sometimes these lenders re-sell them again. They can re-sell them to Fannie Mae or Feddie Mac. Or, they can re-sell them to large hedge funds, pensions funds, insurance companies, etc. (i.e. the investor). Of the $13 trillion loans out there, about 1/2 are owned by Freddie and Fannie and the other 1/2 are owned privately by investors.

Lenders will often retain "the servicing" rights of these loans. This means that the lender that sold it, still processes the loan payments, enforces foreclosures, etc. The lenders that service the loans have agreements in place with the investors or Fannie/Freddie....the people that bought these pools of mortgages as investments. These agreements allow some latitutude on how to service the loan. However, these agreements don't allow the servicer to arbitrarily offer a "haircut" on the principal balance of the loan to the borrower and/or negotiate away the return of their investment (i.e. mortgage payments).

You see, the "fix", calls for lenders to offer solutions to help borrowers, like lower the loan balance or defer payments or lessen the monthly payment altogether. However, the servicer has to first consult with the owner of the mortgages; the investor that actually paid for and owns these loans and all the payments that are supposed to come with them. Now, the "fix" lets servicers change the terms of the loan without thinking about the investors that bought these loans and the government is coming in and saying that they have to take the hit.

Well, investors are claiming that if the servicer of the loan complies with the new government "fix", then they will sue the servicer for default on the terms of their agreement and they will also sue the government for "the taking of their private property without compensation". So, in fear of getting sued by investors, servicers of loans are not going to sign up for the new "fix" that has been offered up.

Investor groups (those that own these mortgage) are also suggesting that if the government wants to help all these people in default, they need to buy the loans from these investors. You see, all the Fannie Mae and Freddie Mac loans are already eligible for this "fix", yet they only account for 1/2 the loans. These privately held investments / pools of mortgages, are the other 1/2 of all loans outstanding. They argue that once the government owns the loans, they can do whatever they want. Meanwhile, they're trying to force these investors to eat crap sandwiches. This is analogous to the government coming in and saying that your certificate of deposit that you hold at the bank should be reduced by 10-20% because the bank is having a hard time or because they need that money to lend to other people. It's craaaaazzzzzyyyyyyy !

c. Based on all the above, it's such a cluster that the timeframe for anything meaningful to come out of this is many months. Not quite what the government intended...or is it?


Quote of the Day: "If no one is allowed to fail, then no one is allowed to succeed either." - Anonymous

20090227 - Hangin' In There

Pinnacle Report – 2-27-09


30 yr – 5.07% w/ 0.7% in fees. DOWN from 5.25%. 1 yr ago – 6.24%
15 yr – 4.68% w/ 0.7% in fees. DOWN from 4.92%. 1 yr ago – 5.72%
5/1 ARM – 5.07% w/ 0.7% in fees. DOWN from 5.26%. 1 yr ago – 5.43%
1 yr ARM – 4.81% w/ 0.6% in fees. DOWN from 4.92%. 1 yr ago – 5.11%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -2-26-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates. For example, credit score below 740, higher rate. Refinance, higher rate. Cash-out refinance, even higher rate.

I realize that I have been a little negative and sarcastic over the last several issues. I am generally a very positive person and my tone of late has been an attempt to be somewhat humorous while at the same time trying to share my views, from the cheap seats, on where things are headed. While I don’t know any better than the next clown, I sincerely hope I can get a few people to slowly pause and think about what is really happening.

Summary: Mortgage rates have improved slightly over the last few weeks and loan applications for refinances continue. yay me. However, a larger and larger percentage of these applications are not resulting in closings and/or benefits to borrowers. Why you ask? Well, I’ll tell you Bubba. Housing values, to nobody’s surprise, are continuing down. Lower home values leads to less equity in the home, leading to higher risk for the lenders, thus leading to higher rates and fees to borrowers and more and more scrutiny by lenders. Mortgage rates should hold steady.

Mortgage Approvals: Slam dunk borrowers of months ago are now marginal. As always happens during a “crisis”, the knee-jerk reaction swings too far, too fast. While I am a big proponent of common sense underwriting and getting back to the “good ole’ days”, some of these lenders are getting ridiculous. However, I understand where they are coming from…to a certain point.

You see, the lenders are not in total control. No doubt you’ve heard that giant sucking sound from Washington. The pitch I hear is from those sink-holes called Fannie Mae and Freddie Mac. While these two entities should have been buried long ago, they still call the shots in the residential mortgage industry. Most loans are sold to Fannie and Freddie. As a result, loans need to meet their guidelines. These guidelines are changing faster than their share values are sinking, now below 50 cents. Amazing how corporate accounting shenanigans can get your share over $100 and get you millions in bonuses, but after TSHTF, 2 short years later, they’re now penny stocks!

Anyway, when lenders sell their loans to Fannie and Freddie, the lender is still on the hook if the loan goes bad. So what the lenders do is put the borrower through the wringer to document more than usual. I even had a lender require the borrower to write a lender explaining why they haven’t been to the dentist in the last two years and tell me what color their underwear was on the last Tuesday in January!! Can you believe it? All kidding aside, the lenders are putting everybody through the wringer because if the loan goes bad, they need to demonstrate to Fannie and Freddie that they went “above and beyond” to make sure the borrower was a qualified buyer. Otherwise, Fannie and Freddie have agreements in place that require the lender to buy-back the loan in the event of a small technicality, or if they can prove the lender should have done this, or done that. So, in an effort to remove that chance, the lenders are looking under every stone these days. Bottom Line: expect loan approvals to be excessively detailed and take a long time. The lenders are being more prudent and borrowers need to learn to be patient. Me thinks, a little too little and a little too late.


Housing: New Home Sales: Gee, permits for new homes are down 50.5% from last year, while housing starts are down 56.2% and New Home Sales down 48.2%. While no surprise, it’s still going to leave a mark! There’s excess inventory that needs to be sold off. The government is trying with proposal after proposal and plan after plan…but WE CAN’T SPEND OUR WAY OUT OF THIS REPRESSION !!! Besides, the money has to come from somewhere and they can only take so much taxpayer money before people give up on our once great nation. I have talked with too many people talking about throwing in the towel and leaving.

Employment: Next week we will see the big employment report for February. Nothing positive is anticpiated. Weekly claims for new unemployment are well above 600,000. As I have often repeated, jobs, jobs, jobs are the foundation of the economy. Without jobs, it all stops. But they must be productive jobs. People have stopped spending money, which is what they should be doing. But someone else’s spending is someone else’s income. When their income drops, they cut back on spending, and so on and so on.

While many are calling for the government to step in and pick up that slack of spending. Crazy stuff: have you ever experienced a government spending program be efficient? There is too much room for waste and corruption. This government spending is supposed to keep jobs up and help instill confidence in the consumer. Consumer confidence is not what is needed!!! What we need are productive jobs. We cannot sustain ourselves by being a bunch of paper pushers…and I write this realizing that this is exactly who I am…a paper pusher. Believe me…I know, it’s hypocritical and it’s something that I came to realize a short while ago.

Inflation: Inflation is supposedly down. Ya mon, right. Even if it was, taxes are going up.

Taxes: Hey did you hear, there's a new plan to save the world. it includes a 40% tax on aspirin...can you believe that? 40%? I heard the tax is so high because aspirin "works"! Sorry, can’t help myself. Did you know that the top 10%of wage earners, “the rich”, are defined as households making over $108,904 per year. You know, a teacher and a police officer. This top 10% pays 63% of all taxes paid. Even if the government taxed 75% of the income of the “rich”, it still wouldn’t pay for the proposed 2009 government deficit of 1.75 trillion. WE CAN’T SPEND MONEY WE DON’T HAVE !!!!

I've gone through this before. If we don’t have the money, but those people in Washington, REPUBLICAN or Democrat, keep spending it, generations will have to pay one of two ways: borrow the money at higher and higher interest rates until we can’t pay anymore, or print the money. Some people think printing money is the best idea. After all, it’s more money. Money in the form of paper or in the form of digits in accounts is not money. All this does is lead to inflation…the kind that causes bread to cost $20. Think about your child or grandchild…with deficits we will need higher and higher and higher and higher taxes. Higher taxes will simply mean we will all become slaves to the government. But hey!!! At least they’re “doing something”.

What’s the problem with inflation? Think about this for one second. 2500 years ago, an ounce of gold could buy 350 loaves of bread. Today, an ounce of gold, $1000 +/-, will buy you the same 350 loaves of bread. How much did a loaf of bread cost in US dollars in 1913? How much does it cost today?


Thought of the Week: “Yesterday, the Dow fell again - down 80 points. We have been estimating that it would fall to between 3,000-5,000. But we are eternal optimists. Always looking on the bright side - every glass has a silver lining...and every cloud is half-full! But if the stock market repeats the experience of '29, it will fall below 2,000” -Bill Bonner

20090219 - Good, Bad or Indifferent

The new housing plan from Washington has been released. A summary was prepared earlier this morning. You'd think I would be ecstatic and all for these plans. Not so fast there partner. What the government giveth, the government taketh away. After all, this money doesn't just get dropped from helicopters...or does it? (That's a whole other story left for another time.). There are a few issues to be discussed:

1. The plan provides cash payment to lenders to incentivize them to modify loans...something they should already be doing. Sounds like a bailout to the lenders...again!

2. The plan provides cash payments to borrowers that obtain loan modifications and then to do what they're supposed to already be doing....making their flippin payments! How about another $5000. CRAZY! After all, the losers of society should be rewarded, right? (Prediction: soon, otherwise responsible citizens will see all the bailout money going elsewhere and will start pounding on their neighbor or otherwise become a leech on society...after all, besides character, what's the reward for "following the rules"?)

Other thoughts..."Why Do Losers Get Rewarded?" see video here http://www.cnbc.com/id/15840232?video=1039849853

3. The plan also allows bankruptcy judges to modify loans for borrowers, WITHOUT CONSULTING THE LENDER. In other words, they can take the mortgage "contract" and re-write it to better suit the borrower, most likely by lopping off a prtion of the principal balance. After all, it will avoid a foreclosure and keep people in their homes...isn't that what we want? Of course, but why should other taxpayers be the ones to pick up the tab? YOU TELL ME! Banks made bad loans, they should eat it.

The bigger problem with this: what incentive do buyers have to make their payments, what incentives will lenders have to issue loans when they know these otherwise valid mortgage agreements can be stricken down with the stroke of a pen? What large instrituional investors will purchase these loans if they know that the return on the billions they fork over as an investment, can be diluted by that same stroke of the pen?

END RESULT: Higher rates to make up for the uncertainty that will pervade the mortgage industry. There may be blips along the way, but overall, investors that buy mortgages and lenders that issue mortgages will raise rates to compensate for the higher risk resulting from this "scheme", oops, I mean plan, to "help" homeowners.

4. Why is it that the plan costs $275 billion, yet the direct benefit to homeowners is only $75 billion? Could the other $200b be a bailout of sorts? OF COURSE IT IS !!!!!

Pony up everyone. After all, by keeping the neighbors home from going into foreclosure, isn't that really helping you keep your home value up? You see, everyone wins! Yay, this stuff is easy.

I have a better idea. Send every household $1/2 million dollars and let's just get it over with. Everyone pays off their mortgage, the banks are flush and paid off and there's plenty leftover to spend, spend, spend. Inflation rages and the national debt is repaid by foreigners with cheaper dollars. Problem solved. Thank you. (Obviously, I am joking...)

2090219 - Mortgage Plan from Washington

Questions and Answers for Borrowers about the Homeowner Affordability and Stability Plan

Borrowers Who Are Current on Their Mortgage Are Asking:

1. What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?
Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

2. I owe more than my property is worth, do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.

3. How do I know if I am eligible?
Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

4. I have both a first and a second mortgage. Do I still qualify to refinance under the Homeowner Affordability and Stability Plan?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.

5. Will refinancing lower my payments?
The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan.
When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.

6. What are the interest rate and other terms of this refinance offer?
The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.

7. Will refinancing reduce the amount that I owe on my loan?
No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

8. How do I know if my loan is owned or has been securitized by Fannie Mae or Freddie Mac?
To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.

9. When can I apply?
Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.

10. What should I do in the meantime?
You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes:information about the gross monthly income of all borrowers, including your most recent pay stubs if you receive them or documentation of income you receive from other sources, your most recent income tax return, information about any second mortgage on the house payments on each of your credit cards if you are carrying balances from month to month, and payments on other loans such as student loans and car loans.

Borrowers Who Are at Risk of Foreclosure Are Asking:

1. What help is available for borrowers who are at risk of foreclosure either because they are behind on their mortgage or are struggling to make the payments?
The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

2. Do I need to be behind on my mortgage payments to be eligible for a modification?
No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.

3. How do I know if I qualify for a payment reduction under the Homeowner Affordability and Stability Plan?
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.

4. I do not live in the house that secures the mortgage I’d like to modify. Is this mortgage eligible for the Homeowner Affordability and Stability Plan?
No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.

5. I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?
Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.

6. I have two mortgages. Will the Homeowner Affordability and Stability Plan reduce the payments on both?
Only the first mortgage is eligible for a modification.

7. I owe more than my house is worth. Will the Homeowner Affordability and Stability Plan reduce what I owe?
The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates.
However, the program offers incentives for principal reductions and at your lender’s discretion modifications may include upfront reductions of loan principal.

8. I heard the government was providing a financial incentive to borrowers. Is that true?
Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.

9. How much will a modification cost me?
There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.

10. Is my lender required to modify my loan?
No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.

11. I'm already working with my lender / housing counselor on a loan workout. Can I still be considered for the Homeowner Affordability and Stability Plan?
Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.

12. How do I apply for a modification under the Homeowner Affordability and Stability Plan?
You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.

13. What should I do in the meantime?
You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes information about the monthly gross income of your household including recent pay stubs if you receive them or documentation of income you receive from other sources, your most recent income tax return, information about any second mortgage on the house, payments on each of your credit cards if you are carrying balances from month to month, and payments on other loans such as student loans and car loans.

14. My loan is scheduled for foreclosure soon. What should I do?
Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility.

20090206 - Higher Rates. Higher Fees

30 yr – 5.25% w/ 0.8% in fees. UP from 5.10%. 1 yr ago – 5.67%
15 yr – 4.92% w/ 0.8% in fees. UP from 4.80%. 1 yr ago – 5.15%
5/1 ARM – 5.26% w/ 0.6% in fees. DOWN from 5.27%. 1 yr ago – 5.21%
1 yr ARM – 4.92% w/ 0.5% in fees. UP from 4.90%. 1 yr ago – 5.03%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -2-5-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: As predicted earlier this week, on average, mortgage rates rose this past week. Atta Boy Jim! (Well, someone has to pat me on the back. If not me, who else will do it?) Overall though, rates are still historically low. Continued poor economic news coupled with the continuing borrow and spend mentality are causing rates to increase. HUGE supplies of government debt are causing rates to increase as the appetite for these investments from large institutional investors and foreign governments in waning in the wake of the MOAB (Mother of all Bailouts). While riots haven’t begun in the country yet, the world is experiencing change…not the promised “change” of political campaigns, but real economic change.

Employment – new applications for unemployment benefits rose to a new “season” high of 626,000 people for the week ended 1-31-09. Yowza! A little higher than expected. The rot on the vine continues as the total of people that remain on unemployment has grown to 4.788 million, the highest level since the 1950’s.

The January employment report just posted and initial indications are that the nation's unemployment rate rose to 7.6% as 598,000 jobs were lost, the most since 1974.

Auto Sales – Closer to home here in Michigan, January auto sales were horrible. On average down 37.7% from year ago levels. Consumers without jobs don’t tend to buy new cars…at least they’re not supposed to. The auto suppliers are next in line looking for $20B from the "gub-mint".

US Treasury – This past Wednesday, the US Treasury opened the floodgates of government bond issuance, revealing plans for a record debt sale in February and more frequent auctions in the months to come. (i.e. this is how the US pays for all this spending; by issuing bonds…we the taxpayers, promise to pay you the buyer of these bonds). The large volume of bonds to be issued means it will likely be harder to attract investors...after all, how many people want to lend money to what is fast becoming a sub-prime borrower, namely the US. As a result, more supply with stagnant or lower demand means that prices need to come down on these bonds.

Mortgage Rates: As long time readers may recall from past lessons, when the price of a bond drops, the yield or rate increases, and vice versa. The recent drop in rates has been caused by the unwinding of what are known as “carry-trades” (long story for another time) and a flight to quality. Typically, when the equity markets are crashing like the world experienced this past Oct and Nov, money gets parked where it is presumably safe, US Treasury Bonds. Typically, what happens in the US Bond markets closely parallels what happens in the “mortgage backed securities” market. The rates tend to move in the same direction. However, this carry trade is pretty much over and the flight to quality may be quickly changing as the US balance sheet is getting more and more out of whack and the quality of the US, as a borrower (i.e. issuer of bonds), is coming under more and more scrutiny from past and present investors/buyers of this debt.

A good way to describe this might as follows: A golden boy, hot shot business man was the envy of the world because everything he did worked very well...for decades. He was a machine. After many, many years though, he stretched himself a little too thin and is now basically insolvent (bankrupt), but his reputation has allowed him to go deeper and deeper in debt. Same with the US and as a result, the 10-year Treasury note has risen almost 1 percent in the last month from just over 2% to 2.95%.

Unless some major “gub-mint” intervention takes place to drastically and artificially lower mortgage rates (which is still VERY likely), mortgage rates may naturally increase along with Treasury Bonds in order to attract buyers/investors of this debt.

Deficits Don’t Matter: Some people have claimed that the US has run up huge deficits in the past and that it can overcome these things as what happened during the Depression of the 1930’s. A few major differences should be noted: We were a nation of savers back then, so when the Federal Government went into debt by issuing bonds, the majority of the buyers of these bonds were US citizens. 1) The US citizens had the ability to buy bonds to support the government debt, and 2) The US citizens had a vested interest. Today, that’s not the case. We’re a nation of spenders and our government debt is primarily owned by foreigners. Yes, they have a vested interest also, but not as strong as the citizenry certainly would. So, the growing debt situation is strained by the fact that WE don’t really control it. It also doesn’t help that our economic leaders in the Treasury Department have recently started pointing fingers and partially blaming those countries that can, do and will have a direct impact on our ability to fund this deficit spending. It's kind of like biting the hand that feeds you. This is why many are so concerned about rising interest rates and/or MUCH higher inflation…ala $20 loaves of bread.


Bailouts: It started with the banks, then the insurance and auto companies, now auto suppliers. MARK MY WORDS: Next it will be state governments (can you say California, New York and every other large Nanny State), large municipalities, pension funds, commercial real estate and finally, YOUR 401k’s. OK, here we go again, Jim’s on a rant…


How boring it is to be alive today....NOT !!! The times we live in our anything but boring. When tax cheating "leaders" and politicians stand on their soapboxes and take a morally righteous tone and lecture others about fiduciary duties and responsibility, it just makes you want to puke. It's totally absurd. Democrat or Republican, except for a very few exceptions, they're interests are placed well above and beyond of us, the citizens of these united states.

The day has arrived when politicians have now decided to limit executive compensation. (Pssst...if they can to it to "them", they can do it to you.) Now, I realize that corporate CEO salaries have risen exponentially compared to the average salary of their employees over recent years. I am not defending the $100mm golden parachutes to executives that drove these companies into the ground and are now “too big to fail”. Screw ‘em! This is a corporate issue, not a political issue. Shareholders, you know, the people that actually "OWN" the companies, should have resolved this and removed the dunderheads running them into the ground. Shareholders need to vote these SOB's off the boards at their annual meetings and control things a little better with their compensation committees. Well, I guess now that the government owns part of them, they're actually shareholders. There's goes that argument.

Anyway, because taxpayer money is now involved with many of these companies, the Washington Wizards have jumped on the populist thought of the day and have now limited executive compensation. After all, they're "doing something". Don't worry, it's all window dressing and these people will continue to put up smoke screens and “dance the dance”, all in the name of "doing something". The executives will still get paid through some loophole somewhere discovered by some compensation consultants. That's not my issue today..I don’t own of their stocks so I don’t care.

What I do care about is the charade, the smoke screen, the “distraction”. Let's examine where even more of "our" taxpayer money has gone over the last several decades. In an old Saturday Night Live "Church Lady" voice..."Can you saaaay, The Government?" The people in Washington get taxpayer money every single day. They even spend money they don't have by stealing from future generations and they have had budget deficits for decades!

Congress, the Fed, the President and the Treasury have mis-managed their institutions even more than Wall Street has mismanaged itself. The political class, you know, the elites in capitols across the globe, now represent their own interests above the interests of the electorate. That’s the problem. Solution: No one in Congress is allowed to make more than the median average household income until the Federal Budget is balanced, around $50,000. After all, shouldn't everyone be accountable for how they discharge their responsibilities?

If CEOs can have their pay capped, then why shouldn't Congressional Representatives and Senators fall under the same rules? A soldier makes about $24,000/year. That's about half the median household income of $50,000 and considerably less than the $174,000 paid to low ranking members of the U.S. Congress. So let's do the math. A 20-year old serving his/her country overseas gets $24,000, but the people who decline to fulfil their Constitutional duty make $174,000 while overseeing and implementing annual budget deficits, often fail to pay their own taxes correctly, take bribes, get sweetheart mortgages and lecture the American people on the need for sacrifice and how "patriotic" it is to pay taxes. Absurd. Really.

Thought of the Week: “Americans have been beaten down to a degree that they're now a pacified population, largely willing to accept any economic outrage its elites impose on them.” - Mark Ames

20090202 - Idiocy in America?

30 yr – 5.10% w/ 0.7% in fees. DOWN from 5.12%. 1 yr ago – 5.68%

15 yr – 4.80% w/ 0.7% in fees. SAME at 4.80%. 1 yr ago – 5.17%

5/1 ARM – 5.27% w/ 0.6% in fees. UP from 5.24%. 1 yr ago – 5.32%

1 yr ARM – 4.90% w/ 0.5% in fees. DOWN from 4.92%. 1 yr ago – 5.05%

(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -1-29-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: “On average” mortgage rates have held steady. Be advised though that these averages do not reflect the last few days of last week…rates started creeping higher on Thursday and Friday. Next week average rates will likely show a slight increase.

Housing: Same story, different month. A most reliable S&P/Case-Shiller® 20-city composite index showed an 18 percent annual rate of decline through November and the National Association of Realtors® (NAR) showed a 15 percent annual rate of decline through December. Keep in mind, these sales figures happened while mortgage rates were at 50 year lows in late December.

Home Sales: Sales of "New Construction" homes for December were down 44.8% from a year ago to an annual level of 331,000 units. Existing Homes “surprised” the experts and rose from last month to an annualized rate of 4.74 million, down 3.5% from a year ago. However, average home prices fell due to the increased number of foreclosures and stressed sales.

Employment: Weekly unemployment claims have held steady in the upper 500,000 range for the last several weeks. This number is certain to increase as the number of announced layoffs have increased over the last few weeks. As I have repeated a number of times, productive jobs are a HUGE factor to any economic recovery. See last weeks rant. Real jobs, not government jobs that are created out of thin air and at the expense of taxpayers.

The Federal Reserve (The Fed) – the country’s financial leaders don’t have a clue...oops, my opinion came out. I'm not saying I have all the asnwers, I just think what's going on will have DIRE consequences weeks, months, years and generations to follow. They met this last week and didn’t make any changes to interest rate policy. Why? We’re already effectively at zero…so, it’s time to start of the printing presses. They have indicated they “will do whatever it takes” to fix this thing. Yeah, everything except do what’s right!

Idiocy in America: How does adding more debt and bailing out the banks will NOT solve a debt problem? Chatter about another 1-2 TRILLION to the banks in the near future. GM wants more. California is issuing IOU’s to the citizens that they owe money (tax refunds, vendors, etc.)

Wall Street: Did you hear about the billions in bonuses paid to Wall Street banksters that were getting bailout money last year? It’s not surprising….at least not to me. Now the populist idea is to limit executive pay. Be careful of what you wish for and might support. While it truly is amazing and wrong, the previous bailouts didn't limit how this money was spent, limiting executive pay sets a precedent for government to slowly but surely start to implement limits on everyone’s income. Last week the White House “set the example” by limiting pay raises. Is your industry next?

Outlook: Rates will be slightly higher next week. Bailouts will continue and incompetents will still be elevated to higher positions of responsibility.


Thought of the Week: “We cannot tax and spend our way to prosperity.” – Trent Franks, Arizona

20090122 - Uh Oh, Rates Up and ... More Regulation My Rear

Uh oh - rates up?

30 yr – 5.12% w/ 0.7% in fees. UP from 4.96%. 1 yr ago – 5.48%
15 yr – 4.80% w/ 0.7% in fees. UP from 4.65%. 1 yr ago – 4.95%
5/1 ARM – 5.24% w/ 0.6% in fees. DOWN from 5.25%. 1 yr ago – 5.24%
1 yr ARM – 4.92% w/ 0.7% in fees. UP from 4.89%. 1 yr ago – 4.99%

(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -1-22-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

It seems that in today's economic world, people want to "blame" someone for the problems. I can understand that. It appears to make sense. The popular belief is that the capitalist society we live in has been blamed and that greed is the root of the issues and the only solution to that is "more regulation". Again, seems understandable. The fact is, in my humble opinion, lack of regulation is NOT the problem. Politicians are the problem...on BOTH sides of the spectrum.


Let's see, the SEC audited Bernie Madoff's firm how many times in the last several years? Seems that regulation didn't help in this regard, did it?


Closer to my backyard, politicians are now calling for more regulation in the mortgage industry. A little too little and a little too late. As far back as 7 years ago, some were calling for more regulation of Fannie Mae and Freddie Mac...but did anyone listen. Nyet! The politicians let the Schumer hit the fan, while Daffy Duck was on Capitol Hill trying to hide the fact that "accounting irregularities" ala Enron, excessive risks posed no problems/risks for Fannie Mae and Freddie Mac. Could large political contributions has clouded their judgement? Nah...elected officials know better than we the sheeple.


To help further demonstrate the point, watch the short 3 minute report showing who tried to do what to reduce the risks at Fannie Mae and Freddie Mac. Aside from the source of the video, the facts remain...some people warned about potential problems and others swept it under the rug.


As you may know from past posts, I think all politicians in Washington have lost their collective minds over the last several months. See video below.




"OK Jim, if you're so darn smart, what are we to do with our money and investments? How do we come out of this thing on the other side? Smart aleck!"


Whoa there partner. I'm just an average schmuck with a little bit of an attitude. I don't have all the answers. I'm not sure I even have "any" answers. I know lately all I have been seeing and reporting about is nothing but bad news, and how strange it must be to even as the new era of responsibility has come upon us and now the sun is supposed to shine a little brighter and water is going to be cleaner and the ... well, you get the idea. The world has been saved...by government? huh?


Anyway, I think my neighbor's daughter has the answers: The Three G's.


Have you seen how Gold investments have performed over the last several years? Oh, up about 150%. Have you seen the cost of Groceries come down? I think you can figure out what the other "G" is for in this picture. Isn't she cute?


More regulation is coming to every business in the land. I've reported it here in the past about the mortgage industry. End result, higher costs.

20090118 - Birds Gotta Fly

30 yr – 4.96% w/ 0.7% in fees. DOWN from 5.01%. 1 yr ago – 5.69%
15 yr – 4.65% w/ 0.7% in fees. UP from 4.62%. 1 yr ago – 5.21%
5/1 ARM – 5.25% w/ 0.6% in fees. DOWN from 5.49%. 1 yr ago – 5.40%
1 yr ARM – 4.85% w/ 0.5% in fees. DOWN from 4.95%. 1 yr ago – 5.26%
(Average mortgage rates according to Freddie Mac’s Primary Mortgage Market Survey®, as of -1-15-09)

Note: These rates should be used for trend line analysis only and NEVER for comparison shopping. Your rate will vary depending on multiple factors. In general, this simply helps demonstrate the direction of mortgage rates.

Summary: Good News? 30 year fixed rates, on average, are lower than they’ve been since recording weekly averages began in 1971. The Bad News? Not everyone can get these rates. BUT EVERYONE DOESN’T DESERVE THESE RATES EITHER!

MOAB: The Mother of All Bailouts continues...to anyone's surprise? Give me a break...they're politicians and banksters. The mindset of the dunderheads in Washington and the intelligent, brilliant and tax cheating executives at the US Treasury Department continues. Is it any wonder that the citizenry expects that at least a morsel of these bailouts could actually help them. Imagine that, billions and billions, actually trillions, have been spent on our behalf and pledged to be paid by us, our children and grandchildren for decades, and “we the people” are hoping for some benefits too. Understandable…but naïve. Wake up !!!!!

Amazingly, mortgage rates have continued to improve on the continuous deterioration of the economy…lower house values, higher unemployment, more confiscation of our money…ooops, I mean more bailout announcements for the banks….again. The shackles of serfdom seem to be getting tighter and tighter. The government is taking over and/or controlling more and more industries in this country. I know the government is efficient at everything else, so I expect that to continue...NOT! Mortgages have benefited because they are now basically getting purchased outright by the Treasury. This makes them considered “safer” investments by the large institutional investors that purchase these bundled mortgages. As a result, yields on those investments have dropped (i.e. mortgage rates have improved.)

Some may call me a gloom and doomer, but I calls ‘em likes I sees ‘em. Yeah, there are a few bright spots…people are starting to get back to basics. Frugal is starting to become cool.


Mortgages: Many people have benefited from lower rates…some saving $300 and $400 per month. Yahooo !! It’s a great opportunity…for some. The industry has become so glutted with activity that services that used to take a few days are now taking a few weeks. The lesson to be learned here…don’t delay and move quickly if you want to borrow money. Could rates go lower? Of course! Anything is possible. Nothing would surprise me.

Not For Everyone: I’ve discussed this before, but want to reiterate that not everyone can take advantage of these rates for a few reasons:

Low credit scores
Lower home values
Tighter underwriting guidelines

Credit scores for borrowers need to be higher than in the past. The lower the score, the higher the rate. Lower home values continue to wreak havoc. If somehow home values could stabilize it could potentially help. But there are many other issues at hand. There is chatter about more bailout programs and tax credits to help homebuyers. In the short run and on the surface, these bailouts can “appear” to help, but bailout money comes from somewhere…it’s not manna from the sky. The problem with bailouts is that the money that is being taken from the “payers” eventually runs out. The other problem is that bureaucrats are deciding who gets the money and who doesn’t with no apparent concern for calls of transparency and accountability.

This past week I heard some mortgage “genius” on a local radio program in Traverse City. He opined that the banks need to "loosen" their standards to "get things going". What !!!! What!!! Did I hear this bafoon correctly? The poor people that need the lower rates from a refinance can’t because they don’t qualify. Boo hoo. They used to qualify years ago, when all you had to do was fog a mirror to get approved. In case people haven’t noticed, and apparently this “genius” is one them – things have changed. Loose credit helped created the problems we now face. This mortgage genius was telling a story about a woman he was working with that was late on her $10 electric bill and that caused her loan to be denied. I have two observations: 1) I have never seen a $10 electric bill, which makes me think he's fabricating this story and 2) If she can't make her $10 payments on time, how will she make her $900 house payment on time? Yeah, it may have been an innocent mistake, but I can’t believe that this was the only issue. My 20 years of experience tell me otherwise.

Anyway, lower rates may be coming from bailouts, but lower home values and lack of a job may very well prevent you from refinancing in the future. If it makes sense, refinance…NOW.

JOBS: The new people coming to Washington have been chatting about ideas on how to “fix” the economy. It's no different that the bozos leaving the White House this week. The one thing I want to know...which doctor gave George Bush a lobotomy? Bush, Bernanke and Paulson - The 3 Stooges. Given the chance, politicians and bureaucrats will ALWAYS do the wrong thing, ALWAYS. Anyway, recent comments about the governments grandiose plans for creating jobs keep changing. First the goal was to create 2 million jobs, then it was raised to 2.5 mm and now it’s 3 million jobs. Well which is it? This all changed within a few weeks time frame. This shows that they have no clue…you don’t just magically create an additional 1 million jobs because it sounds better in a speech.

Anyway, the sheeple of this country are demanding that the government “do something”. So, “something” is what they will get. I hope everyone likes the results, not me. This bus is close to going over, or may have already gone over the cliff...and I’m not going to be on it!

Contrary to popular belief, the goal of the economy is not “job creation”. Jobs “can” be a sign of a healthy economy, but not necessarily the only barometer of a healthy economy. Just as the high energy level in a person can be a sign of health, unhealthy substances such as drugs can artificially give the addict the burst of energy that has nothing to do with being healthy.

Artificially created jobs just exacerbate our problems. The goal of a healthy economy is “productivity”. Jobs are a positive outcome of productivity. Think about it: a "job" could be to dig a hole one day, and fill it back up the next. It’s activity, it pays, but it doesn’t accomplish anything. In a government sponsored project or bailout, the money used for that paycheck ultimately came from taxing someone else. It’s taken from someone, somewhere, or it’s borrowed or created out of thin air…but that’s a whole other rant. Transferring wealth from those who produce to those who do not won’t get us anywhere except make the politicians look as if they “did something”. What makes the people in Washington know how to better run companies? Letting the government decide who gets what….what kind of solution is that? Just as Robin Hood stole from the rich to give to the poor, our government has now been given carte blanche authority to do the same. Don’t be a sucker.

WASHINGTON WIZARDS: They want to take our money and magically “create” millions of jobs through another so-called economic stimulus package. After all this money is confiscated from us, who is going to be left standing to tax in the private sector to pay for all these public sector make-work jobs? Is Washington really the answer? Think about, these 534 people that make up the Congress, Senate and Executive branches are in control. They’re the problem! Unfortunately we have a long way to go until we hit rock bottom. Today...it's the government against the citizens.

Outlook: More stuff will hit the fan. Hang on and get out of the way. I've made my predictions in past issues....lower rates at first, heck, maybe even free money. Followed by higher rates, worthless dollars (i.e. MUCH higher inflation like $20 loaves of bread)due to all the government borrowing and bailouts. When will this happen? In the future...2 days, 2 months, 2 years, 20 years? How is that for a confident answer.... We have the government we have elected. Wake up!

Thought of the Week: “Birds gotta fly. Rain has to fall. Fish have to swim. The future has to happen.”