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In This Issue

Last Week in Review: Good economic news, signs of inflation, and news from Greece all had an impact on Bonds and home loan rates.

Forecast for the Week: A holiday-shortened week is ahead, and the economic calendar will be light.

View: Drive a car for work? Be sure you’re using the latest mileage rates.

Last Week in Review

A tale of three stories. That’s a great way to describe last week’s news, as a string of positive economic reports, news out of Greece, and hints that inflation is heating up all worked together to impact Bonds and home loan rates. Here are the details!

A breakfast buffet of better than expected economic data hit the wires last week. In the housing arena, Housing Starts came in better than expected, while both the New York Empire State Index and the Philadelphia Fed Index reported positive manufacturing news. There was also decent labor market news, as Weekly Initial Jobless Claims fell by 13,000 in the latest week to 348,000 – the lowest level since March 2008! Meanwhile, Retail Sales rose in January by 0.4%, the largest gain since October.

Remember, strong economic news often cause money to flow out of Bonds and into Stocks, as investors hope to take advantage of gains. That’s partly what caused Bonds (including Mortgage Bonds, to which home loan rates are tied) to worsen late last week.

Also weighing on Bonds and home loan rates was the news that inflation is heating up. Despite the Fed’s claim that inflation is moderating, the Core Consumer Price Index (CPI), which strips out volatile food and energy, rose to its highest levels since October 2008. Meanwhile, as you can see in the chart, the wholesale measuring Core Producer Price Index (PPI) rose double the expectations of 0.2%, coming in at 0.4%. Any hints of inflation can serve to spook Bond investors – causing both Bonds and home loan rates to worsen – as inflation can reduce the value of fixed investments like Bonds. This is one story to keep a close eye on in the weeks ahead.

The drama in Greece is another key story to monitor, as it also impacted Bonds and home loan rates last week. Greece sent the markets into the weekend with assuring messages that a deal for them to avoid default is close, and this sense of optimism weighed on Bonds and home loan rates. Our Bonds and home loan rates have benefitted from all the uncertainty in Greece, as investors have seen our Bond Market as a safe haven for their money. Time will tell whether this uncertainty and safe haven trading will continue.

The bottom line is that now is a great time to purchase or refinance, as home loan rates remain near historic lows. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

The capital markets were closed on Monday due to Presidents’ Day and the economic calendar is light the rest of the week with just a few reports.

• On Wednesday Existing Home Sales will be released, followed by the New Home Sales report on Friday. The reports come after last week’s positive Housing Starts data.
• Thursday brings the weekly Initial Jobless Claims Report, which has steadily declined this year to a more job-friendly level.
• On Friday, the Consumer Sentiment Report will be released.

In addition to those reports, a number of news stories may move the markets, including additional news out of Greece, the Treasury Department’s auction of $99 Billion worth of government securities, and movement in the Stock Market. All of those news stories have the potential to negatively impact the Bond Market, depending on how they develop.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving – and when they are moving lower, home loan rates are getting worse.

To go one step further – a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, good economic news late last week reversed the improving trend Bonds and home loan rates experienced early in the week. I’ll continue to monitor this situation closely.

The Mortgage Market Guide View…

Mileage Rates for 2012

If you drive a car, truck or van for work, you’ll want to make sure you know the standard mileage rates that the Internal Revenue Service (IRS) has set for 2012.

These mileage rates are used to calculate deductible costs for driving an automobile for business, charitable, medical and moving purposes. So when it comes to filing your taxes this time next year, you’ll need to know these numbers!

New for 2012

As of January 1, 2012, the standard mileage rates are as follows:

• Businesses = 55.5 cents per mile driven
• Medical or moving = 23 cents per mile driven
• Charitable organizations = 14 cents per mile driven

You’ll notice that the rate for business miles is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

Make Sure You Qualify

Before you calculate your deduction, make sure you qualify. The IRS reminds taxpayers that they cannot use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. However, the IRS is accepting public comments on this policy.

Additional Option

Although the IRS provides the standard mileage rate for ease and convenience, you’re not required to use it. If you prefer, you can calculate the actual costs of using your vehicle instead of using the standard mileage rates.

Remember, if you have questions or concerns, talk to a tax consultant or accountant to discuss your options and unique situation.

Economic Calendar for the Week of February 20 – February 24

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In This Issue

Last Week in Review: The economic report calendar may have been quiet, but plenty of stories made big headlines.

Forecast for the Week: There’s a full week of economic reports ahead, with news on inflation, manufacturing, housing, and more.

View: Some popular tax breaks could be going away in 2012. Check out the details below.

Last Week in Review

All’s quiet on the economic report front. But that didn’t stop last week’s news from making headlines. Read on to find out what happened…and how Bonds and home loan rates reacted.

Fed Chairman Ben Bernanke was back on Capitol Hill last week, reaffirming his stance on keeping interest rates low through 2014. Mr. Bernanke said that high unemployment continues to weigh on the housing markets, due to the high number of people who remain out of the labor force or are under-employed. With last week’s Initial Jobless Claims coming in at 358,000, lower than the 370,000 expected, there is some good news when it comes to the labor market: It is improving, albeit stubbornly slowly.

Also in the news, an agreement has been finalized with five large banks to settle alleged foreclosure abuses, including the infamous "robosigning." The $25 Billion deal is the largest government versus business settlement since the tobacco lawsuits back in 1998. The deal is expected to include $1.5 Billion in cash payments to borrowers who were foreclosed upon between September 2008 and December 2011, but the larger part of the settlement amount is being directed to potentially help thousands of homeowners who are presently current on their loans but owe more than their homes are worth. It will take some time for the details to be decided and released, and I’ll be watching this story closely as more details are forthcoming.

Greece continues to make headlines, as European leaders have now demanded that the austerity measures Greece promises to make be put into law, rather than just be a verbal or virtual handshake. The other valid concern is that there’s a big, fat Greek election coming this April. Should new leadership not back these verbal agreements, Germany and the rest of Europe will be throwing good money at a bad and unresolved situation.

While this uncertainty in Europe has led to continued safe haven trading in our Bond Markets, Bonds and home loan rates worsened last week as Stocks are off to their best start to the year since 1987. The Dow Jones Industrial Average is at its highest level since May of 2008. And with the Fed continuing to underwrite the economic recovery, we should expect higher Stock prices still – and this could continue to weigh on Bonds and home loan rates over time.

The bottom line is that home loan rates remain near historic lows and now is a great time to purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

After last week’s quiet economic report calendar, this week has several releases ahead.

• Tuesday brings a look at the Retail Sales Report for January.
• We’ll get a double dose of manufacturing news with the Empire State Index on Wednesday, followed by the Philadelphia Fed Index on Thursday.
• Also on Wednesday, the FOMC Minutes from the Fed’s January meeting will be released.
• We’ll also get a double dose of inflation news with the wholesale measuring Producer Price Index on Thursday, followed by the Consumer Price Index on Friday.
• Also on Thursday, another Weekly Initial Jobless Claims Report will be released, plus will get a read on the housing market with Housing Starts and Building Permits.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving – and when they are moving lower, home loan rates are getting worse.

To go one step further – a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Bonds and home loan rates have been worsening as investing dollars have been pulled into the Stock Market. I’ll be watching closely to see if this continues.

The Mortgage Market Guide View…

9 Popular Tax Breaks You Can No Longer Count on in 2012

Lawmakers may have extended the payroll tax holiday for two months, but they let a number of tax breaks that might be dear to you expire.

By David Muhlbaum, Kiplinger.com

You’ll face a higher tax bill next spring if Congress doesn’t act to revive a series of tax breaks that expired Dec. 31, 2011. Among the breaks that Congress didn’t extend in all the sturm-und-drang over the payroll tax holiday are:

Alternative minimum tax patch

The AMT is a parallel tax system created more than 40 years ago to prevent excessive use of tax breaks by the very wealthy, ensuring they pay at least some tax. Taxpayers whose income exceeds the AMT exemption – in 2011, $48,450 for individuals and $74,450 for married couples filing jointly – must calculate both regular tax and AMT liability and pay the larger of the two amounts. But exemption levels have, at least tentatively, dropped to $33,750 for individuals and $45,000 for married couples filing jointly in 2012, which will expose 31 million taxpayers to the higher AMT this year, according to Tax Policy Center estimates.

Higher mass transportation benefit

This one’s of particular interest to straphangers, van-riders and other users of public transit. A 2009 federal stimulus provision raised the maximum an employee could receive for transit, tax-free, from $120 to $230. That matched the tax-free limit for parking. With the expiration of this break, the maximum for 2012 dropped to $125. Employees who’ve asked to have an amount higher than that withheld from their paycheck to cover their total commuting costs will see their net pay come down, as the difference is now taxed.

Deduction for direct IRA payouts to charity

Retirees who are 70½ or older could direct up to $100,000 of their IRA distributions directly to charity and exclude the donated amounts from taxable income. Not anymore in 2012, unless Congress reinstates this deduction.

Write-offs for state sales taxes

This particularly significant expired break allowed you to deduct either state income tax or state sales tax from your federal taxable income.

Teacher’s supplies deduction

Teachers, even if they didn’t itemize, were able to take an additional deduction of up to $250 for classroom supplies they paid for out of their own pockets.

Tuition and fees deduction

Taxpayers (up to certain income limits) who can’t claim the more advantageous American Opportunity or Lifetime Learning credits can still reduce taxable income by up to $4,000 for tuition and other qualifying educational expenses — if, of course, Congress reinstates this break.

Mortgage insurance premium deduction

Homeowners who don’t exceed certain income limits had been able to deduct premiums they pay on mortgage insurance policies issued after 2006 on their primary residence.

Personal tax credits applied against the alternative minimum tax

Credits such as the tuition and dependent-care credits were allowed to offset your AMT liability.

Research and Development credit

Like the AMT patch and direct IRA payouts, this credit, which allowed high-tech companies and others to subsidize research in areas that might go unexplored, has broad support. But it still falls to Congress to reauthorize it periodically.

We think Congress will manage to revive these breaks — eventually — with the exception of the transit subsidy, whose chances are no better than 50-50 . But you may spend much, if not all, of 2012 in a state of uncertainty. The political atmosphere in Washington is so toxic that it is doubtful the parties will reach agreement before the end of 2012, when Congress will have to take up the question of extending the Bush tax cuts.

If lawmakers wait too long, in 2013, we may have a repeat of the 2006 and 2010 filing seasons, when many taxpayers had to wait for the IRS to reprogram its computers before they could file their tax returns. In both cases, the start of the filing season was delayed for many until early to mid February.

Reprinted with permission. All Contents ©2012 The Kiplinger Washington Editors. www.kiplinger.com.

Economic Calendar for the Week of February 13 – February 17

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In This Issue

Last Week in Review: The Jobs Report for January is in – and the news was good!

Forecast for the Week: Stocks and Bonds will be battling over investing dollars as only two economic reports are scheduled.

View: President Obama has proposed a new plan to help homeowners refinance. Check out the details below.

Last Week in Review

It’s been said that no news is good news. But last week, the Jobs Report brought some good news for the labor market. Read on for the details…and what they mean for home loan rates.

The headline Jobs Report showed 243,000 jobs created, which was much better than expected. Meanwhile, a whopping 257,000 private jobs were created, also much higher than expected. Upward revisions to November and December added another 60,000 jobs to what was previously reported for those months. And adding to the euphoria was a 0.2% decline in the Unemployment Rate, bringing it to 8.3%…the lowest since February 2009.

Despite all this good news, the report did show a pretty sharp decline in the labor participation rate from 64% to 63.7%. We really need to have more people "participating," or working to help pay down our debt. Understandably, the demographics of baby boomers retiring does account for some of the decline. But is it the entire 0.3%? And the U-6 Unemployment Rate (which counts all persons marginally attached to the labor force, including those who are employed part-time but would prefer full-time) remains at a lofty 15.1%, with that figure dropping just 0.1% for the month.

And there was other good news to note last week as well: The Commerce Department reported that Personal Incomes rose in December by 0.5%, above expectations and well above the 0.1% reported in November. This marked the largest increase in nine months!

So what does all of this mean for the housing market and home loan rates?

While Bonds and home loan rates did worsen on the good Jobs Report news (remember good economic news often causes money to flow out of Bonds and into Stocks, as investor try to take advantage of gains), home loan rates remain near historic best levels. In addition, the problems in Europe remain…and as uncertainty reemerges, US Bonds (including Mortgage Bonds, to which home loan rates are tied) will benefit.

The takeaway from all of last week’s news is that the pace of improvement in the labor market is choppy and muddled at best. But the trend is improving over time, and this is welcome news for the struggling housing market because as people feel more secure in their jobs, they are more willing to consider making major purchases like a home.

The bottom line is that now is a great time to purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

There are just two economic reports due for release this week and with earnings season winding down, the Stock and Bond markets will be battling over investing dollars.

• Thursday brings the weekly Initial Jobless Claims Report. Last week people filing for first-time claims fell by 12,000 to 367,000, an encouraging sign now that claims have fallen below that dangerously high level of 400,000.
• On Friday, we’ll see the first reading on Consumer Sentiment for February.

In addition, the Treasury will sell a total of $72 Billion in Notes and Bonds this week.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving – and when they are moving lower, home loan rates are getting worse.

To go one step further – a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Bonds and home loan rates worsened after the Jobs Report was delivered on Friday. I’ll be watching closely to see what happens this week.

The Mortgage Market Guide View…

New Proposal to Help Homeowners Refinance…

But Will It Ever Get Off the Ground?

The Obama administration has proposed a national refinance plan in an effort to stimulate the housing market by helping those homeowners who are underwater on their mortgages, or owe more on their loan than what the home is currently worth. Based on the proposal, the program would be available to responsible mortgage borrowers…and could save them up to $3,000 a year if they were to partake in the program.

However – and this is very important – the plan is currently just a proposal and would have to be passed through both the Senate and the House of Representatives.

President Obama first introduced the plan at his State of the Union Address on January 24th and stated just recently that this is a "make-or-break" moment for the middle class. The President said the program will cut through the red tape with no hidden fees.

There are, however, certain stipulations within the President’s proposal. The candidates would have to be current on their mortgages for the past six months and could only have one missed payment in the six months prior to that. The candidate would have to have a credit score of at least 580. The loans would be backed into Federal Housing Authority (FHA) loans and would come from loans that are privately held, and would expand on the Home Affordable Refinance Program (HARP) that is currently open to loans that are backed by Fannie Mae and Freddie Mac. In addition, the loans would have to be 30-year conforming loans or loans that fall between $271,050 to $729,250, and the residence must be owner occupied.

The White House would also want lenders to take a "haircut" for those homeowners who are deep underwater. Homeowners that are deep underwater could be more susceptible to foreclosure or to just "walk away" from their commitment to repay the debt.

Here’s an example of what the plan might mean to a homeowner, if the proposed plan were to be approved. On a $200,000 loan that is currently at 6%, the borrower would receive an interest rate of about 4.25%, which could amount to a savings of $216 a month on a 30-year mortgage. There would also be an option to move into a 20-year mortgage and – although the payments would not be lowered – it would provide an incentive to build equity and to pay off the loan in a shorter amount of time.

But before you get too excited or start making any plans, we have to remember that this is just a proposed idea at this time.

As with every new bill introduced to Congress, there could be pushback for the plan, which is expected to cost as much as $5 Billion to $10 Billion. The President said that the new plan would not add to the deficit; instead, the funds would come from a fee placed on large financial institutions. This has already gotten negative comments from Republicans in Congress. The White House said that other options to pay for the program would be considered.

This isn’t the first time that Capitol Hill has tried to combat the problems of underwater mortgages in the past few years and they have not been too successful. One big question is will the banks and servicers go along with the plan if it were to get through Congress.

In addition, the loans will be backed into FHA loans. But, FHA is on very shaky ground right now and is in no better shape financially than Fannie Mae and Freddie Mac. Some experts even think that FHA may need a bailout in the near future.

The last thing this Congress wants to do right now is to pass yet another stimulus bill, so many pundits see the proposal as "Dead on Arrival."

In conclusion, an assortment of programs have been introduced to help struggling homeowners, and they have only had limited success. In order for this plan to get off the ground, it will need to be a joint effort by the White House, the lender, the servicer and the consumer… a feat that is always difficult to achieve when there are many moving targets and several different agencies involved.

Economic Calendar for the Week of February 06 – February 10

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In This Issue

Last Week in Review: The Fed met and a “Gross” Domestic Product was reported.

Forecast for the Week: A busy week is ahead, with important news on inflation, manufacturing, and the job market.

View: Ever wondered what the world was really like when you were born? There’s a fun way to find out.

Last Week in Review

If at first you don’t succeed, try, try again. Last week, that popular idiom could have applied to the Gross Domestic Product (GDP) Report. Read on to learn why…and how all the week’s news impacted Bonds and home loan rates.

The Advanced GDP reading – or first of three readings – for the 4th Quarter of 2011 came in at 2.8%, a bit below expectations of 3.2%. This number will be revised two more times, but if the final GDP remains at 2.8%…then the overall GDP for 2011 would be a scanty 1.57%. That is certainly a "Gross" Domestic Product, when you consider that the government has underwritten more than half of that economic growth with the Payroll Tax benefit.

Also in the news last week, the Fed’s Policy Statement after its regularly scheduled Federal Open Market Committee meeting was pretty much the same story as recent Statements, including stable long-term inflation expectations, a tepid economic recovery, and fragile job market. But there was one big exception to their norm. The Policy Statement said there will be "exceptionally low levels for the Federal Funds Rate at least through late 2014." This is a huge change from the previous statements of "low rates until mid-2013."

On the surface, extending the zero interest policy until 2015 tells us the Fed thinks the economy will just be slogging along, and accommodative monetary policy will be required to keep the economy growing at least at a modest pace. One could argue that recent economic data is better of late and that all this loose monetary policy is unnecessary. But the Fed has spoken, and as the old adage goes: "Don’t fight the Fed."

In news out of Europe, yields in European Bonds have come down…and by quite a bit. This sparked some optimism that Europe’s Long-term Refinance Operation (LTRO) has helped alleviate some pressure in the peripheral countries in the Eurozone, like Spain and Italy. So what’s the takeaway? In honor of the upcoming Super Bowl, here’s a football analogy: think of the LTRO as a super punt or "kick of the can" down the road. Europe needs to play a serious offensive line by creating a tighter fiscal union, implementing austerity measures, and developing growth strategies to help pay down the enormous debt.

The bottom line is that Bonds and home loan rates remain at historic best levels, which means now is still a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

Economic reports will be plentiful – and important – this week:

• The week kicks off Monday with the Core Personal Consumption Expenditure (PCE), which is the Fed’s favored gauge of inflation. This report will be closely watched, since any hint of an uptick in inflation could push Bond prices lower and, in turn, move home loan rates higher.
• Manufacturing will also be in the spotlight with the Chicago PMI on Tuesday, followed by the ISM Index on Wednesday.
• Consumer Confidence will also be delivered on Tuesday.
• The ADP Private Employment Report will be released on Wednesday and comes before the government’s total job’s report on Friday.
• As usual, Initial Jobless Claims will be released on Thursday. This week’s report comes after an uptick of 21,000 last week.
• Finally, on Friday the government’s monthly Employment Report will be released. The Employment Report consists of Non-farm Payrolls, the Unemployment Rate, Average Workweek and Hourly Earnings. This is an important report that can have a big impact on the markets. So I’ll be watching it closely.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, Bonds and home loan rates remain near their historic bests. I’ll be watching closely to see which way they move next.

The Mortgage Market Guide View…

Share This Site…And Try it Yourself

Every once in a while, you come across a website that’s just plain fun. This is one of those sites.

We’ve all seen websites that provide stats about what happened the year you were born. The website whathappenedinmybirthyear.com/ takes it a step further. It doesn’t just offer stats and facts. Instead, it provides a picture of the world you grew up in – including what it looked like and how it was different than the world we live in today.

But it’s more than just a fun website.

For one thing, it provides you with a light-hearted reason to connect with your clients on a personal level. You can share the site with them on social media or in one of your outreach pieces (such as a newsletter or email).

In addition, this site offers you a unique way to better understand your clients. If you know when a client was born, you can simply type in the year. In return, you’ll get a picture of that client’s social influences that have helped shape him or her. And that’s exactly the kind of information you need to put yourself in your clients’ shoes and understand them a little better. Of course, it doesn’t hurt that it’s entertaining too!

Try the site today…and consider sharing it with your clients as a way to connect with them on a more personal level.

Economic Calendar for the Week of January 30 – February 03

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In This Issue

Last Week in Review: Rumors were swirling out of Europe, while inflation news was swirling here at home.

Forecast for the Week: The second half of the week heats up with news on the housing market and the state of the economy. Plus, the Fed meets.

View: A fee increase is coming that will impact home loan rates. Be sure to read the details below.

Last Week in Review

It’s almost all Greek to me. Last week, more news from Greece hit the wires, as did several pieces of inflation news here at home. Read on to learn what happened, and what the impact was on home loan rates.

First, it’s important to remember that back in October, a deal called for Bondholders to "accept" a 50% haircut on the face value of the Greek debt. Last week, rumors about this amount were swirling, saying that Greece is close to a deal that would entail a 68% haircut on the face value of their debt. And if that’s not concern enough, a larger issue remains.

After the proposed austerity measures, wage cuts, and tax increases are instituted, will Greece – not to mention Italy, Portugal, and other struggling economies – be able to "grow" their way out of debt? Given that the World Bank lowered its 2012 global growth forecast to 2.5% from last summer’s estimate of 3.6%, the odds sure seem tough. This is an important story to watch as the year unfolds.

Here at home, inflation was in the news twice last week…and the results were mixed. On Wednesday, the wholesale inflation measuring Core Producer Price Index (PPI) came in hot, elevating the year-over-year Core PPI rate to a lofty 3%…the highest since April 2009. Meanwhile, Thursday’s Core Consumer Price Index (CPI) was inline with expectations and tame overall, though it is worth noting that the 2.2% Core CPI year-over-year reading is near the upper end of the Fed’s tolerance level.

Remember, inflation is the archenemy of Bonds and home loan rates, like Kryptonite to Superman. That’s because inflation erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. It will be interesting to see what – if anything – the Fed says about inflation after it’s regularly scheduled meeting of the Federal Open Market Committee this week…as any talk or sign of inflation can move the markets and impact rates.

Even with all the news last week, it’s still a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

The reports that will be released this week will carry some weight:

• We’ll see a double dose of housing news with Pending Home Sales on Wednesday and New Home Sales on Thursday.
• As usual, Initial Jobless Claims will be released on Thursday. Last week’s read came in at 352,000, a drop of 50,000. That’s the biggest decline since September 2005!
• We’ll also see two important reports that will show us how the economy is doing. Thursday brings the Durable Goods Report, which gives us a read on big ticket items. This will be followed by the first reading on Gross Domestic Product (GDP) for the Fourth Quarter of 2011 on Friday.
• Finally, Consumer Sentiment will also be released on Friday.

In addition to those reports, the Federal Open Market Committee will hold a two-day meeting this week. The meeting will begin January 24 and end with a policy statement at 12:30 pm ET on January 25. There is no chance of a rate hike, but I will be listening for any hint of a third round of Quantitative Easing (QE3).

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, some encouraging economic and company earnings news last week helped halt the improving trend Bonds had been seeing. I’ll continue to monitor this situation.

The Mortgage Market Guide View…

Fee Increase to Impact Home Loans

In December 2011, Congress reached a last-minute deal to fund the payroll tax cut extension. The payroll tax extension will provide a 2% tax reduction for individuals making up to $106,800, so the tax extension will be very helpful for many Americans who are struggling during these tough economic times. But like so many things in our tangled economy, there’s a flip side. In this case, the tax cut deal has a rippling effect that will impact the mortgage world.

Here’s what’s happening and what it means to home loan rates:

What is happening and why? To put it bluntly, the passage of the payroll tax cut extension is being funded via a mandate to Fannie Mae and Freddie Mac (the nation’s largest providers of mortgage money) to increase their guarantee fees or "g-fee’s" by at least 10 basis points on the rate. So rather than giving a par rate of 4.00%, for example, the par rate is now increased by at least 10 basis points, or approximately 4.10%. But as you probably know…home loan rates are priced and offered in .125% increments, so this will most likely impact the consumer by .125% in rate. Whether you agree or not on the politics behind this cost being passed along to folks who are taking out mortgages, the Congressional Budget Office recently estimated that the increase will ultimately pay for about $35.7 Billion of the cost of the payroll tax extension.

What exactly is this "g-fee"? The guarantee fee or "g-fee" is an amount charged by mortgage-backed securities (MBS) providers, like Freddie Mac and Fannie Mae, to help protect against credit-related losses in the overall mortgage portfolio. In other words, it acts a lot like insurance and helps lower the overall risk…which means home loans can be offered at terrific interest rates to borrowers that have good – but not perfect – credit.

What exactly is the impact of the rate increase? For example, for a $200,000 home loan, the increased g-fee (assuming a .125% increase in rate) would equate to $250 more per year in interest, or $7,500 more over 30 years. Someone buying or refinancing a home can certainly choose to buy down the cost with cash up front – but most folks will not do this.

Who will this impact? The change will impact all new borrowers of Fannie Mae and Freddie Mac loans. The bill will also impact Federal Housing Administration (FHA) loans by increasing the annual mortgage insurance premium that borrowers pay by one-tenth of a percent.

When will it start? Officially, the increase to guarantee fees will begin on April 1, 2012. However, the increase is already starting to be seen in rate sheets right now, since home loans being originated now will likely not be closed, pooled and securitized until April…and therefore will need the increased g-fee priced in earlier.

How long will this be in effect? The increase will be effective through October 1, 2021.

The bottom line is that the g-fees will be going up…and this will impact homebuyers looking to obtain a home loan through Fannie Mae, Freddie Mac and FHA.

The good news is that home loan rates are still at historic lows right now, and it’s a great time to purchase a new home or refinance. If you or anyone you know has any questions, please call or email!

Economic Calendar for the Week of January 23 – January 27

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In This Issue

Last Week in Review: Consumers are feeling good, but how good was last week’s news?

Forecast for the Week: It’s a holiday shortened week, but the economic calendar is full. News on manufacturing, inflation, and housing is ahead.

View: Wondering what the housing trends for 2012 will be? Check out 11 trends we saw in 2011.

Last Week in Review

"Happy days are here again." Milton Ager and Jack Yellen. And while it seems that consumers are certainly feeling happier, not everything that happened last week was cause for song.

There was good news last Friday, as the first look at Consumer Sentiment for January came in at 74.0, which is the highest level since May 2011. However, there was also news last week that the holiday shopping season may not have been as robust as previously thought.

Retail Sales in December rose by a meager 0.1% from 0.4% in November, and when stripping out autos, sales actually fell 0.2%. Why did this happen? It seems that steep holiday discounting held down the value of goods sold, so sales were big, but only because of the heavy discounting.

The news out of Europe last week also wasn’t too happy. German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde met to discuss and finalize the debt restructuring deal for Greece. Back in October, a deal called for Bondholders to "accept" a 50% haircut on the face value of the Greek debt – but as creditors and authorities have started to forge a final deal, the actual haircut back to investors is looking quite likely to be larger than 50%. This is simply because worsening financial conditions in the Greek economy make paying the debt back with "just" a 50% haircut highly unlikely…maybe impossible. What’s more, the next reasonable question to consider is will Ireland, Portugal and even Italy ask for a similar haircut or deal on what may be unsustainable debt in their countries?

The happy news is that these problems are finally being addressed to make things better in the future. And in the short term, the uncertainty should keep money flowing into the relative safe haven of the US Dollar and US Bonds – including Mortgage Bonds, to which home loan rates are tied. In addition, Mortgage Bonds continue to be supported by the Fed’s purchases, which are also helping to keep home loan rates at record low levels.

All of this means that now continues to remain a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

Despite the Bond Markets and all Capital Markets being closed on Monday in observance of Martin Luther King, Jr. Day, the rest of the week’s economic calendar is full:

• Manufacturing strong? The week’s economic data kicks off on Tuesday with a manufacturing indicator from New York’s Empire State Index for January. In addition, the Philadelphia Fed Index for January will be released on Thursday. Last month, both reports reached their highest levels in months. Remember: The Stock Market likes to see healthy economic growth because that translates to higher corporate profits. However, the Bond market prefers a moderate growth environment that won’t generate inflationary pressures.
• Speaking of inflation… We’ll see inflation reports on the wholesale level in the Producer Price Index on Wednesday, followed by the Consumer Price Index on Thursday. Inflation has remained tame…and Bondholders will be closely watching these two indicators for any signs of an uptick.
• Back on track this week? Initial Jobless Claims will be released as usual on Thursday. Last week’s number showed an uptick in claims and broke the recent trend of decreasing claims. However, the rise could have been due in part to layoffs of seasonal holiday workers. So the markets will be watching to see if this report gets back on track with the recent positive trend.
• No place like home! Housing data in the form of Housing Starts, Building Permits and Existing Home Sales will all be reported this week. Housing continues to troll around low levels despite record low home loan rates.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, Bonds and home loan rates are continuing their improving trend. I’ll be watching this closely as we head further into the new year.

The Mortgage Market Guide View…

Housing News: 11 Trends from 2011

The National Association of Realtors® surveys homebuyers and sellers each year to uncover housing trends and monitor changes taking place in the industry. This year’s report highlights a number of trends that haven’t been seen in years. Here are just 11 highlights from the 2011 report.

1. In 2011, 37% of homebuyers were first-time buyers – which was down from 50% in 2010.

2. Last year, 88% of homebuyers used the Internet to search for a home. That number was down slightly from a high of 90% in 2009.

3. The typical homebuyer searched for 12 weeks and viewed 12 homes.

4. The number of buyers who purchased their home through a real estate agent or broker climbed to 89% – a share that has steadily increased from 69% in 2001.

5. Nearly 1 out of 4 buyers said the application and approval process was "somewhat more difficult" than expected…and 16% reported it was "much more difficult" than expected.

6. About half of home sellers traded up to a larger and more expensive home…and 60% traded up to a new home.

7. The top 3 factors influencing neighborhood choice were: the quality of the neighborhood, the convenience to job, and the overall affordability of homes.

8. The typical seller lived in their home for 9 years. That number has increased from 6 years in 2007.

9. Although 61% of sellers said they reduced their asking price at least once, the average home sold for 95% of the listing price.

10. Only 10% of sellers sold their homes without the assistance of a real estate agent. Of those people, 40% knew the buyer prior to the sale.

11. The typical "for sale by owner" home sold for $150,000 compared to $215,000 for the average agent-assisted home sale.

All Contents ©2012 The National Association of Realtors®.

Economic Calendar for the Week of January 16 – January 20

If you can’t see the newsletter, or would like to view it online, use this link

If you have received this newsletter indirectly and would like to be added to our weekly distribution list, use this link

In This Issue

Last Week in Review: Consumers are feeling good, but how good was last week’s news?

Forecast for the Week: It’s a holiday shortened week, but the economic calendar is full. News on manufacturing, inflation, and housing is ahead.

View: Wondering what the housing trends for 2012 will be? Check out 11 trends we saw in 2011.

Last Week in Review

"Happy days are here again." Milton Ager and Jack Yellen. And while it seems that consumers are certainly feeling happier, not everything that happened last week was cause for song.

There was good news last Friday, as the first look at Consumer Sentiment for January came in at 74.0, which is the highest level since May 2011. However, there was also news last week that the holiday shopping season may not have been as robust as previously thought.

Retail Sales in December rose by a meager 0.1% from 0.4% in November, and when stripping out autos, sales actually fell 0.2%. Why did this happen? It seems that steep holiday discounting held down the value of goods sold, so sales were big, but only because of the heavy discounting.

The news out of Europe last week also wasn’t too happy. German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde met to discuss and finalize the debt restructuring deal for Greece. Back in October, a deal called for Bondholders to "accept" a 50% haircut on the face value of the Greek debt – but as creditors and authorities have started to forge a final deal, the actual haircut back to investors is looking quite likely to be larger than 50%. This is simply because worsening financial conditions in the Greek economy make paying the debt back with "just" a 50% haircut highly unlikely…maybe impossible. What’s more, the next reasonable question to consider is will Ireland, Portugal and even Italy ask for a similar haircut or deal on what may be unsustainable debt in their countries?

The happy news is that these problems are finally being addressed to make things better in the future. And in the short term, the uncertainty should keep money flowing into the relative safe haven of the US Dollar and US Bonds – including Mortgage Bonds, to which home loan rates are tied. In addition, Mortgage Bonds continue to be supported by the Fed’s purchases, which are also helping to keep home loan rates at record low levels.

All of this means that now continues to remain a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week

Despite the Bond Markets and all Capital Markets being closed on Monday in observance of Martin Luther King, Jr. Day, the rest of the week’s economic calendar is full:

• Manufacturing strong? The week’s economic data kicks off on Tuesday with a manufacturing indicator from New York’s Empire State Index for January. In addition, the Philadelphia Fed Index for January will be released on Thursday. Last month, both reports reached their highest levels in months. Remember: The Stock Market likes to see healthy economic growth because that translates to higher corporate profits. However, the Bond market prefers a moderate growth environment that won’t generate inflationary pressures.
• Speaking of inflation… We’ll see inflation reports on the wholesale level in the Producer Price Index on Wednesday, followed by the Consumer Price Index on Thursday. Inflation has remained tame…and Bondholders will be closely watching these two indicators for any signs of an uptick.
• Back on track this week? Initial Jobless Claims will be released as usual on Thursday. Last week’s number showed an uptick in claims and broke the recent trend of decreasing claims. However, the rise could have been due in part to layoffs of seasonal holiday workers. So the markets will be watching to see if this report gets back on track with the recent positive trend.
• No place like home! Housing data in the form of Housing Starts, Building Permits and Existing Home Sales will all be reported this week. Housing continues to troll around low levels despite record low home loan rates.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, Bonds and home loan rates are continuing their improving trend. I’ll be watching this closely as we head further into the new year.

The Mortgage Market Guide View…

Housing News: 11 Trends from 2011

The National Association of Realtors® surveys homebuyers and sellers each year to uncover housing trends and monitor changes taking place in the industry. This year’s report highlights a number of trends that haven’t been seen in years. Here are just 11 highlights from the 2011 report.

1. In 2011, 37% of homebuyers were first-time buyers – which was down from 50% in 2010.

2. Last year, 88% of homebuyers used the Internet to search for a home. That number was down slightly from a high of 90% in 2009.

3. The typical homebuyer searched for 12 weeks and viewed 12 homes.

4. The number of buyers who purchased their home through a real estate agent or broker climbed to 89% – a share that has steadily increased from 69% in 2001.

5. Nearly 1 out of 4 buyers said the application and approval process was "somewhat more difficult" than expected…and 16% reported it was "much more difficult" than expected.

6. About half of home sellers traded up to a larger and more expensive home…and 60% traded up to a new home.

7. The top 3 factors influencing neighborhood choice were: the quality of the neighborhood, the convenience to job, and the overall affordability of homes.

8. The typical seller lived in their home for 9 years. That number has increased from 6 years in 2007.

9. Although 61% of sellers said they reduced their asking price at least once, the average home sold for 95% of the listing price.

10. Only 10% of sellers sold their homes without the assistance of a real estate agent. Of those people, 40% knew the buyer prior to the sale.

11. The typical "for sale by owner" home sold for $150,000 compared to $215,000 for the average agent-assisted home sale.

All Contents ©2012 The National Association of Realtors®.

Economic Calendar for the Week of January 16 – January 20