May 8 2006

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For the week of May 08, 2006 --- Vol. 4, Issue 19

Last Week in Review

"ROLLERCOASTER....OF LOVE...SAY WHAT?" (Lyrics by the Ohio Players) Last week sure was a rollercoaster in the Bond market and home loan rate world, complete with gut plunging drops and exciting rides higher...but what brought about all the excitement? Not love...but some super interesting news on the economy. Let's take a closer look and see what it all means. The beginning of the week brought a slate of hot, positive financial news, including strong Personal Income, Spending and Consumption numbers; increased Construction Spending; an unexpected improvement in the Manufacturing sector; and high employee Productivity numbers. But all this great, healthy economic news can spell inflation...and since inflation is the arch-enemy of fixed return assets like Mortgage Bonds, prices plunged lower and home loan rates worsened by .125% over the first part of the week. But then last week's rollercoaster ride had a big twist in store, when Friday's big Jobs Report hit the wires. The headline number of new jobs created was a big miss, showing 138,000 new jobs created versus the 200,000 that was anticipated. Additionally, last months numbers were revised, taking away 36,000 jobs from what had been reported. But Average Hourly Earnings were markedly higher than expected, meaning that employers are now having to pay their employees more. This can lead to what is called wage-based inflation, due to literally more spendable dollars out there in the economy. Despite the trace of inflation in this report, overall, Bonds like negative news for the economy like a missed headline jobs number. Mortgage Bonds and home loan rates regained some ground lost earlier in the week, and are now positioned for some potential improvement in the week ahead. SPEAKING OF A ROLLERCOASTER RIDE, IMAGINE THE AWFUL FEELING IN YOUR STOMACH WHEN YOU LEARN THAT DESPITE ALL YOUR CAREFUL PLANNING, YOUR RETIREMENT LOOKS NOTHING LIKE YOU HAD PLANNED...DUE TO SOME NEW CHANGES RECENTLY ENACTED INTO LAW. READ THIS WEEK'S MORTGAGE MARKET VIEW TO LEARN HOW TO PROTECT YOURSELF, AND YOUR FAMILY MEMBERS WHO MAY BE APPROACHING RETIREMENT.

Forecast for the Week

So what's in the stars for home loan rates this week? The patterns would seem to indicate some modest improvement in the near term. Let's take a closer look at a rare and fascinating technical pattern that has formed - the "Morning Star" - which could bode well for better home loan rates on the horizon. The chart below shows this pattern, with the furthest green "candle" to the right showing that the bulls have seized control and prices are primed for improvement. If you can't see it looking like a star...ok, squint a bit...the name came from the notion that planet Mercury - the "Morning Star" - foretells the sunrise, just as this chart pattern foretells higher prices are on the way. The biggest news item on the slate is Wednesday's Fed meeting. It is widely anticipated that the Fed will hike the Fed Funds Rate another .25%, so if this proves to be true, it will have little impact on the financial markets overall. By the way, since the Fed Funds Rate impacts the Prime Rate, which most Home Equity Lines of Credit are tied to...give me a call or email if you have a Home Equity Line, as it may now be time to consider a different strategy. Most important will be Chairman Ben Bernanke's statement...will he give any more clues as to the Fed's take on the economy, any hints as to future rate hikes, or if indeed it's time for a pause? His every word can cause movement in the financial markets and home loan rates, and rule out any technical signals or signs. We'll all have to stay tuned on Wednesday to see if Bonds and home loan rates can indeed see the improvement we presently see "in the stars". Chart: Fannie Mae 6.0% Mortgage Bond (Friday May 05, 2006)

The Mortgage Market View...

Every 11 seconds, a Baby Boomer turns 60! So maybe they'll spend a little less time on the Rollercoaster at the amusement park this summer. But the rollercoaster of finance is just beginning. Like everyone else, Boomers have their own financial ups and downs to consider as well as looking out for their children. But they also may have to think about their own Mom and Dads because elderly care cost can sure take you for a ride. The average cost of nursing home care runs around $70,000 per year, and Medicaid pays nursing home bills for individuals who qualify based on certain income and asset guidelines. Those who have saved and planned their whole lives for retirement and leaving an inheritance for their families are often dismayed to find that their assets must be basically used up to pay their nursing home expenses before they are entitled to receive any kind of assistance from Medicaid. Those who have not planned and saved, or have not had the ability to, are eligible for immediate assistance. Because many savers would prefer that their family get their inheritance - instead of the nursing home - they often plan accordingly, and start gifting money to family members before the need for nursing home care arises. Many individuals, expecting even a modest inheritance, too often watch the money quickly disappear. And recent changes in the law can make it more difficult to qualify for Medicaid. The good news? With a little knowledge, you can act now to protect yourself and your family before it's too late. First, Medicaid has always had a "look-back" period, where they literally look back a certain number of years at gifts made to family in particular, knowing that this may have been done so to remove assets, and therefore to qualify for Medicaid assistance earlier. The time frame used to be a "look-back" has now been extended to five years. So if nursing home care is needed within five years of giving a gift, proof may be required to show that at the time of giving the gift, the donor was in excellent health, and was not giving the gift with the express intention of transferring assets to avoid paying nursing home expenses. If the individual is unable to prove this, the asset will be counted towards a waiting period until Medicaid assistance can be received. For example, if a father gives his daughter a $50,000 gift and subsequently needs nursing home care, expected to cost $5000 per month, the waiting period would be ten months before any Medicaid could be received...even if the gift money is long spent and gone. Worse yet, the waiting period clock used to start "ticking" at the time the gift was given - but it now starts ticking at the time Medicaid is applied for. If the father is in immediate need of medical care, this could present some very serious problems. Next, the equity in your home will come under scrutiny...and if you have more than $500,000 equity in your home, you will be ineligible for nursing home coverage from Medicaid. States have the ability to raise the limit to $750,000 - but it has been questioned why any state would make this decision, since it would result in higher Medicaid costs for the state. Since many Americans strive to pay off their home by retirement age, this could impact many people who are simply unaware of the rules. What can you do, to protect yourself and your loved ones? Be informed and plan now. For more information, visit www.elderlawanswers.com, or the Kaiser Family Foundation information site at www.kff.org. New strategies may need to be developed for your retirement, including not leaving equity trapped in your home where it could work against you for retirement assistance. Many are reconsidering the wisdom of having a home paid for in full, and are planning to instead leverage the equity via a refinance into a financial plan that works for them, not against them. Because the new laws are so complex, it's always best to consult a financial professional as to the best plan for your own retirement, or that of your loved ones. Please call me if I might provide a referral to a quality financial advisor, to help walk you through how the new regulations might impact you...and what you should be doing now to prepare.

The Week's Economic Indicator Calendar

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise. Economic Calendar for the Week of May 08 – May 12 Date ET Economic Report For Estimate Actual Prior Impact

The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is not without errors.

As your trusted advisor, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.