July 24 2006

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For the week of Jul 24, 2006 --- Vol. 4, Issue 30

Last Week in Review

"WHAT WE'VE GOT HERE…IS A FAILURE TO COMMUNICATE." From the movie "Cool Hand Luke", 1967 But there was no failure to communicate from Chairman Ben Bernanke last week…he stayed super cool under fire, undergoing two days of intense questioning from Congress on the state of the US economy. But the financial markets sure rocked and rolled, on a volatile combination of economic news, Bernanke's commentary, and the escalating situation in the Middle East. By the time the smoke cleared, home loan rates improved by about .125% for the week overall. The economic news of the week was mixed, showing some whiffs of inflation, but overall that the economy has indeed responded to the 17 consecutive hikes that have been delivered by the Fed over the past two plus years. And Big Ben echoed this in his commentary to Congress, stating that "the US economy is likely to slow, which should ease inflationary pressures." Whoa…that was the first kind remark about inflation that a Fed member has spoken in quite some time! It certainly appears that the Fed might be considering a pause in their pattern of rate hikes, as they seem to be feeling that inflation is indeed under control. In fact, the Fed Funds Futures - which predicts the chance of an upcoming rate hike - was at a 90% chance of another hike on August 8th prior to Bernanke's commentary, yet fell to only 33% by the end of his testimony. The escalating battle in the Middle East also caused some movement in home loan rates, as Mortgage Bonds improved on "safe-haven" buying, where traders move money out of the volatile Stock market and into Bonds, which tend to be more stable and secure. The continuing conflict between Israel and Hezbollah is bringing concerns that countries like Iran and Syria may get involved, which would further escalate the conflict and possibly interrupt oil supply, causing oil prices to shoot higher than they already stand. REMEMBER THE SCENE IN "KING KONG", WHERE THE MAMMOTH APE CLUTCHES THE TOP OF THE EMPIRE STATE BUILDING, WHILE CIRCLING AIRCRAFT TRY TO SHOOT HIM DOWN? WELL…THE 800 POUND GORILLA OF THE ONLINE RATE QUOTE WORLD IS UNDER FIRE…BUT ONCE YOU HEAR THE STORY, YOU MAY NOT FEEL AS SYMPATHETIC AS YOU DID AT THE MOVIES. DON'T MISS THIS WEEK'S MORTGAGE MARKET VIEW.

Forecast for the Week

Although the coming week may not be as wild a ride as last…it should still have some excitement in store. Very pertinent to the housing industry, the coming week will include a look at New and Existing Home Sales numbers. Bernanke mentioned that the slowdown in the housing market appears to be "orderly", and it will be interesting to see where the numbers actually land. Another potential market mover is the Durable Goods Orders report, which shows how many "durable" products are being purchased by consumers and businesses. A durable product is one that is expected to last at least three years, such as cars, appliances, furniture, business equipment, electronics, and the like. Unlike "nondurable" products that have only a short life span, such as food, cosmetics, office supplies, clothing etc - "durable" products are often financed, since they are generally more costly. The increase in the cost of financing these items has risen dramatically over the past few years of Fed rate hikes, so it is important to see if these purchases are slowing in response…further showing the Fed that their hikes have had the desired impact. The chart below shows how Mortgage Bond prices are preparing to battle a tough overhead technical "ceiling" of resistance at the 50-day Moving Average. This is simply the average of where Mortgage Bond prices have been over the prior 50 days, and it moves as each day passes and changes that average calculation very slightly. It will likely take some very Bond-friendly or weak economic news to make a solid break through this level, and bring additional improvement to home loan rates this week. Chart: Fannie Mae 6.5% Mortgage Bond (Friday Jul 21, 2006)

The Mortgage Market View...

Just like King Kong clutching the top of the Empire State Building…Bankrate, the "800-pound Gorilla" of online home loan rates is falling under fire. The Bankrate website draws millions of visitors, as it promises to give a listing of companies and their rate and cost offerings for mortgage loans, and even passes that information on to most of America's largest newspapers as fact. It proclaims itself to be a tool for the consumer, just delivering information and advice…but as many reputable mortgage lenders have known all along, it turns out that consumers are finding the reality of Bankrate to be a little different. A lawsuit is in the works against Bankrate, after hundreds of consumers complained about lenders who failed to deliver the rates and terms they promised on the website. In fact, one lender actually told a Bankrate employee that a consumer would need a "direct pipeline to God" in order to qualify for the rates and terms they advertise on the site. Why would a lender post rates and terms they are unwilling or unable to honor? To lure in consumers who truly want to believe that they are getting an interest rate or cost package that is significantly lower than all the competition. And by the time the consumer finds out they are not getting the package they were promised, they likely have wasted enough valuable time that they feel somewhat stuck to use whatever terms the lender hauls out. Of course there are real reasons that the terms of a loan package can change mid-stream, but when working with a reputable lender - it would generally only be caused by a change from what was submitted on the loan application, such as a change in credit, income, employment, debts or assets. So are there any reputable lenders on Bankrate? Yes, of course. And some of those lenders were the ones who prompted the lawsuit in the first place. As they were posting real interest rates and terms they could actually honor, they could see that consumers would instead be contacting the less-reputable lenders who were posting completely unrealistic rate and cost offers. And the consumer might not find out the difference until it was too late. Mortgage lenders get their money from essentially the same places - so anytime there is a very large difference between quotes on identical programs, it pays to ask some questions. Bottom line - the internet at large can be a great place to gain basic trends and information about a home loan, but the Bankrate lawsuit illustrates the need to work with a Trusted Advisor. A home loan is generally the largest financial transaction of your entire life - working with a real professional who can advise you on correct strategies and programs for your needs is a must. And like your mom or dad always used to say - you get what you pay for, and solid advice from a real professional may cost more than a bargain basement operation. Most importantly, remember that the absolute lowest rate and terms on the WRONG financial strategy or loan program for your life will prove to be far more costly than a competitive rate package on the RIGHT strategy, which correctly fits your financial goals and needs. Please call or email me for more information, and remember I am here as your Trusted Advisor, even if you do not have a mortgage need at this time.

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 July 24 – July 28 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.