Florida Mortgage Report

Tomorrow is the Last Day at This Domain

I still see many of you subscribing to this feed and/or commenting on this blog.  This post is a reminder that the Florida Mortgage Report will not be located at www.floridamortgagedaily.com after tomorrow.  I will be moving my Florida Mortgage Daily (mortgage market updates) blog to this domain March 1, or shortly thereafter.

That being said, this blog is currently hosted under Typepad, so the blog will remain here for nearly a year, though no comments will be accepted (stopped 2/15/08) and the blog will not be updated any longer.  To follow my writings, please jump over to www.flmortgagereport.com and while there, don't forget to subscribe to that feed to stay up to date.

This will ensure lively discussions continue on the "hot topics" such as Money Merge Accounts and other mortgage acceleration strategies, as well as current events.  All prior posts are over there already (and some new ones), so if you liked a post (or even linked to one), check out the same post (and link to it) over at the new location, www.flmortgagereport.com. 

There are two main reasons for the change that I mentioned before in case you are wondering.  Number one is the change to WordPress to add more flexibility and control.  Since I rely on feedback from you, you can have an effect on how the site looks and its functionality.  I want it to be a very user interactive site and WordPress allows that more easily.  Number two is that I wanted to match domain names to the blog titles.  It was rather awkward, as you can imagine, say the Florida Mortgage Report was at www.floridamortgagedaily.com then turning around and saying Florida Mortgage Daily didn't have its own domain.

So, once again, please go over and visit www.flmortgagereport.com and subscribe to its feed to continue staying up to date on the Florida Mortgage Report.  If you want to see mortgage market commentary, keep www.floridamortgagedaily.com bookmarked and return in March when I have that blog up and running on this domain.  You can also check out my contributions over at Lenderama and Agent Genius.

Is Bernanke Dazed and Confused?

If you think the markets are screwed up, wrapped in fears of recession and wondering whether they should buy or sell, you are not alone.  Why?  How can they expect to know what to do when Big Ben can't even tell what is going on?

In three separate articles I read this morning, each breaking down what Bernanke (and Paulson) said, each focused on a different part of what Bernanke mentioned, and all lead to different conclusions on the economy. 

CNN Money highlights Bernanke and Paulson's comments stating that the economy will not see a recession because of the Fed's actions.  Here is the opening remark...

Treasury secretary and Fed chairman say rate cuts and rebates should keep economy out of downturn.

Bernanke even opened the speech with this statement...

"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt,"

That sounds like he is no longer concerned with the economy and, in fact, expects it to grow reasonably later this year.

Then there is this article, put out by MarketWatch, which talks about how Bernanke and his buddies stand ready, willing and able to cut rates further.  Why would there be a need to cut rates again if the cuts already in place will keep the economy from recession and return growth toward the end of the year?

Federal Reserve Chairman Ben Bernanke said Thursday the central bank was ready to cut interest rates further if fresh signs of a weaker-than-expected U.S. economy emerge.

So, should we fear recession, or as I have mentioned numerous times, inflation?  Bernanke and his buddies have been putting recession fears ahead of inflation, even saying inflation is a "non-issue", all the while the CPI and PCE numbers were ticking higher.

And then we head over to the Miami Herald which headlines reads "Bernanke warns economy worsening"...

Federal Reserve Chairman Ben Bernanke told Congress Thursday that the country's economic outlook has deteriorated and signaled that the central bank is ready to keep on lowering a key interest rate - as needed - to shore things up...

"The outlook for the economy has worsened in recent months, and the downside risks to growth have increased," Bernanke said. "To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so."

So, which is it?  Which should we be fearing more?  Recession or inflation?  I guess he is just doing a little CYA maneuvering right now because he probably is just guessing at this point. 

Still wondering why there is so much volatility in the markets today?  Still wondering why housing is so screwed up and failing to correct itself in many markets?  Big Ben and the government gang have the answers, right?  Don't count on it.

Economy Gets Stimulated: So Are You Excited?

President Bush signed into law the economic stimulus package we have all heard about.  Even the IRS said today that they will begin mailing checks in May for those who filed 2007 taxes, so make sure you file this last year if you haven't been.  It is "free" money after all, right?

Are you excited to get your money and rush out and spend it?  Are you excited that you can turn your jumbo loan rates into a new conforming loan (limited time offer, contact me for application), maybe even take some equity out so you can rush out and stimulate the economy even further?

I don't know about you, but my money is not going to be spent, rather I will invest it wisely, that way it will actually mean something in the future.

So, what changes occurred that Floridians should know about?

Well, you may qualify for up to $1,800 rebate, or more.  That's pretty cool, even if the rebate is only $300.  So, you need to decide what you "should" do with that money and not just blow it.

Conforming loan limits have been temporarily increased.  That means you may qualify for refinancing your high jumbo rates for a lower "conforming" rate.  I would be happy to help you determine if this is truly in your best interests, as it may not be in reality.

I am not going to get into the nitty-gritty details here as the post would just drag on.  If you want to know more on how the stimulus package can benefit you, especially as it pertains to your mortgage, contact me and I will be happy to assist you.

Can 'Asses or Elephants Really Save Homeowners' Assets?

It is a political year for sure and your vote counts.  Just don't screw it up over something neither candidate can truly fix. 

The housing crisis is all over the news, Internet, even on your toilet paper.  The political candidates know your fears, your "buttons" that need to be pushed to get you to push their button.  But, can they really do anything for you, or any other homeowner?

Think about it.  First off, they will not be in office until next year to begin with and whatever is happening will likely be a non-issue by then.  Next, they cannot do anything by themselves (thank God), and will have to get whatever they want accomplished pushed through both the House and Senate as well, a difficult task to say the least.

Add to that the fact they the government tends to overreact when faced with a crisis as we have already seen them scrambling to do something, yet can't fix anything going on right now.  Proposed laws do more harm than good overall and need to be amended if they will have the desired effect.

So, quit focusing on the today issues that most likely won't be there tomorrow and get them to spill their guts on the deeper issues, which they seem to want to avoid right now.  When you go to the polls later this year, vote for the "real" issues instead of the candidate who proved nothing more than how to take a current event and play it for all it is worth.

Fed President Fisher Headed South and Took The Mortgage Bond Market With Him

Dallas Fed president Richard Fisher conducted a speech today down south in Mexico, a speech which ultimately sent the mortgage bond market crashing through the floor.  He took the opportunity to elaborate on his dissenting vote this last go around.

When the Feds decided to cut rates last week, there was but one vote that was cast against the rate cuts, and Fisher cast it.  In his speech today, he informed the crowd why he has turned against further rate cuts and that reason is the one I have been talking about since just after the first rate cut months ago, inflation.

Yet at the same time, we are faced with the unprecedented consequence of demand-pull inflationary forces fueled by the voracious consumption of oil, wheat, corn, iron ore, steel and copper, and all other kinds of commodities and inputs, including labor, among the 3 billion new participants in the global economy. When it comes to these precious inputs, we have no control over the surging demand from China, India, Brazil, the countries of the former Soviet Union and other new growth centers, but we know that it is putting upward pressure on prices in our economy. Economists note that the “income elasticity of demand” for food is higher in China and other emerging economies than in the United States. Many of these countries’ income elasticity of demand for oil and certain other vital commodities is greater than 1, meaning that their demand for these items will increase faster than their income. Even if growth slows somewhat in some of these important emerging economies—the World Bank, for example, projects China’s growth will be 9.6 percent in 2008, down from 11 percent last year—demand for inputs relative to the world’s ability to supply them will likely continue to exert upward pressure on key commodity prices.

We also know that the inflationary expectations of consumers and business leaders are impacted by what they pay for gasoline at the pump and food at the grocery store.

He then says probably the best quote to describe why the Fed should stop and take a look at what it is doing...

Monetary policy acts with a lag. I liken it to a good single malt whiskey or perhaps truly great tequila: It takes time before you feel its full effect. The Fed has to be very careful now to add just the right amount of stimulus to the punchbowl without mixing in the potential to juice up inflation once the effect of the new punch kicks in.

You see, as I have mentioned before, the rate cuts allow the opportunity for inflation to rise out of control.  Since the effects of the rate cuts take several months, if not a year, before you see the results, the drastic actions the Fed has been taken recently could fuel the inflationary fire and let it burn out of control.  We already have core inflation above the normal Fed "comfort zone". Of course, only time can tell the future, but Fisher is correct in his stance that if nothing else, the Fed should stop reacting (or overreacting) and take more of a wait and see approach.

Since inflation is the archenemy of mortgage bonds, Fisher's comments on the risks of inflation sparked a major sell off in the bonds pit, with bonds dropping as much as 65 basis points, but settling in down 44 at the close.  What that means to you is that mortgage rates ticked higher today and broke below their sideways trading pattern allowing the potential for further rate increases down the road.

The Fed Hasn't Gotten Spanked, At Least Not Hard and Not Yet

I am sure you all have been waiting for me to weigh in on this morning's data, but quit frankly, I have been busy.  Besides my normal workload, I have been toying with the idea of moving the Florida Mortgage Report to a different site using WordPress instead and I am now running this site alongside this domain. 

More on that later in another post, but here is the breakdown of today's data, the way I see it...

There was a bunch of news this morning with the highlight being the PCE data and the Chicago PMI.  On first glance, the PCE looked good, coming in on par with expectations and keeping to just above the Fed's comfort zone.  Dig a little deeper and you will see that it still ticked higher .09%, the most it could tick up and still remain unnoticed due to rounding to the nearest tenth.  Interestingly enough the December gain was .24%, also the highest it could be before rounding made it look worse.  So, though not bad, inflation still grew slightly at the core levels.  Stray away from the core and we have a much worse picture.

Chicago PMI came in lower than expectations as well, providing some relief.  It shows further evidence of a slowing economy, but with inflation above the "price stability" range, it also signifies stagflation.

Other news out on the economic front included Personal Spending and Personal Income.  The bad news is that Personal Income beat expectations (bad news for bonds that is).  Worse news is that Personal Spending beat expectations also.  Both add to inflationary pressures, though the PCE is a better gauge.  The good news is that spending didn't increase as much as income did, so disposable incomes went up also.  Now, take that extra money and invest!

Alright, so what does all of this mean?

Nothing.  Tomorrow is a different day and the next big event of the week hits the airwaves as the gates are opened.  That's right, the Jobs Jamboree is tomorrow and get ready for a buckin' bronco ride in the markets with my bet's on the bull (stock market) taken down the bonds.

Fed Slashes Rate .50%: Mortgage Bonds Throats Slashed Also?

The Fed made their decision and went as most people expected even though their decision may not be the right one.  In another apparent attempt to keep the stock market content, the Fed chose to cut the Fed Funds Rate by another 50bp (.50%) bringing the rate down to 3.00%, fueling speculation of the rate dropping as low as 1.25%.

Before I get into the potential problems, let's look at the potential benefits...

• HELOCs may see a drop in their rates over the next month or two.
• Credit Cards may see drops in their rates over the next month or so.
• ARM holders should rethink their desire to switch to a fixed rate mortgage if their rates are indexed to LIBOR, and possibly other indexes as well.
• "Special financing" deals will likely continue as money is even cheaper.

Certainly some good can come of this, but remember that mortgage rates are not driven by this change directly and, in fact, will likely move higher on this news.  So, let's take a look at the potential problems...

• Mortgage Rates may tick higher (not lower)
• Inflation may grow uncontrollably
• Continued devaluation of the US Dollar = less real wealth for Americans (and foreigners with currencies pegged to the dollar)
• Stagflation environment (slowing economy with rising inflation) - inflation may actually help the cooling of the economy creating larger problems

As you can see, there are some potential problems as well, some big ones at that.  Since no one has a crystal ball, only time will tell, but the first test of their decision comes tomorrow with their favorite gauge on inflation, the PCE report. 

Did the Fed get fooled again?  What is your take?

House Passes $146 Billion Economic Aid Package

The House pushed through their version of the economic stimulus package you likely have been hearing a lot about lately.  The vote was 385-35, but now the package will face issues in the Senate as the Senate version differs from the House, so don't expect a check in the near future, at least not yet.

The plan would send at least some rebate to anyone with at least $3,000 in income, with more going to families with children and less going to wealthier taxpayers.  The House version would speed rebates of $600-$1,200 to most taxpayers.

The Senate version differs as it is a larger package that adds billions of dollars for senior citizens and the unemployed, and shrinks the rebate to $500 for individuals and $1,000 for couples.  The biggest issue between the two versions will likely be that the Senate version would deliver checks even to the richest taxpayers, who are disqualified under the House-passed measure.  The target date to send the bill to the President is February 15, but that looks difficult to achieve at this time. 

I always find it hard to believe how slow the government can work when a bill that helps the majority takes so long, but when a bill that helps the minority passes in just 2 days.  Case in point, the recent change in the retirement age of airline pilots, a change helping the minority while potentially jeopardizing safety.

The question remains not about whether or not there will be an economic stimulus package, but rather when and in what form will that package get approved.  Then we can move on to whether or not it will actually help.

Investors Rethinking Potential for Another Rate Cut

After the Fed did an emergency rate cut last week as the worldwide financial markets collapsed (mistakenly?), traders began expecting another rate cut coming from the Fed this Wednesday.  Once they realized the turmoil was created by a "rogue trader", their thoughts began to change.

Now traders are becoming increasingly skeptical about another rate cut and the markets are again reacting based on emotions, rather than logic.  With a huge plate of economic data coming this week, emotions will probably swing wildly with potentially drastic "mood swings."  If you don't have a stomach for volatility, get out, which means lock your rates and forget it.

Interestingly enough, the Fed's favorite gauge of inflation will actually come one day AFTER the Fed makes their next decision.  That presents two problems.  One, if the Fed doesn't cut rates, or not enough to satisfy the stock traders, we will likely see the repeat of last month's selloff (bonds and mortgage rates win).  Additionally, it may become very apparent that the Fed made a mistake the very next day with the release of the PCE data.

With the markets already moving lower with the expectation of little or nothing along the rate cut path, the Feds are under pressure to appease the markets or fight inflation.  Past moves suggest they will appease the markets and let inflation run amuck.

For those who can handle the volatility, you can try floating to see if there is a chance to win as the overall trend is still for lower mortgage rates.  However, expect a rollercoaster ride and one that may not end happily if you do.  Be ready to lock in a moment's notice and don't let greed get you.

Did the Feds Screw Up? Again?

In my post over at Agent Genius, Have Bernanke and Buddies Gone Bonkers?, I talked about the Fed screwing up and looking to appease the stock markets more than really worrying about the economy in general.  Bernanke, in a MarketWatch article yesterday, admitted they screwed up, acting based on the failure to do a complete analysis of the situation.

The Federal Reserve was not aware that Societe Generale was unwinding trades in Europe on Monday that had been amassed by a rogue trader at the French bank, a Fed source said Thursday.

You would think that the Fed would dig deep into why the markets moved dramatically lower worldwide, even though we (the US) were on vacation, before the Fed made a drastic, potentially fatal, action.

If the weakness in overseas stocks spilled over into the U.S. market, the wealth outlook for U.S. households would have darkened because of already dropping home prices, economists said.

What?  I guess the continued devaluation of the dollar is increasing our wealth.  The decrease in my buying power in the other countries I fly to must be my imagination.  Yeah, that's it, I am imagining my wealth disappearing every time the Fed acts like this.

SocGen did, however, inform regulators at the Bank of France as early as Sunday, a full day the U.S. decision on the big rate cut, according to a letter that the bank's chairman, Daniel Bouton, wrote to investors. The Financial Times reported that SocGen got permission from the central bank to postpone its announcement to allow it to unwind trades on Monday.

Why the Fed, which usually keeps in contact with the world's central bankers, wasn't aware of this when Bernanke held his emergency policy meeting remains an unanswered question that might dog officials in coming days.

So, there you have it.  Had the Fed done their job, they would have realized why the markets were tanking worldwide and could have stated so Tuesday instead of hitting the panic button.  Or did they really want to drop the rates now, and then again next week? 

I don't know about you, but I have now lost what little confidence in the Fed I had left, and you know what that means (read the underlined print).  And apparently I am not the only one...

Longer-term, if the Fed was spooked into making an emergency rate cut this week on the back of what was just technical selling, it could further undermine market confidence in Bernanke.

"Tuesday's panicked 75 basis point cut will prove to be an historical embarrassment a blot on the Fed for all its days," Ritholtz wrote.

I couldn't have said it better.