Florida's #1 Mortgage Planner

If you have wondered why mortgage rates have been climbing, falling, and climbing again, here is a great view into the current mortgage backed securities market…

Mortgage backed securities have done three virtual freefalls in the last week and a half, only 8 trading days.  Since MBS pricing is what drives mortgage rates, those freefalls resulted in spikes higher in mortgage rates and the subsequent climbs in MBS prices have brought rates down a bit and set up the next “dive”. 

While Sheikra, which I think still boasts the largest freefall of a dive coaster (205 feet), only has two freefalls built into it, the rollercoaster ride in the mortgage backed securities market has already had three and the ride is likely far from over.  If you would like to read more of my analyses of the markets and what may lie ahead, check out these posts…

Is the Mortgage Rate Bubble About to Pop?

Is the Air Being Let Out of the “Mortgage Rate Bubble”

To begin with, let’s analyze what has been happening to mortgage rates since my last post on the subject, just below and dated May 22, 2009. Since then, mortgage backed securities have plummeted after breaking below their recent trading range on May 23. While they have made back some ground, their virtual freefall has changed the overall outlook for mortgage rates, and may very well signal the beginning of climbing mortgage rates. The question in my mind these days is how high will they go and just how fast. Taking a look at the charts below will show just how fast they got worse and the potential speed at which they could rise in the coming months, if not years.

To read the remainder of the story, please visit Florida Mortgage Report

PS - I do not like writing excerpts, but I typically do not have time to rewrite the whole post. In about an hour, I am heading to the airport to fly home from Bolivia, so all I could do is add this excerpt and send you to the real post.

If any of you have been following my work, especially over at Florida Mortgage Daily where I post regular mortgage market commentary, you knew I coined the next bubble the “Mortgage Rate Bubble” a long time ago. Others are now using the “Bond Bubble”, focusing on Treasuries and not mortgage backed securities and mortgage rates, but it is essentially going to happen the same to MBS as it is to Treasuries. So, just what is it and when is it going to happen?

Sorry to do this, but if you want to read more, please visit Florida Mortgage Report

It is hard to believe that I have been talking about these programs for more than two years now,  bringing to light the misleading, even false, information presented by the Money Merge Account sellers.  Don’t get me wrong, these bits of misinformation spread out on occasion to other mortgage acceleration product sellers, but the United First Financial (UFF) agents are the worst offenders from what I have seen thus far.  The company even encouraged the presentation of skewed realities at the beginning, and I suspect they still do in a “non-public” fashion as they allow agents to continue spreading the crap, such as that from the Asher Institute report including claims that a 30-year fixed rate is really an adjustable rate mortgage (ARM).

One of the more subtle and persuasive statements is that paying off your mortgage is the same as investing at the same interest rate.  This comparison is very successful for them as they can show that an investment account with the same interest rate will have accrued the amount needed to pay off one’s mortgage at the same time as if one was paying monthly toward their mortgage.  What’s even more powerful for their persuading clients into buying the Money Merge Account (MMA) is the phrase “where are you going to get that kind of return, especially in a savings account.”  The problem is that they again leave out a lot of facts, facts that could very well change your mind.

Let’s go ahead and assume that your mortgage is 6% and you can get a 6% rate of return on your investments.  That puts the mortgage payoff date at the exact same time, regardless of how much money you add monthly.  However, the truth of the matter is that you are much better off investing than paying off your mortgage.  You see, once you send money to the bank to payoff your mortgage, you will not be able to access it again, at least not without refinancing.  Your investments, on the other hand, can be “tapped” if the situation arises.  This is called liquidity, aka money readily available.  When a financial crisis occurs, many whom have gone the mortgage acceleration route are finding themselves trapped and struggling to make ends meet, with no cash available.  Some have even headed to foreclosure.

Another fact is that when the mortgage payoff time arrives, guess what?  If you have sent all of your money to the bank, congratulations, you now have a free and clear home, but no cash in the bank.  You cannot tap into your home’s equity without refinancing again.  With the investment account, you have financial freedom in essence.  You have options!!!  You can choose to pay off the mortgage in its entirety, pay off part of it as you deem capable, or let the investments keep working for you and reap more rewards.  Also, keeping the money in investments keeps that liquidity that we all need, and most lack.  Remember that $100,000 readily available can pay a lot of bills during a financial crisis, such as job loss.  Try getting a refinance done without a job.

Now, we haven’t even talked about the tax benefits that carrying a mortgage can provide.  Even if you are taking the standard deduction, you may be able to gain tax advantages.  Another point being argued these days is where can you get an interest rate that is greater than your mortgage interest rate?  I do not think I can legally specify any one stock, bond, etc., but I can tell you that it is not hard to do with a little bit of research and education.  One of my investments is yielding over 17% in dividends and that yield does not look to be in jeopardy any time for the foreseeable future.  Since dividends are only taxed at 15% maximum, there is a greater ability to grow your wealth on the “spread”.  Of course, Obama will probably destroy this 15% cap, but remember that he won’t “raise taxes”.  Speaking of higher taxes, when they come, you will want every deduction you can get.

Another point I would like to mention that the “other side” won’t is that you do not need to earn the same interest rate as you pay on your mortgage in order to come out ahead in your investments.  That’s right, you could earn less than your mortgage, even taking out the tax benefits, and still come out ahead in some cases.  I show these type of facts in my presentations, which I may turn into videos to be released across the internet.

So, don’t buy into the simple facts or even listen to just one side of the story when trying to decide which mortgage strategy is best for your situation.  I encourage you to research thoroughly and make sure you have seen genuine side-by-side comparisons of various strategies, as well as working with a mortgage professional whom understands and can teach both sides’ advantages and disadvantages.  Of course, if you have any questions, feel free to contact me.

As strange as that sounds, many moons ago I mentioned that the Fed, led by Ben Bernanke, would love nothing more than to pay people to borrow money and a study released yesterday proves I was right. The fact is that Big Ben wants inflation so bad that he would be willing to pay others to borrow money if he could actually do that.

The study that was released yesterday morning stated that the Federal Open Market Committee (FOMC) was presented with the suggestion that the optimal interest rate would be –5%. That’s right, supposedly the best interest rate would be to pay others 5% to borrow money, despite the fact inflation is near 2%, so the net loss on money lent would be around 7%. That’s OK though, they don’t have to take the loss, they just pass it on to every American with increased taxes down the road. Oh, and don’t be naive, those higher taxes will be coming, it is just a question of when.

Nevertheless, since the Feds know that they cannot go negative and they are already sitting near zero percent, they recommend keeping up, even stepping up, other unconventional policies that have the same effect as negative interest rates, such as the announcement of the stepping up of MBS (mortgage backed securities) purchases to $1.15 trillion. The research the Fed was acting upon actually suggested an even greater amount, but the Feds decided to play it “conservative” as one Fed governor defined it.

Why am I bringing this up right now?

Easy, the FOMC is meeting again as this is posted so be prepared for more of these "unconventional” policies to be released. What worries me is that Big Ben himself already stated that inflation will be an issue after the next FOMC meeting, so we are likely in for a shock as the Fed makes their announcement tomorrow. There is even talk that the Fed may up their MBS purchasing yet again. Remember that the Fed’s Policy Statement has a much greater impact on mortgage rates than their actual decision, so I will give you a rundown once it is released today at 2:15 over at Florida Mortgage Report.