Ryan Abrahamson

Fannie and Freddie - what does the Future hold?

I wanted to take a minute to make sure that you fully understand the implications of the governments historic and unprecedented takeover of the GSE's this weekend.

Here are a couple of bullet points from my research:

•· Fannie Mae and Freddie Mac are placed into conservator-ship immediately. This amounts to a government take-over of the two companies.

•· To promote market stability, the companies will be allowed to buy more mortgages through the end of 2009. However, starting in 2010 the number of mortgages they own will gradually be reduced at a rate of 10% per year, eventually stabilizing at a much lower size. This is big! It's unknown what the effect will be on the market at large since the job of Fannie and Freddie is to provide liquidity for origination of mortgages. An artificial reduction (not based on demand) of agency buying power means that other sources will provide the liquidity needed to satisfy origination demand. FHA is a likely candidate to absorb much of this market share but how much is impossible to say.

•· The US Treasury will ensure that each company maintains positive net worth by buying their stock as well as providing a new lending facility to serve as an "ultimate liquidity backstop." This facility will expire on December 31, 2009 according to reports. Whether the ‘backstop' really expires or not remains to be seen.

•· Monday morning, both agencies resumed normal business operations.

•· The U.S. government assumes control over the Board and management. DMV baby!

•· Current Fannie Mae and Freddie Mac CEOs are being replaced, but will stay on through a transition period.

•· There will be no dividends paid on preferred or common stock. This is incredibly important on several levels. First, imagine owning Fannie/Freddie in your retirement portfolio (if you have anything with PIMCO you probably own a lot of agency stock), learning that you'll not be receiving dividends on the stock is going to be tough. If you've been watching, you're aware that both Fannie and Freddie are trading at under .90 cents a share! The government is trying to assure shareholders that value will return once the government is no longer running the agencies but this leads me to the second reason that this takeover is important from a market at large perspective. Once an industry sector has experienced a government takeover (think Mexican oil rigs in the gulf during the 70's and 80's) the threat looms permanently. Sure, when the mortgage market recovers, Fannie and Freddie will again show profit, but it will never again be considered a safe bet. Fund investors looking for a stable place to park assets will always recall the takeover of 2008 when their stakes evaporated in a matter of weeks. It will be years before we see large capital investments in fannie, Freddie or any other GSE that may gain favor. Big stuff.

•· All lobbying/political activity by the companies will cease. This may seem like a good thing at first but consider that this means the MBA and NAR will have no input in the restructuring of our industries most important source of liquidity. It's enough to make you want to join the NRA.

So what does it all mean? In the short term these actions will provide stability to the market that many experts think will be the turning point in the housing crisis. We are seeing some implications of that already. Interest rates will continue to fall and there will be plenty of money for mortgage financing. I expect to see a mini refinance boom (more to come on that so stay tuned) as borrowers take advantage of rates we haven't seen for close to a year. There is no way to know how far they will fall, but one thing is for certain, when rates rise, it's faster than they fall so lock em if you got em. Remind borrowers who want to wait that Bears and Bulls both go to market but pigs just go to slaughter, so don't get greedy.

I've got more information on the subject if needed, so please feel free to contact me at any time.

Thanks,

"THERE IS NOTHING WRONG WITH CHANGE, IF IT IS IN THE RIGHT DIRECTION." Winston Churchill. And the housing and mortgage industries experienced a great change in the right direction last week, as the Federal government moved to support Fannie Mae and Freddie Mac, causing Bonds and home loan rates to improve significantly and end the week around .25 percent better than where they began.

So why did the Federal government take action? Fannie Mae and Freddie Mac both have issued many Bonds which over time mature, and Fannie and Freddie need to pay back the principal on the maturing Bonds. The way they raise capital to pay these maturing Bonds is to issue new Bonds, which happens every month. And as long as Fannie and Freddie can sell new Bonds this system works well.

But the problems in the mortgage industry have reduced investor appetite to purchase these Bonds. Without the ability to sell new Bonds, Fannie and Freddie are less able to meet the capital requirements to pay off the maturing Bonds. And if Fannie and Freddie were to default and become insolvent, the mortgage and housing industries...and homeowners across our nation... would face even more struggles than we are seeing now.

So the government's decision to back Fannie Mae and Freddie Mac is great news for homeowners, because it ensures the continued liquidity of conforming loans nationwide and it ensures that buyers of this type of Bond have a safe investment going forward.

In other Bond-friendly news, we saw good news on the inflation front last week. Overall Import Prices declined for the first time since December, thanks in part to the recent plunge in oil and gas prices. And Wholesale Prices, which help measure inflation, fell in August for the first time this year.

Overall, the good inflation news and the Fed's decision about Fannie and Freddie should lead to improving Bond prices and home loan rates in the long-term. With home loan rates at such low levels, it's a great time to review your mortgage situation and make sure you have the rate and program that best suits your current financial needs. I'd be glad to do a quick review for you - and your friends, family members, neighbors or coworkers as well - so just give me a call or email, I'll look forward to hearing from you!

MAKING SURE YOUR CREDIT CARDS ARE SAFE IS AN IMPORTANT STEP IN THE RIGHT DIRECTION TOO, SO CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW TO MAKE SURE YOU KNOW HOW TO PROTECT YOURSELF AGAINST A NEW CREDIT CARD SCAM.

This week several important economic releases will arrive, and the flavor of these headlines will help determine if things can continue to move in an improving direction. Tuesday's Consumer Price Index (CPI) report will show us inflation at the consumer level - that is, how much more expensive goods and services are for consumers this month over last month. If CPI brings more good news on the inflation front, Bonds and home loan rates may add to their improvements from last week.

Also on Tuesday, the Fed will release their latest Policy Statement and Interest Rate Decision. It is widely believed that the Fed will keep the Fed Funds Rate at 2% given the lessening concerns over inflation, but it will be important to see if the Fed's statement gives us a hint as to what their plans are for the near future.

Later in the week, we will get a read on the housing market via the Housing Starts and Building Permits Report on Wednesday, as well as a look at the manufacturing sector via the Philadelphia Fed Report on Thursday. This monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware is one of the most highly watched manufacturing reports. If manufacturing appears to be getting stronger in this region, Stocks could move higher at the expense of Bonds and home loan rates.

Remember when Bond prices move higher, home loan rates move lower...and vice versa. As you can see in the chart below, Bonds and home loan rates have improved significantly over the past month, but got stopped in their tracks last week by a technical "ceiling of resistance". I will be watching closely to see if Bonds and home loan rates can break this barrier and find more improvement in the weeks ahead.

Criminals Turn to Shaving

We've all heard about high tech online and email scams that are used by criminals to trick consumers out of their money. But now, some scammers are relying on good old low-tech skills to steal money from consumers... sometimes without being detected for months!

Authorities are reporting increased "credit card shaving" activity. Credit card shaving--or resurfacing--occurs when a criminal essentially creates a duplicate credit card using numbers from other cards.

Here's how it works...

Criminals obtain valid credit card numbers (either by purchasing a list of numbers from a black market dealer or by stealing numbers from other sources, such as financial paperwork). Then, criminals use a razor blade to shave the raised numbers off of expired credit cards or gift cards. Once the numbers are off, criminals re-arrange those numbers into the order of a valid credit card number and glue them back onto a clean-shaven card. Finally, the criminals use a knife or a pen to scratch the magnetic strip on the back of the newly created card, so that store clerks have to enter the number manually rather than swipe the card.

It's all very low-tech, but very effective! Especially, when you consider that the victims have no idea they're even being robbed. And why should they? Their actual credit cards haven't been stolen... they're safe and sound in a wallet or purse.

So what can you do to protect yourself?

First, spread the word about this type of crime. That means telling your friends, family members, and even your local merchants. Experts agree that the best line of defense is at the store register. After all, these card numbers need to be entered manually by a store clerk. If the clerk is perceptive and takes a minute to inspect cards for evidence of mismatched and crooked numbers or even traces of glue, many of these types of crimes could be stopped before they begin.

Second, monitor your accounts. All too often, people file their credit card bills or check card statements without really inspecting them. To help protect yourself, make sure you take a few minutes to examine what charges are listed. If anything looks remotely suspicious, look into it. You can start by checking it against your recent purchases, and if anything looks suspect, get in touch with your credit card company and the merchant for help in tracking down the issue.

Economic Calendar for the Week of September 15 - September 19

"THE BEST WAY TO APPRECIATE YOUR JOB IS TO IMAGINE YOURSELF WITHOUT ONE." Oscar Wilde. And for many Americans, job loss is not just something they are imagining - it's reality - as the Labor Department's August Jobs Report showed that the US economy has lost 605,000 jobs so far this year.

Last Friday's Jobs Report revealed several important pieces of information. In terms of job losses, the report showed that 84,000 jobs were lost in August and that the numbers for June and July were heavily revised, so that an additional 58,000 jobs were erased. But the real buzz came when the report showed that the Unemployment Rate swelled to 6.1% from 5.7%, which marks the highest Unemployment Rate since September of 2003.

And since jobs losses are bad for the economy...and bad news typically causes money to flow from Stocks into Bonds...on Friday morning, Bonds and home loan rates initially built on the improvements they made earlier in the week. However, Stocks were able to rally later on Friday, and while Bonds and home loan rates gave back some of the improvements they made, they were still able to remain above an important floor of support at their 200-day Moving Average (a moving average is the average closing price of a financial instrument over a given period of time).

So despite the worsening trend for Bonds late day Friday, home loan rates still ended the week nearly .125 percent better than where they began.

MAKING SMART SPENDING CHOICES IS A WISE THING TO DO IN ANY JOB MARKET! CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW FOR SOME GREAT GROCERY SPENDING TIPS!

We will likely see another volatile day on Friday this week, with the delivery of two high impact reports with the potential to shake things up. Both set for release at 8:30am ET, we will see the wholesale inflation measuring Producer Price Index, as well as the Retail Sales Report. It will be important to see if the recent drop in oil prices has made an impact on either the cost to manufacture (PPI) or if it has invigorated retail purchases due to the savings in the cost to fuel vehicles.

Inflation at any level remains a strong concern, so the Producer Price Index will be of high interest to many, including the Fed. On the Retail Sales Report, remember that a strong Report would be good for the Stock market - which stands to reason, as it would indicate continued consumer confidence and dollars being poured into the economy. But stronger economic news and higher stock prices will likely worsen Bonds and home loan rates. The aforementioned 200-day Moving Average, seen below in blue, is an important threshold in determining the direction of home loan rates in the coming weeks. A convincing move above this line would be good news for Bonds. Let's watch this closely, as it may represent some opportunities ahead.

Remember when Bond prices move higher, home loan rates move lower...and vice versa. As you can see in the chart below, Bonds and home loan rates managed to stay above the 200-Day Moving Average. I will be watching closely to see if Bonds and home loan rates can remain above this important level.

Grocery Shopping Tips

With food prices still soaring, supermarkets are offering many deals and specials to lure in food shoppers. But sometimes, these good deals can actually cause people to spend more than they would have otherwise. Phil Lempert, author of Being the Shopper: Understanding the Buyer's Choice, offers these smart-shopping tips:

Limit Four Per Person: Scarcity can have a powerful impact on shoppers. A buying restriction can tempt people to buy more than they need, which could cause items to either spoil or sit in your pantry for a long time. Tip: In the long run, when you factor in the amount of products that spoil or are eventually thrown away, you will usually be better off financially if you only buy the amount you reasonably need and can use.

End of Aisle or Freestanding Displays: Often the "specials" displayed on the end caps of each aisle or on an island display aren't really the best deals that the store currently offers. These displays may also lead to impulse buys that you weren't intending to make. For instance, a display with graham crackers, chocolate, and marshmallows could make you think, "I'll make s'mores for dessert." Tip: While the location of these items is convenient, especially during busy shopping hours, you should only buy these items if they really are good deals.

Buy One, Get One Free: While these deals can make you feel like you are getting something for half price, if the cost is more than that of a similar item...or if you don't need a large quantity...than this may be one special worth passing on. Tip: Ask the manager if you can buy one item for half the price instead of buy one get one free. While stores don't always advertise this alternative, they often allow it.

Pre-Sliced Produce: While pre-sliced produce can feel like an easy choice, it can cost twice as much as whole produce, and can spoil faster than whole produce. Tip: Pay extra for prepared meals and produce only if the time and effort they save you is significant and really worth it.

For more great grocery shopping tips, visit www.supermarketguru.com.

Economic Calendar for the Week of September 08 - September 12

"THE FIRST THING A HURDLER LEARNS...IS HOW TO FALL." Tonie Campbell, 1988 Olympic Bronze Medalist, 110m Hurdles. And that's a lesson Bonds and home loan rates have now learned, too. After finally leaping over a big technical hurdle called the 50-day Moving Average (a moving average is the average closing price of a financial instrument over a given time period) for the first time in weeks, Bonds and home loan rates then quickly plunged to some of their worst levels of the week.

So what happened? Bonds and home loan rates began the week facing a tough inflation hurdle, when the Producer Price Index (PPI) came in at the biggest year-over-year increase in 27 years. The Core PPI, which excludes volatile food and energy prices, also came in at the biggest year-over-year increase since 1991. However, the recent drop in oil prices kept the topic of inflation from being too high a hurdle for Bonds and home loan rates, and they managed to leap above the 50-Day Moving Average to some of their best levels in weeks on Wednesday.

However, the quick rise in Bond prices pushed them into "overbought" territory, which pulled the reins back on their momentum. Combining this with Friday's news that the Korea Development Bank may be interested in acquiring Lehman Brothers - which added confidence to the financial sector, causing traders to move money from Bonds into Stocks - caused Bonds and home loan rates to stumble and end the week only slightly improved than where they began.

WONDERING IF YOUR BANK DEPOSITS ARE FULLY PROTECTED? CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW TO MAKE SURE YOU AREN'T FACING ANY UNEXPECTED HURDLES!

And if any improvement is in store, Bonds and home loan rates will again have several big obstacles to face this week. Right off the bat, we will get a read on the housing market as the Existing Home Sales report will be released on Monday followed by the New Home Sales Report on Tuesday. Also on Tuesday, the minutes of the Fed's latest meeting will be released, and it will be important to see if any comments about inflation will cause Bonds and home loan rates to trip up.

And more hurdles still will follow in the last half of the week. On Thursday, the Gross Domestic Product (GDP) Report will be released and on Friday we will get the details on the Fed's favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data, from the Personal Income report. If either of these reports show inflation as a big barrier looming ahead, Bonds and home loan rates may not be able to regain any headway before the markets close early on Friday at 2:00 pm in advance of the Labor Day holiday weekend.

Remember when Bond prices move higher, home loan rates move lower...and vice versa. As you can see in the chart below, Bonds and home loan rates managed to stay above the 50-Day Moving Average line despite the losses they incurred. I will be watching to see if Bonds and home loan rates can surpass additional hurdles and regain some ground this week.

The Low Down on FDIC Insurance

After last month's failure of California-based IndyMac Bank, many people have wondered how safe their accounts really are. While the Federal Deposit Insurance Corp. (FDIC) guarantees most bank deposits, here are some important details to remember.

What types of accounts are covered?

The FDIC protects checking and savings accounts, certificates of deposits (CDs), Christmas club accounts, and money-market savings accounts. However, Stocks, Bonds, and mutual fund shares...even those purchased through an FDIC bank...are not protected.

What are the limits of FDIC insurance?

Bank accounts that have less than $100,000 in them and certain retirement accounts (IRAs held in CDs and money market accounts) that have less than $250,000 are fully protected by the FDIC even if the bank fails. If you want to exceed these account limits, you can keep your deposits fully protected by:

1. Dividing your money among several different bank companies. Note that dividing your money among several different branches of the same bank does not guarantee full protection.
   
   
2. If you prefer to keep your money in the same bank company, you can still be fully protected if you divide your money among various "ownership categories". Ownership categories include a personal account in your name, a personal account in your spouse's name, a joint account co-owned by you and someone else, and a trust account that names someone other than you as a beneficiary.

What are some common ways customers end up with uncovered deposits?

If you purchase a CD through an investment broker, this CD will often be placed with a bank at which you already have an account. If the CD and your other accounts exceed the $100,000 limit, you may not be full protected. Before purchasing CD's through a broker, ask where they will be placed.

In addition, keep track of the interest your accounts earn so you don't exceed the limits this way.

What will happen if your bank fails?

In most cases, depositors can fully access their funds by the next business day. Typically, failed banks are closed on Fridays, and funds are available by the following Monday. People can also usually use their ATM cards and write checks over that weekend as well. And for customers whose accounts exceeded the FDIC limit, all hope is not lost. Though this amount has varied, they can generally expect to recover 70 cents on the dollar of their uncovered funds after the bank's assets are sold.

The good news is that the vast majority of US banks are secure, but the above information will help you stay fully protected.

For more information, visit www.fdic.gov.

Economic Calendar for the Week of August 25 - August 29