While I’m at it, check the Bend Bulletin front page article on the rescue plan delay.

“Local experts worry consumers could take a hit”

Yesterday I spoke with Jeff McDonald of the Bulletin about the severe impact on Bend residents if the rescue plan is not enacted. When we hide behind the thought that this is big guys on Wall Street getting bailed out, we are setting ourselves up for a disaster. The corporations we are enabling with this are all of the retailers that are stocking shelves with millions of dollars of inventory. They don’t have that money in their bank accounts! They operate off of short-term commercial paper. So do shippers of product. If the line of credit isn’t delivered to the shipper, they don’t move. It is this operations money that is in question right now. If the rescue bill doesn’t go through, it is you and me trying to shop at Fred Meyer and Safeway that will be hurt. Here is the quote in this mornings paper that Mr. McDonald picked up:

More immediate impact could be felt if the credit markets continue to seize up, limiting companies from short-term borrowing that allows them to pay for everything from inventory to payroll, said Dave Woodland, senior vice president of Signet Mortgage in Bend.

“When we are talking about corporate America benefiting from this bailout, we are talking about the gas stations or retail stores that we shop at every day,” Woodland said. “What we are used to here doesn’t exist everywhere in the world. We have goods and services available whenever you need them. Some companies won’t have any choice but to reduce inventory.”

This is the most significant financial crisis that has happened in your lifetime (all of you except for my mom who is the only reader of this blog who went through the Great Depression. The only difference here is that we now have the ability to avert that level of disaster. Let the Congress vote without being bombarded by misinformed criticism!

Make it a great week! - Dave

Here is an interesting article from today’s Wall Street Journal by June Fletcher entitled “Is Now a Good Time to Buy a Home?”

Even though the author refers to the Credit Suisse analyst projections of stabilizing in approximately 18 mos (see the last 2 paragraphs), for the right person, NOW is the time to invest. She describes a list of what-ifs that if your client can answer yes to, they are excellent candidates for taking advantage of today’s market.

If you
have access to credit,
have plenty of cash reserves,
aren’t extended to the gills in real estate already,
have secure, steady income, and
are looking to hold property for at least 2 years…
then NOW is the right time for you.

So look at this list of IFs and see if you know anyone with these virtues. For the first item on the list “if you have access to credit”; everyone you know has an opportunity to say “yes” because you know me and you can put the two of us together. So focus on the other items and share this information with someone who is a candidate. If they have the appetite, put me in touch with them and together let’s help them satisfy that desire.

Stock market is rebounding, hope is on the horizon for bill passage later this week, and it’s great weather out there. Happy New Year if you are celebrating Rosh Hashanah. (Maybe it’s a good sign that we are starting over with a new year!)

Dave Woodland
SIGNET MORTGAGE
Bend, OR
541 318 0888

The vote is in and it’s a “NO!” in the House, so there is still not a financial rescue plan. Click here to see the Wall Street Journal article on the vote and the markets. The Dow has now closed down 777 points at 10,365. A bigger drop than the day after 9/11. These are truly historic days on Wall Street. Normally when we see funds coming out of the equity markets it will often flow into Mortgage Backed Securities (MBS) and improve rates. But for now, MBS are not stabilized and money is choosing to go into Treasuries and by the billions. So rates are down significantly on US T bills and only slightly on mortgages. 10-year T bill yields are less than 1.9% right now. Now before you crumple into a ball, we are still expecting a rescue package to pass and with it bring stability to the markets. It may take more time but we believe this will happen. The result will initially pull funds out of bonds and back into the equity markets, resulting in a temporary bump up in interest rates, but long term, this stability is needed for the mortgage market to function properly.

We said last week that the most significant unintended consequence of this rescue will be inflation, the arch enemy of long-term mortgage rates. And during the past week commodities and inflation fighters have been seeing much more activity. I heard Prof. John Baen of the University of North Texas tell a group of commercial brokers here in Bend on Friday that when inflation is rampant, the place to be is with the 6 G’s: Gold, Ground (real estate), Gas & Oil, Grub (food), Guns (to protect your stuff – a true Texan) and God. Today we have seen this be every bit true as Gold has spiked $25 on the day to $913. Today’s report on Personal Consumption Expenditures and CORE PCE was up year over year at 2.6% and over the prior month at 0.2%. This was just at or below expectations for the Fed’s most important gauge of inflation. So we are marginally still in check on inflation but will watch this carefully into the next few weeks as the drama unfolds in Washington.

In related news, CITI has agreed to buy certain assets of Wachovia. Both stocks are down on the news, but it is GOOD news that the number 4 bank in the country will not go through receivership and tax the FDIC’s reserves. We are settling down into a banking system with 3 big players in Bank of America, JP Morgan Chase and CITI. The jury is still out on whether this concentration will be favorable to lending rates, but if the free market is allowed to operate, supply and demand will bring significant competition to bear against these giants. Let’s just hope the rescue plan doesn’t result in over-regulated markets and limited competition.

These are historic times and it is fascinating to be a part of this. Don’t let it get you down. Watch in tomorrow's Bend Bulletin for more information from Signet Mortgage on the impact of the NO vote on your pocketbook. If you are at all worried or would like to talk about what is going on and what might be done to help get deals done, give me a call. Make it a great week! - Dave

Well, HISTORIC seems to be an understatement for the activity right now on Wall Street and Washington, D.C. Certainly the biggest financial activity since Black Monday in 1987 and the formation of the Resolution Trust Corp in 1989. I am sure you have heard and read much about the specifics of the rescue efforts so I will try to give you the mortgage-backed securities and long-term interest rate impact of these events to add to your knowledge-base of what’s going on. I hope you will be able to share this information with your clients in making significant financing decisions. It is clear that many are wondering what to do and I would love to help bring answers to you and your clients, just give me a call.

I’ll discuss the impact on mortgage rates by looking at supply and demand, liquidity, inflation and then mention some unintended consequences. The market rate of interest on mortgages has always been affected by supply and demand and no more so than in the past two weeks. The interesting piece of this is that it is not the supply and demand for home loans that is in this equation, but the supply of loans that banks have bundled and selling as securitized packages and the demand of investors for such mortgage backed securities (MBS). This drop in demand back in August of ‘07 is what started the melt down and it is again what moved the Treasury to step in Friday as it has became apparent the lack of demand for these real estate secured bank loan assets was very likely going to sink the balance sheets of too many US banking and investment institutions.

The demand of investors to buy MBS is also an ebb and flow between bonds and the stock market including money market funds. The stock market drops like we saw a week ago today bring funds into bonds, boosts their price and results in lower interest rates. Once considered completely secure, money market funds (MMF) started to be seen as risky and nearly $180 billion shifted out to safer ground of MBS and Treasury Bonds. It became so bad in the latter part of the week that people were willing to receive no interest at all and in some cases even pay interest just to park their cash in secure Treasury Bonds. This was the instigation of the government plan to secure MMF with an FDIC-like insurance plan. The unintended consequence here is that money historically seeking such insurance has avoided MMF and gone into banks’ lower paying deposit accounts. If there is a shift out of bank deposits, the institutions will have trouble meeting capital and reserve requirements and this might stifle their ability to make new loans. We’ll be watching this story as it unfolds as well. The Federal Reserve steps continue to focus on maintaining liquidity and funds availability through this crisis while Treasury is creating oversight and vehicles for asset purchases.

The heroic rescue attempt received a warm response from Wall Street on Friday, with funds flowing back into stocks. I think it will take some time for the full impact of the actions to be digested in the markets. In the meantime, the news you will hear tonight will be the impact on inflation not largely discussed on Friday. An underlying cost of all of these actions is the inflationary impact of borrowing more money to pay for it. Watch the prices of commodities climb this week as the fear of inflation settles in. Oil got all the way down to $91/bbl early last week and on Friday it moved up from $98 to $105. Gold mysteriously dropped to $865, but you can bet that will be headed up. And the fear of inflation will also impact lenders of long-term money who have to bet on how much their money will be worth when they get it back in 30 years. Today we are seeing mortgage rates creep back up to about the same place they were two weeks ago, just before the Frannie conservatorships announcement. These are still historically low interest rates, just not as low as we saw in the past two weeks.

Other unintended consequences will be the lower reward that will go along with highly-regulated, lower risk investing. This will translate into higher cost of funds and pressure on mortgage rates. There will likely be some surprises that go along with new government backing of MMF and Freddie and Fannie and the flow of funds that shifts because of it. Added government regulation and inflation will have added impact on the MBS market. We’ll keep a careful watch on these impacts and keep you in the know as it becomes apparent. Please don’t hesitate to call with questions or loan possibilities; we have the deep pool of lenders able to make your deal a reality! Make it a great week! -Dave

Wow. There are Big Steps in the world of mortgage-backed securities to talk about today! Yesterday’s historic move of the US Treasury stepping into Freddie and Fannie will have far reaching effects on the price of bonds. The near term effects are all positive. It’s all about risk-based supply, which in this case has been high risk and low supply of investors for Freddie and Fannie bonds. Interest rates have been artificially inflated to attract needed investment into the mortgage giants. And sure enough this morning, with the risk profile reversed, supply of investors has jumped up, willing to buy bonds again and interest rates are dropping. In fact, if you look at the chart below showing trends through Friday, and superimpose today’s activity, prices are above 102.4 and into that yellow box, well above the Friday close of just under 101.5.

So that’s the news for supply and demand and the removal of an artificial rate booster, but you and I both know that the real driver of long-term rates is inflation. The fed continues to hold firm on a story line (the hope!) of having inflation in check. This is conceivable today with oil prices back down close to $100 after being near $150 earlier, but it’s hard to see inflation not catching up to us in the next year. For now though, the impact of recession rules the actions of the Fed and with jobs off in record setting numbers and unemployment very near the peak of the last recession, the Fed will be keeping their rates steady for a while and praying that inflation doesn’t catch up to them in this tough hour. In fact, the futures market for Fed Funds doesn’t anticipate an increase in that rate until June of 2009.

We’ll keep our eye on the important inflation indicators and let you know if the risk of inflation reverses the current positive trends in mortgage-backed securities. This week has a huge information day in Friday with both Producer Price Index (manufacturer’s inflation) and Retail Sales reports coming out. Watch today for interest rates to improve. With the investor appetite spiking, banks will be improving rates without delay. Get the news out to your fence sitting buyers! The rate jump of the last 4 months has now fully reversed and we are back solidly into the range we enjoyed when the market was at its best in the past 2 years! Give me a call 541 318 0888 and let me help make dreams reality! Make it a great week! – Dave