Dave Woodland - Your Bend, OR Friendly, Knowledgable Mortgage Professional

Good morning!

Well I didn't write the subject line this morning, but it is appropriate. For some (Messrs. Obama, and Reid and Mrs. Pelosi) it smells like roses. For others it just plain smells. We now have it passed by both the house and the senate and Pres Obama is to sign it into law on Tuesday in a ceremony in Denver, CO, so I choose to be hopeful of its benefits but not blind to its high risks. Let's do a quick run down on the good the bad and the ugly related to The American Recovery and Reinvestment Act of 2009 in reverse order.

Ugly: $787 Billion of spending that will all be borrowed by the treasury on top of record deficit spending anticipated for 2009 and 2010. If you were to spend a dollar every second of every day you would reach $787 billion in 24,956 years! Or at $1,000,000 every day it would be 2,156 years to spend that much. This is mucho dinero and the congress was encouraged to set aside "politics as usual" and just vote for it without truly vetting the merits. The debate that did take place seemed to be about pork items rather than some of the sea change events that are occurring with this borrowed money. Bad: Of course the effect of printing or borrowing money is the threat of inflation. You know that the worst enemy of long term interest rates is inflation. While the current economic recession (now in its 15^th month) is driving prices down or at least keeping them tethered (oil hit $34/bbl this week more than a 75% drop from its all time high of exactly 7 months earlier), the aftermath of borrowing and spending to tame the recession will certainly impact the future inflation story.

The Good includes some housing and mortgage benefits among the spending: The $8,000 Homebuyer Tax Credit is there, but as reported mid week, much was stripped out of the original $15k plan. But for first-time homebuyers (haven't been paying a mortgage or owned a home in the past 36 months) this Credit is much better than last year's $7,500 Credit. Let your First Time Home Buyers know that this credit is direct dollars to many of them with no requirement to repay if the home is held at least 3 years. Of course it is only available to those with joint income of <$150k/yr or individual filers with <$75k/year. The effect of the changes in the Credit was to reduce the estimated price tag from $35.0B to $3.7B. But for those who qualify this is a real opportunity. Purchases must be completed between January 1, 2009 and September 1, 2009.

Another Good news item is the return of higher FNMA loan limits in high cost areas such as much of California. This doesn't affect the loan limit number in Deschutes County where I live ($417,000), but it will likely make the purchase and sale of homes in California easier and that should create improved demand for purchases in our most desirable area for those relocating from the Golden Debt State.

The temporary elimination of government fees charged in SBA 504 and 7(a) loans is also a boon for small businesses looking to borrow funds. Perhaps more importantly, the expansion of TALF to bolster the secondary market for bank financed portions of those loans is hopefully going to make funds more available. Signet has relationships with national banks who have been lending throughout this credit crunch, but the media-reported tightness and community bank problems have certainly stymied a number of would-be borrowers/buyers who didn't know to visit Signet.

There are other good things about this Act (e.g., Reagan and Clinton each took 8 months to pass significant legislation after their inaugurations) and as I said, I choose to be hopeful of positive results from this historic legislation. Please read on below for news of the week on mortgage backed securities and the coming week's economic reports outlook. There are also tips on maximizing tax deductions.

For now the rates are exceptional and lending is happening despite reports of tight money. You, your friends, family and clients deserve the very best professional mortgage services. We're ready to take care of you. Make it a great week! -Dave

Big news starting into the week is action following the progress announced Friday in Washington on the Stimulus Bill. While a compromise has been reached in the senate finance committee, the path to completion is far from smooth. German Chancellor Bismarck said in the 1800’s: “There are two things you don’t want to see being made—sausage and legislation.” This is certainly still true today. The senate has failed to publish any legislative language on the compromise so we are operating from news reports. We do have access to a spreadsheet supplied by Senator Ben Nelson, D-Neb who has been working for the compromise (click on link). This data is stated in thousands of dollars and shows how much it is to spend nearly a trillion dollars. Remember that a trillion is a million millions! If you spent $1 for every second of every hour of every day ($86,400.00 per day), it would take you over 31,000 YEARS to spend a trillion dollars.

One thing we already have is the language on the Homebuyer Tax Credit because it passed a Senate floor vote and will stay as an amendment to whatever bill is finally sent back to the House from the Senate. The news on the Credit is very good for homebuyers. Most of the complaints about last year’s attempt at a credit have been corrected here. The credit would now be $15,000 and be truly permanent (non-refundable if you stay in the home >2 years), it will be for all buyers and not just first time home buyers, and will not be limited on income of the buyer, etc. This really would be a benefit to homebuyers in our area and completely replaces the $7,500, refundable and limited version currently not doing much. A complete, side-by-side analysis prepared by the National Association of Realtors^® is attached at the end of this blog and worth reading. Remember it will only benefit those who buy a principal residence after the legislation is signed into law by President Obama and before a sunset date of September 1, 2009.

Other real estate related proposals in the legislation includes a possible increase in the Freddie, Fannie and FHA “conforming” loan limits. This one has lost steam however, and will probably not make it through. This like so many other tempting news items (the elusive future 4% rates for example) may keep your buyers from moving forward when they would really benefit from taking advantage of the fantastic opportunities that are available today with interest rates still right at 5% and housing prices very near the bottom. There is a great write up on classic real estate buying mistakes further down in the “Mortgage Market View – Avoid This Costly Mistake!” Don’t miss it. A realtor friend said this week “Would you rather miss the market by being a day too early or being a day too late?” and I can’t agree more. Dave, if you would like our help in reinforcing that message for someone on the sideline, give me a call!

The jump to compromise was really pushed forward Friday by the increasingly gloomy employment information. The Weekly report below gives full detail on the 3.6 million jobs lost since the start of the recession (now identified as December 2007.) The most recent jobless report will come out Thursday. The other big economic news, other than the Stimulus Bill this week will be the retail sector reports on Thursday. The expectation listed below is for a month over month drop of another 0.5%, but other economists I read are looking for more than a 1% drop. Both of these bad news announcements should make for some gloomy headlines in Friday’s papers.

Even with all of that, the mortgage rates are phenomenal, the market is poised, the new and improved credit should be in place before any of your contemplating buyers can close a deal – it is time to act! Let us help you, your family and friends get the professional mortgage advice they deserve. I look forward to talking with you soon. Make it a great week! - Dave

If you want to see further detail of the House proposal for the Stimulus Bill, there is a great graphic at the Washington Post – click here. Remember though that this is only the House version which has been compromised already once by the Senate and will be meshed in joint committee later this week, but it gives a good view of the broad framework and timing of the spending.

The Fed in the past hour released an announcement following their Open Market Committee meeting. As expected, they kept the Fed Funds Rate Target at 0.0 - 0.25%. No surprise here but there was one dissenting vote (Lacker - wanted to buy Treasury bonds rather than MBS) and some interesting comments. Traders have waited anxiously to see what they would say about inflation. For two week now the chatter has been all about inflation and what the stimulus activity might do to inflation. The announcement (reprinted in its entirety below) includes 3 or 4 very important sentences hinting about their future actions. Here are the 3 sentences and my comments in brackets:

The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. [DW: this is a very good calming statement and provides a good tenor, particularly for commercial lending.]

...the Committee expects that inflation pressures will remain subdued in coming quarters. [Again, a very calming statement.]

Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term. [What? I think this is saying: ‘But we see risk that inflation could come back because we're going to favor rates low enough to foster growth and stability rather than focus on inflation for a while.' -Wow! There was an immediate sell off of MBS on inflation fears that has already recovered entirely in a period of less than 20 minutes. We'll be watching this.]

The statement goes on to insure that they will continue to buy MBS as necessary to keep housing interest rates low and keep the housing market recovering. In fact this is another interesting sentence:

...and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. [I read this to mean they might expand beyond the current $500 Billion projected purchase window. They were at $30B through last Thursday and will come out tomorrow with another weekly reports on purchases, but if they are willing to go beyond the $500B as necessary, this is very good news.]

And the final good news reminder is that they have not yet begun their TALF purchases targeted at $200B that will have a real improvement on commercial lending, specifically SBA lending. Other proposals released this week on SBA improvements are welcomed after 2008 saw drops of greater than 50% in SBA lending. It is time to get that part of the credit world lending again.

As it stands we are in the middle of an extended period with mortgage rates at their lowest in our lifetimes! Let Signet Mortgage help you, your friends and your clients take advantage of this once in a lifetime opportunity. -Dave

Gung hay fat choy! Wishing you prosperity and good luck in the New Year!

Rates continue to be the focus of discussion and while the bond market has stayed the course, mortgage rates have crept up just a bit, but still very near the lowest rates in our lifetime. The upward move has been more of a business decision at the banks rather than based on costs of funds, building in some cushion. This has been attributed to high volumes of loans in the process right now. Banks can control the volume with pricing. The answer for you, your friends and clients is to recognize that we are still within a quarter-point of the very best rates we've ever seen and to plan on longer lead times to loan closing and you'll be fine.

This week, Tuesday and Wednesday are the meetings and announcement from the Fed's Open Market Committee that sets targeted fed funds rates. While no one is expecting the current target of 0 - 0.25% to move, it will be interesting to see what they say about inflation. All of the current indicators still point to little or no inflation, but the unprecedented levels of stimulus and deficit spending underway and being discussed raises the specter of a significant upcoming inflationary cycle. At some point the fed will have to act to prevent the inflation dragon from raising its head.

Inside the Obama beltway we are expecting to hear senate confirmation of Treasury Sec'y Geithner today or tomorrow. He spoke at length last week about the stimulus package returning to the "Bad Bank" approach, where the government creates a "Bad Bank" for buying-up tainted real estate loans. This would free up credit further with a bigger favorable effect on the commercial lending environment. Banks currently are hording capital and not lending for fear of further drops in their real estate loan portfolios which would cause them to fail regulatory capital ratios. If they can stabilize the values of mortgage assets, they'll have the ability to use their capital to create more loans. This could be a good idea, but it will be interesting to see if the price tag to make it work is less than $1.2 Trillion.

In addition to the FOMC meeting, we'll see existing and new home sales reports and final 4Q GDP data this week. We'll also be watching oil which continues to be $100 below the high of last July 11^th of $147/bbl. The word on the street is that the overproduction of the last month has nearly filled global storage capacity and prices may drop further, but temporarily. Some are seeing $30/bbl in the near term. But watch for oil to shoot back up above $50/bbl. This would be an early indicator that people believe a recovery is real.

Signet Mortgage is ready to help you put deals together. Introduce us to someone who could use knowledgeable, professional mortgage advice. We'll make sure you look good for the referral. Make it a great week! - Dave

Happy Martin Luther King Jr. Holiday!

Interest rates remain in record territory. The market softened a bit on Friday, but this appears to be more of a light, holiday-trading effect rather than a trend. Because of today’s holiday, the markets were closed early on Friday. And the inauguration on Tuesday will take things off norm until Wednesday this week. With the Fed still purchasing Mortgage-Backed Securities (MBS), I believe we’ll see the return to “normal” giving even slightly better rates than we have today, but this won’t last forever. If you have been thinking about making a move personally on a purchase or refinance, I recommend you get the paperwork started now.

Fed-backed MBS purchases now have surpassed $30B of a planned $200B program. This has been in a two-week span so far and is likely to take ~3 months to complete. They report out statistics on each Thursday and the last two Thursdays, they reported $10 and 20B respectively. Speaking of the Fed, I looked at the economists’ consensus estimate of targeted Fed Funds rates for the coming 6 months and the 0-0.25% target is expected to remain in place for the entire period. In fact, the group places the probability of a change during that period of zero percent. For further information on the workings of the Fed, look below to the section “What Does the Federal Reserve Do Anyway?”

Other inflation friendly news during the week included the announcements of wholesale pricing trends in the PPI (down 1.9%) and consumer pricing that was flat when removing energy and food variables, CORE CPI, and down 0.7% on a full CPI measure. See the chart below that points out how dramatic the threat of inflation has been during this calendar year. With oil and food prices in the mix, the number skyrocketed in the early summer months and then plummeted the last couple of months. Overall, 2008 has been recorded as the lowest CPI year since the measure was created in 1954. Again, this is very good news for holding inflation and long-term interest rates in check!

Another trend I’m looking forward to studying more is the dramatic shift towards savings in this country. After years of near zero (and sometimes negative) savings and the risk that has created, the country is now clearly moving towards a savings pattern. There is an investment and return opportunity for those who fully understand the future impact of this. In the meantime, what is obvious is that retail is the loser in this trend. Discretionary funds that would have gone to purchases in the past are now going to savings to help get people through the rainy days that even the safest now feel may come. The beneficiaries should be banks and brokerages that will be handling transactions with this expanding savings base. We’ll keep our eye on this and let you know what may be next.

In the meantime, our approach to commercial and residential client service remains focused on providing top-notch professional financial analysis and advice. Signet Mortgage was quoted Saturday in a Zach Hall article in the Bend Bulletin newspaper saying that now, more than ever, it is important that you get professional financial advice in real estate financing. You, your family, friend and clients deserve to work with someone they can trust. We welcome your calls. Make it a great holiday. - Dave