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

Good morning!

The global economy continues to plumb new records and some that are fairly old. To wit, the Bank of England lowered its targeted rate to 1.5% last week from 2.0%. It has never, since its 1694 creation in been below 2.0%, not through the Great Depression, or world wars, but it is there now. Job loss hit a record low (high number 2.6M, but negative – see the chart below) making 2008 the worst year since 1945. On the plus side, we are more than double the 1945 population of 133M people, but this is a very big job loss number and a lot of years have passed since the wartime industrial machine was deactivated in 1945. I’m afraid the unemployment number, at 7.2% now, is bad but still in its early stages. Of 2.6M jobs lost in 2008, 1.9M of them were lost in the 4^th quarter. Pundits are placing 2009 job loss at between 2 and 4 million. The 7.2% unemployment figure is the worst it has been since 1982 when I was wrapping up Grad School and looking into a bleak job market. This is particularly meaningful to me today as I have 4 college-aged children (2 daughters, a son and son-in-law) who are right there, either having just entered the job market or looking forward to it. Unfortunately, one of my favorite HBS professor/authors is now speaking of a coming 15% unemployment figure before this is done.

An area of growing weakness is the retail sector. Some commercial lenders already will not touch retail and this may become more prevalent. In addition to Macy’s 11 closures noted below, another western states retailer that we expect to hear an announcement from in the next three weeks is Gottschalks. An excellent article by Jeff McDonald in the Bulletin last week pointed out the loan covenant issue and cash flow concerns they are facing before January 31. With a $6.8M, newly-opened store in Bend and 3 stores near Signet Mortgage’s Bay Area offices among their 62 locations, it would be a real blow to see this storied chain taken apart. (For more click here.) Retail is all about discretionary spending. And for the first time, we are starting to see the discretionary part of health care spending having a noticeable effect on the economy as well. Watch for more news in this arena as we move forward.

Is there some upbeat news? You bet! The unfortunate side of tracking mortgage interest rates is that bad economic news boosts MBS and improves rates. We continue to be at the best interest rate level seen in our lifetimes. Inflation is in check and that is helping with the lower rates. Oil is now down to $38.50/bbl (remember $147/bbl? Exactly 6 months ago.) The Fed reported its first week of MBS buying with $10B of a $500B program now into the market. This and an estimated $800B of economic stimulus program from President-elect Obama’s team should bring some brighter news. In other Washington news, the bankruptcy law change working its way through congress got a big boost when CITI broke ranks with the Mortgage Bankers Association and gave its support for the bill. While this may have a negative effect on banks and mortgage rates initially, it will be good for settling down the real estate market, helping solidify the floor of the housing market. At this point, watch for the bankruptcy changes to get attached to the 800B economic stimulus package. And if you missed it, be sure to pull out Sunday’s business section of the Bulletin and look at Andrew Moore’s nice article on Housing opportunities - well written, upbeat and encouraging to potential home buyers.

This week we’ll be seeing news on trade deficits and import prices, weekly jobless claims numbers on Thursday and inflation indicators with the PPI and CPI reported late in the week. What does all of this mean to you, your friends and clients? Rates are now better than ever. Funds are more available and the timing is right. 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

Why does today's proposed bailout loan to Chrysler and GM cause interest rates to turn to the worse?

There are a couple of reasons. First, the money that will be used to lend to the auto companies is coming right out of the money that otherwise had been set aside to help mortgage backed securities. More money for them (Jeep and Cadillac) means less money for us (homeowners.) Second, there is always a bit of a stock market rally when corporate earnings get a boost. While this is relatively small ($13 Billion is small now???) and it is more likely just greasing the skids to allow a Chapter 11 bankruptcy of these mega corporations and icons, it still is a boost to the corporate world. So money flows out of bonds and into stocks. We see that much more dramatically in Treasuries than in MBS, but motion is in that direction in both cases.

Already this morning we have seen some of the uptick in stocks go away and this means an improvement to bonds and interest rates, but not all the way back yet. Overall, this is just a slight stall in the interest rate hit parade. Watch for a rebound as the underlying reasons for GREAT rates are all still there: Inflation is in check and the demand for MBS including US Gov't demand is still there. Be patient and expect the best!

Tuesday the Fed made an historic announcement that their Open Market Committee dropped the target for the Fed Funds rate down to a range of 0.0% to 0.25%. The Fed Target has never before been this low. Mortgage Backed Securities are right now trading very high (good for lower long-term interest rates).

Of great interest in the announcement are two things perhaps even more important than the rate drop itself. First, there is some very direct language about diminishing inflationary pressures. In fact, the announcement says that "the Committee expects inflation to moderate further in coming quarters." The second telling comment is that the Fed is not satisfied with rate drops and actions to date as enough to move the economy where it needs to go. The release says the Fed "will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability." Beyond that they reemphasized their plan over the next few quarters to purchase "large quantities of agency debt and mortgage-backed securities."

This is much more than merely encouraging. Bond traders are moving all bonds up with corresponding drops in yields and mortgage interest rates. We should also see the Bank Prime Rate move in line with the Fed Funds rate drop down ¾ point by morning. This drop (to 3.25%) would mean that if you have a home equity line of credit set at Prime - 0.5%, your new rate will be set at 2.75%! This will be a boost to cash flow for families with equity credit line payments.

As we described yesterday, long-term (mortgage) interest rates ride on two dimensions, inflationary pressures and demand of investors for mortgages in the secondary market. The Fed's announcement today is very favorable on both counts. It was widely reported a week ago of the Treasury's efforts to get interest rates down to a magic 4.5%. We advised then that the best bet for getting to this target would be market dynamics taking us there naturally with improved demand and diminished inflation. And this makes it a possibility. While a Treasury mandated program to subsidize rates may be nice, it will be fraught with limitations, no refinances, only purchases, individual and property qualifications, etc. all of which will make this program less beneficial. With today's actions, you and your friends and clients don't have to wait for a program to materialize.

What does all of this mean to you, your friends and clients? Rates are now better than in years. Funds are more available and the timing is right. Signet Mortgage is ready to help. Clients, family or friends with any variable rate loan or a fixed loan that doesn't have a low 5 or a 4 on the front of it, we should talk about 30 year fixed options. Make it a great week and I look forward to hearing from you! - Dave

Hope your day becomes sunny and bright. Mortgage rates certainly are sunny and bright. We are seeing the range of rates for various projects fall on both sides of the 5.0% point now. Rates are at a multi-year low close to 50 year lows in fact! (See the charts below.) And Signet has relationships with many residential and commercial lenders that are ready, willing and able to lend. The doors are open!

The outlook for Mortgage-Backed Securities (MBS) also continues to be sunny and bright. Remember that there are two key components that drive the long-term interest rates, inflation and supply-and-demand for MBS in the secondary market. We will have more news about the economy and its effect on inflation this week. With the economic news continuing to show recession inputs, the fear of inflation has really subsided. In fact, the CPI is due out tomorrow and the expectation is for the full measure to show a month-over-month 1.0% decline in prices. When you back out energy (oil) and food, the core number will possibly be -0.1% as well. This is good news for lenders who want to make sure they will still have buying power with their dollars when they get them back. With inflation in check, the only thing keeping rates above the mid 4's right now is the appetite for MBS among investors. With the Treasury about to buy up MBS, we are seeing continued strength among investors.

Watch tomorrow for the FED announcement of targeted Fed Funds rates. Right now most are saying it will drop 0.5% but there is a 70% chance it could be cut all the way down ¾ of a point to 0.25%, a record in recent times. This would normally add to fears of inflation but not with our current economic conditions. So we welcome the Fed Rate cuts. Other big news items that we are watching is the auto bailout (may spur a rally in stocks, dampening MBS demand) and the Madoff ponzi scheme secondary effects. Of course, it seems weekly surprises from Washington also have become the norm.

What does all of this mean to you, your friends and clients? Rates are now better than in years. Funds are more available and the timing is right. Signet Mortgage is ready to help you put deals together.