The Mortgage Man

Get more out of your mortgage experience!

Archive for June, 2008

Monday June 30, 2008

European inflation could create problems for us here at home with Mortgages and Real Estate.

It is the last day of June and the first day of the week with news from our friends across the pond creating problems here at home.  Inflation in Europe reported for June is around 4% which is much worse than the expected forecast between 1% and 2%.  As we struggle with our own problems here with the neverending run up on oil prices and a lagging economy, investors are likely to move more money into the Euro and away from the Dollar.

What does this mean for you?  Well, first of all, the price of oil is tied to the US Dollar.  And as we have discussed in previous posts, as the dollar lags behind in the global currency markets, the weakness in the dollar continues to be a contributing factor in the price of oil.  In addition, inflationary pressures keep the FED on the hot seat about raising rates to strengthen the dollar.  While this action would be a short term problem in the real estate and mortgage industry, it would likely be a long term stimulus by strengthening the dollar, lowering the price of oil, and thereby relieving the pressure on consumers and discretionary spending.

The affect this is having on mortgage bond trading today is surprisingly positive.  Not a rally by any means, but not negative either.  My crystal ball is in the shop, so I can’t give you an intelligent answer as to why bonds are moving into positive territory based on this news.  What I can tell you is that if you are working on a mortgage loan currently, you might want to float the rate to wait and see if this market moves above current levels of resistance.

In summary, the economy is very complicated and many factors are contributing to the current uncertainty.  If you are on the fence about buying real estate until it “hits the bottom”, be aware you may lose more than you gain by waiting. Ultimately, if we are to move forward, we will need to experience a little short term pain to feel any long term gain.  You can’t make an omelette without breaking a few eggs.


Supreme Court Strikes Down Gun Ban

This has nothing to do with mortgages or the economy, but I thought it was important enough to bring up.

Today in a 5-4 split decision, the supreme court ruled that the 32 year old law in the District of Columbia banning the ownership of handguns is unconstitutional.  A law that was placed on the books 32 years ago was recently challenged by residents who were fed up with being victimized by crime in the city, and made it all the way to the highest court in the land.

A quote from the proceedings read, “Undoubtedly some think that the Second Amendment is outmoded in a society where our standing army is the pride of our nation, where well-trained police forces provide personal security and where gun violence is a serious problem,” Scalia wrote. “That is perhaps debatable, but what is not debatable is that it is not the role of this court to pronounce the Second Amendment extinct.”

I am by no means a gun fanatic or a card carrying member of the NRA.  But I am a proud citizen of this country, and I grow a little tired of the complaints of a few trampling on the rights of many on practically a daily basis.  Kudos to the Supreme Court for doing the right thing.

Thursday June 26, 2008

Mortgage Bonds have likely hit the ceiling today.

The FED came out with the results of their meeting yesterday, and as expected they did not move rates from their existing level of 2%.  This comes on the heels of 7 straight rate reductions in as many meetings.  There is increasing opinion that the next meeting will likely bring a rate hike with it to help strengthen the dollar and thwart off the rise in oil prices.

Mortgage bonds are trading slightly higher today, but they are up against a top side resistance level.  With the state of the stock market, and an upward correction looming, it is unlikely that mortgage bonds will break through that level of resistance.  In addition, since we already know that typically what is good for stocks is bad for bonds, if there is a rally in stocks in the coming days, you can place your bets on the fact that bonds will go through a sell off.  This means that mortgage rates will rise and it would be a good idea to lock in soon (or at least be prepared to lock in) to protect yourself from upward movement.

Existing Home Sales for May cam in at 4.9 million, in line with estimates.  This is a good sign for real estate because it shows some stability even though the market in general is slower than in recent past.  It is also an affirmation that regardless of the doom and gloom you may hear in the media, people are still buying houses.

Here in Pensacola Florida, even though we are statistically the poorest county in the state, we had the highest increase in average sales for the first quarter of 2008 out of 19 metropolitan areas surveyed.  We are also holding steady at 350 to 400 sales per month.  Not where we would like it to be, but not too shabby either.

Celebrities In Foreclosure – Latrell Sprewell

Even though he once turned down a 3 year deal for $21 million, Latrell Sprewell might re-think that deal today.

MILWAUKEE — Former NBA star Latrell Sprewell‘s home is up for foreclosure and his yacht sold at auction to help pay off the $1.3 million he owes on the boat, according to court filings.

Sprewell, who once turned down a three-year, $21 million contract extension saying, “I’ve got my family to feed,” has apparently fallen on tough times.

Latrell SprewellSprewell

RBS Citizens NA, or Citizens Bank, filed a foreclosure suit last week in Milwaukee County for the $405,000 home Sprewell bought in the Milwaukee suburb of River Hills in 1994.

In court documents, the bank said Sprewell owed $295,138 in outstanding payments plus interest.

Sprewell failed to make his mortgage payments of $2,593 per month from September 2007 to January 2008, the documents said.

The Associated Press tried to reach Sprewell for comment Monday but a telephone number in his name was disconnected. A message to one of his attorneys, Robert A. Gist of Atlanta, and an agency in New York were not immediately returned.

The 37-year-old Sprewell played 13 seasons in the NBA for the Minnesota Timberwolves, the New York Knicks and the Golden State Warriors. The Milwaukee native was a four-time All-Star, but perhaps best known for choking coach P.J. Carlesimo during a Warriors practice in 1997.

He hasn’t played professional basketball since turning down the $21 million extension from the Timberwolves during the 2004-05 season. He was making $14.6 million at the time.

Last month, Sprewell’s 70-foot yacht, named “Milwaukee’s Best,” was sold at auction for $856,000 to a man from Milwaukee.

It was originally worth about $1.5 million. The bank holding that mortgage, New York-based North Fork Bank, asked that it be seized to pay off $1.3 million in debt.

Sprewell’s firm, LSF Marine Holdings, hadn’t made its $10,322 monthly payments on time or maintained the necessary insurance on the boat, the bank said. Sprewell bought the yacht built by the Italian firm Azimut-Benetti in 2003, according to court records.

A federal marshal seized the boat last summer in Manitowoc, about 80 miles north of Milwaukee, where it was in storage.

The sale price means the bank is still owed about $500,000, and it said in court filings it plans to go after the rest.

Last week, prosecutors in New York said they’d drop their case against Sprewell, who was accused of assaulting his girlfriend in front of their children. Prosecutors in Westchester County said the charges will be dismissed in a year if Sprewell stays out of trouble.

Copyright 2008 by The Associated Press

Wednesday June 25, 2008

The FED will discuss the economy and how inflation and oil prices enter the mix.

As I write this post (at 11:07 CT), we are a little over 2 hours away from the press conference to reveal the results of this month’s FED meeting.  No one on the street expects the FED to move on interest rates (up or down), and mortgage bonds are trading flatly because of it.

It is understood that there are many factors at play in today’s economy, but there is very little argument that rising oil prices are at the forefront of the discussion.  Again, we can discuss the “chicken or the egg” scenario of why we got where we are today.  Did oil prices cause inflation?  Did inflation cause a devaluation in the dollar leading to higher oil prices?  Does inflation really exist, or is it a self fulfilling prophecy from the lack of consumer confidence?

Based on the numbers and definition of a “recession”, we are not currently in one.  However, if you asked 100 people on the street that same question, I believe that 95 of them would believe that we are in a recession.  This is actually important because if people are uncomfortable about the state of the economy, they tend to spend less.  This Consumer Sentiment can help to fuel a recession, or even create one because as people tighten up their wallets, businesses suffer, the employees of those businesses suffer through cut pay or layoffs.  Those employees are forced to look for a job in a market where 100’s of their counterparts are looking for the same thing, leading them to spend less on discretionary spending, and so on and so on.

There is little doubt that we are in a rough economy, whether you want to label it as a recession or not.  But the question is how do we fix it when raising rates to strengthen the dollar puts another nail in the coffin of the already strugling real estate market.  At the same time, lowering rates may give a boost to the real estate market (or maybe not), but in turn, it lessens the value of the dollar even further giving oil prices nowhere to go but up.

These are difficult times with no easy answers, but ultimately without a stronger dollar, we are in real trouble in the global economy with the deficiency between the Euro and the Dollar, and the fact that oil prices are tied to the US Dollar.

If you have an active mortgage file, you might as well float the rate until the contents of the meeting hit the street at at 2:25 ET, then hold on to your seat if they say anything other than extreme concern about inflation.

Tuesday June 24, 2008

Dow Chemical bumps prices 25% across the board.

There are a few items in the news today that are affecting the markets.  Dow Chemical has decided to raise prices for their products by 25% across the board.  This is due in large part to the continued rise in energy costs, among other things.

Mortgage bonds are up slightly this morning as money from the stock market is filtered over to bonds on news that shipping giant UPS has issued a profit warning for the quarter.  This of course means that fewer people are shipping, and the assumption would be that fewer goods are being sold because of this warning, leading to a rush for traders to look for less volitility in bonds.

While this by itself would be good news for bonds and mortgage rates, the price of oil continues to rise and look at new highs which is bad for bonds.  Overall, the markets will very likely be flat today as everyone holds their breath to see what happens with the FED meeting beginning today, and wrapping up tomorrow at 2:15 ET.

In addition, the Consumer Confidence report for June came out at 50.4, well below expectations of 56.0.  It is not surprising that consumers are nervous, but for the report to come in 5.6 points below expectations is significant.

Monday June 23, 2008

This week’s financial forecast is uncertain.  The FOMC meets this week for 2 days beginning tomorrow and concluding with their economic recommendations to be released at 2:15 ET on Wednesday.  The markets are expecting the FED to stop its rate decreases amidst increasing inflationary pressures and the weak dollar.

The interesting and uncomfortable position policy makers are in (firmly lodged between a rock and a hard place) requires them to choose between loosening rates to try and stimulate economic activity, and tightening rates to help increase the value of the dollar and therefore decreasing the overall cost of oil (since the price of oil on the open market is based on the US Dollar).

Most analysts are expecting the FED to hold the course with no rate increase or decrease, and I tend to agree with them.  With no other significant economic reports due out in the next few days, I don’t expect mortgage bond traders to get too aggressive buying or selling.  I would expect the mortgage rates to remain relatively flat, at least until the results of the meeting after lunch on Wednesday.  Enjoy your week, and check back for the economic news that affects you in the real estate industry.