Dennis' Mortgage Blog

Delivery of the Weekly Rate & Market Update delayed due to severe weather situation in Minnesota (see below) hindering ability to connect to internet.   Due to delay and time zone difference I now know that Standard & Poors downgraded U.S. Treasury debt to “AA” with a negative outlook.  You may recall during the debt talks politicians kept warning a deal had to be made to avoid a debt downgrade, most investors and market watchers knew a downgrade was coming, and here it is.  The negative outlook is because the debt ceiling comprise essentially did nothing to improve our debt situation as at current spending levels it still adds $7 trillion to the debt in the next ten years.

Back on line, thunderstorms and severe weather patterns appear to have cleared.

Question of the week:  What happened?

Answer:  Last week the question of the week was “what is happening?” in relation to the debt ceiling and deficit reduction negotiations in Washington.   Today the question is “what happened” in regards to the stock market drop with the Dow Jones down over 500 points.  Many thought that the pressure to get a deal completed by Tuesday on raising the Treasury’s debt ceiling was to keep markets from tanking and having huge sell-offs.  The debt deal was done and then the stock market does exactly what many politicians were using as an excuse to get their deal done.  What happened.

Here is what I told the Orange County Register yesterday:

"For the last 3 weeks, investors have been focused on the debt ceiling circus and they've been ignoring all the fundamentals. GDP, employment, spending are all horrible. We have a debt deal, ok, the government's safe, but 'Oh my God, look at the economy'. All of a sudden, fundamentals matter again.

"Our economy is overleveraged by the government. Investors are looking at that and saying, 'Well hold it.' It's like somebody's gotten their arm cut off with a lawnmower and they're using band aids to keep the thing on.

"Rates are going to continue to drop until our government understands why business is not growing and not hiring — and it's because of the government itself. The economy is going to continue to struggle or possibly shrink, and that's going to keep rates low."

There was some reversal in the stock and bond markets today with rates creeping up from yesterday’s lows and stocks having a modest gain.  Part of that was some false optimism on the job reports today that lowered the unemployment rate for July to 9.1% from 9.2% and payrolls adding 117,000 jobs in the month, with private payrolls adding 154,000 jobs.  I say false optimism because for the past few years it seems every economic report is revised to the worse in the following month(s).  Take for instance the 1^st Quarter Gross Domestic Product which initially came out showing 1.7% growth in the quarter, last week it was revised down to 0.4% growth.   Perhaps the positive news beyond additional jobs in the public sector that encouraged investors is the continued loss of jobs in the public sector which bodes well for future municipal and state deficits. It should be noted that federal workers and State of California workers have not been among those losing jobs.

So what happened?  Investors looked up from watching Hannity, listening to Maddow and reading the New York Times and the created crisis of the debt ceiling and noticed that Italy’s economy is approaching a cliff worse than Greece’s, the European Union has no solution to the problems in Italy, or Greece, or Spain, or Ireland…In the United States our economy is leveraged even more than the Europeans and two-thirds of our government are counting on fiscal policy that has not worked in Europe to work at home.  Consumers are not consuming, with some exceptions employers are not employing.  The Federal Reserve is evidently contemplating another round of Quantitative Easing since the $2 Trillion in QE1 and QE2 have failed to work.  Upon looking up and realizing this investors thought it wise to get out of an inflated stock market, seek some more stable returns in bonds, mortgages and gold, but most of all in cash.

Hang on folks, it will be an interesting autumn.

Have a question for me?  Ask me!

PRODUCT ALERT: DON’T FORGET THAT THE LOAN LIMIT OF $729,750 FOR MOST OF SOUTHERN CALIFORNIA IS DECLINING TO $625,500 MIDNIGHT 9/30/2011

This week’s blog postings:

Reality Check More grim economic news on Monday

Zooooom A visual look at the mortgage market and rates on Tuesday

An abbreviated update from the shores of Steamboat Lake, La Porte, Minnesota as Leslie and I are here for a few days of rest and relaxation and picking our girls up from Camp Birchwood where they have been for two weeks.  We head home on Sunday. 

Rates for Friday August 5, 2011: Rates dropped all week into a correction today.  Looking at the mortgage backed securities prices and the actual rates it seems there is a gap between where ragtes are and where they should be, especially for the high balance loans, they should be a bit lower.

FIXED RATE MORTGAGES AT COST OF 1.25 POINTS*

30 year conforming                               4.125%             Down 0.125%

30 year high-balance conforming           4.375%             Flat

30 year FHA                                         3.829%             Down 0.211%

30 year FHA jumbo                              4.085%             0.054%

Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. 

* Please note that rates quoted are based on average of several lenders for a purchase transaction with 20% down payment with an impound account for taxes and insurance and a minimum FICO score of 740; APR is not quoted as it is dependent upon specific loan amounts, lenders and services selected.  Numbers provided are for comparative purposes only.

Leslie and I have had a great few days driving across the country to Minnesota, looking forward to our sites and adventures on the way home.  The wonder of the modern age is using a lap top at 75 miles per hour connected to the internet listening to satellite radio.  If you have any interest in our excursion I have been posting at www.DCsMusings.blogspot.com

Have a great weekend and a great week!

Dennis