$35 Billion Towards HFAs: The Real Story

by Florida's #1 Mortgage Planner on September 29, 2009

Some of you may not have seen my previous post discussing my FOX Business News’ TV interview, but this was the topic we were supposed to discuss.  You check out what happened during the interview here if you want.

Yesterday, the Wall Street Journal published an article titled “$35 Billion Slated for Local Housing” which talked the Obama Administrations nearing completion on their commitment to bail out state and local housing agencies, known as Housing Finance Agencies, or HFAs.  In essence, the Federal government is bailing out the State and local governments to ensure funding for low-income housing.

My first thoughts are why is this the first we are hearing about this bailout when the Obama Administration stated they would be transparent and they are ready to commit the funds, our money as taxpayers?  I for one and sick and tired of the government wasting my hard earned money on programs that have little or no effect on the overall economy and act more as Obama’s re-distribution of wealth program.  Even the $8,000 tax credit is a from of re-distribution of wealth in essence since it is ALL taxpayer’s money funding only some homebuyer’s and it isn’t really doing a while lot in jump-starting the housing market.

If the government wants to bailout someone who will likely get the economy going, granted it will take a little longer, why not bail out the small business owners?  Since small business makes up the largest portion of our economy, wouldn’t it make sense that any sustainable economic recovery would come from their side of the equation?  Instead, the government chose to bail out large companies who supposedly were too big to fail, even though those same companies may have deserved to fail and their failures would have allowed other businesses to grow and create more jobs in the long run. 

It also makes me wonder what the government is thinking when they talk about extending the $8,000 tax credit for first-time homebuyers (FTHB) , then turn around and discuss the demise of the mortgage interest tax deduction as a possible solution to cover the increased costs to the government.  Which is the larger incentive here to own a home in reality?  A one-time tax credit for a relative few or ongoing tax savings from the mortgage interest rate deduction that most homeowners can take advantage of?

And what has all of this excessive government spending done to our illustrious dollar and inflation?  Well, most of you may not have a full picture.  Inflation is here, but the data just does not show it yet, and least not its fullest potential.  But let me give you an idea of how hard you will get hit, especially if you leave the country as I do. 

You see, I travel to Brazil a lot for my flying career and they have inflation as well.  My favorite meal in Rio de Janeiro used to cost R$60 (Reais is their local currency), but it has gone up during the last six months to R$65, a modest jump and no big deal from the looks of it.  But with the government doing everything they can to devalue the dollar so they can pay back their debts for pennies on the dollar, the exchange rate has dropped from around $2.45 to $1.79 in the same time frame, a significant decline (over 25%) to say the least.  That means my meal that cost me $24.49 six months ago now costs me $36.31, an increase of over 48%!!!

OK, again, not a big deal as long as you stay within our borders.  But if you plan any type of vacation abroad, know that you government is doing the best they can to devalue the dollar and make your vacations abroad more expensive and likely unaffordable.

The bottom line is that the government, through this $35 billion dollar program and the countless others, are spending way too much money on programs that have little to no effect on sustaining an economic recovery.  Instead, they are focused on spending even more of taxpayers dollars on  healthcare reform and other programs that will likely do more harm than good and will ultimately result in higher taxes for the majority of the population (don’t believe for a second that it will just be the “upper class”), making matters worse.


$35 Billion Towards HFAs: An Interview Gone Bad

by Florida's #1 Mortgage Planner on September 29, 2009

Yesterday I was invited to be on FOX Business News’ Stuart Varney show and I jumped at the opportunity.  The reason I was excited was that I got to discuss one of my favorite subjects these days, the government’s wasteful overspending.  I was sent a copy of this Wall Street Journal article that talked about the $35 billion dollars the Obama Administration was looking to give to state run Housing Finance Agencies (HFAs).

I read the article, discussed the topics with my Mortgage Mastermind Group to see if what they had to say and did a little more research into the topic in preparation to going live on the air for the first time.  I wanted to be fully ready and have the capability of discussing my opinion and confident to handle anything thrown at me on the subject during the interview.  But guess what happened?  That’s right, we didn’t talk about the article at all, and instead we discussed FHA loans instead.  Talk about going down a different road, and one I am not the expert on as I do not originate FHA loans.

My best guess is that their “research team” confused the HFA with FHA and researched FHA stats and how the government is not foreclosing as many FHA loans as Conventional is.  I give them a A+ in their research on the angle they took, but I would have to give them an D- or an F on staying on the original topic.  Nevertheless, I was not sure what the etiquette is on TV, especially LIVE TV, so I just followed the interviewer’s lead and made the best of it.  The interview is posted below, but first I ask you read the article then watch the video and decide in my poll below how well I did considering what was thrown at me in mere seconds while I was on the air.  Oh, and I am going to do a post after this one that hits the key points of the article so I can get my opinion heard since I did so much preparation anyway.

As you can see, the interviewer started immediately off the originally planned topic, so you can imagine what I was thinking while I am trying to grasp the numbers he is talking about, which I cannot see.  If you have never done an interview like this, understand you sit in a dark room with bright lights on you and stare into a camera lens.  You cannot see the interviewer, just hear him through your earpiece and talk to him through the microphone.  That adds to the complexity of what I was dealing with.  Anyhow, here is the poll…

Once again, if there is anyone at FOX Business News, thank you for the opportunity to be on the show as it was a great experience and I do hope to be able to do it again.  And if there are any other news agencies reading this, feel free to give me a call and I will be happy to assist you in covering a mortgage topic as well.


The Fed’s Policy Statement – Dissected

by Florida's #1 Mortgage Planner on September 24, 2009

I wasn’t able to get to this last night, but here it is, finally, the dissection of the Fed’s Policy Statement and what it means to you regarding mortgage rates (as always, my comments are in bold)…

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn (but don’t expect a recovery just yet).  Conditions in financial markets have improved further, and activity in the housing sector has increased (we finally are seeing the bottom in the housing market and the financial markets are rebounding…but will reality keep them going?).  Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit (in other words, nothing we have done thus far is really working, but we are successful in devaluing the dollar).  Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales (it’s called survival mode).  Although economic activity is likely to remain weak for a time (no kidding), the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus (let’s keep throwing good money after bad), and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability (the latter being the real driver of the economic recovery).

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time (that is at least until reality catches up).

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability (all of our spending hasn’t helped much so far, so maybe if we spend more it will finally work).  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period (that is until inflation takes off or another bubble forms due to our actions).  To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt (hmmm…maybe the housing recovery is due to those artificially low mortgage rates, so we better keep manipulating them).  The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010 (finally, an exit strategy that makes sense and may even prevent the “mortgage rate bubble” from bursting too quickly).  As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.  The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets (we need to keep manipulating the Treasury securities and likely will have to increase those purchases after October).  The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted (hey, if our balance sheets get too low on cash, we’ll just print more and make it look better.  A lesson learned from corporate America).

Ok, so what does this all mean for you as a homeowner and mortgage rates?  Basically, the Fed is going to continue their mortgage backed securities purchasing and that will hold mortgage rates in check, though it may not prevent them from rising.  At least we won’t likely see the “mortgage rate bubble” burst.  At least, not yet.


9/11 – A Day of Remembrance

by Florida's #1 Mortgage Planner on September 11, 2009

Chances are that you are well aware of my “other” profession.  Just in case you aren’t, take a look at my picture in the sidebar.  As you can imagine, today is a day that I take seriously as those aircrews that died were colleagues of mine.  I happened to be based in Washington, DC at the time, though I was flying the Boeing 727.  I ask that you take a moment today and honor those that died in what was the worst terrorist attack on US soil.; aircrews, passengers, and those on the ground.

For a list of flight crew and passengers on each flight involved, click here.



Time to Get Back to Work

by Florida's #1 Mortgage Planner on September 1, 2009

OK, as you can see, I have taken some time of from my writing here, focusing on other projects and keeping my other blog updated every business day as well as my weekly Mortgage Market Updates at Lenderama.  Now it is about time to start posting here again, especially since the kids are now back to school and are not distracting me throughout the day, lol.

Ok, if you have any requests for topics, send me them via my contact form and I will get to your requests soon.  Otherwise, I will be working on some more rips on Bernanke, the economy, etc., as well as my normal posts about mortgages, mortgage planning, and why you need the help of a genuine professional (not the mortgage “actors”).  I will also be making some announcements about my new business model in the coming week(s) as I finalize some issues, but it will be unique and very consumer oriented, more than anyone else I have seen thus far.  Some of you may already be aware of it, most of you are not privy to that information, but it will be released to the public soon, along with a media campaign.

I hope everyone had a great summer, but now it is time to ramp up the fun and let’s get back to business!


Here is a Great Example of the Current Mortgage Backed Securities Market…

by Florida's #1 Mortgage Planner on June 4, 2009

If you have wondered why mortgage rates have been climbing, falling, and climbing again, here is a great view into the current mortgage backed securities market…


Mortgage backed securities have done three virtual freefalls in the last week and a half, only 8 trading days.  Since MBS pricing is what drives mortgage rates, those freefalls resulted in spikes higher in mortgage rates and the subsequent climbs in MBS prices have brought rates down a bit and set up the next “dive”. 

While Sheikra, which I think still boasts the largest freefall of a dive coaster (205 feet), only has two freefalls built into it, the rollercoaster ride in the mortgage backed securities market has already had three and the ride is likely far from over.  If you would like to read more of my analyses of the markets and what may lie ahead, check out these posts…

Is the Mortgage Rate Bubble About to Pop?

Is the Air Being Let Out of the “Mortgage Rate Bubble”


Is the Air Being Let Out of the “Mortgage Rate Bubble”

by Florida's #1 Mortgage Planner on May 31, 2009

To begin with, let’s analyze what has been happening to mortgage rates since my last post on the subject, just below and dated May 22, 2009.  Since then, mortgage backed securities have plummeted after breaking below their recent trading range on May 23.  While they have made back some ground, their virtual freefall has changed the overall outlook for mortgage rates, and may very well signal the beginning of climbing mortgage rates.  The question in my mind these days is how high will they go and just how fast.  Taking a look at the charts below will show just how fast they got worse and the potential speed at which they could rise in the coming months, if not years.

MBS 1-Month Chart MBS 6-Month Chart

The above charts are snapshots (via Mortgage Market Guide) of the market from Wednesday, even before the close for the day.  Thursday saw MBS pricing drop and hit their 200-day moving average before beginning their retracement to today’s levels.  The chart on the left covers the last month, while the one on the right spans the last 6 months, showing we have seen mortgage rates at the same levels as 6 months ago, before the Fed started purchasing mortgage backed securities and artificially manipulating the markets and creating the “Mortgage Rate Bubble” potential.

So what lies ahead?

While inflation is the archenemy of mortgage backed securities and mortgage rates, and we will get back to it later, other issues are taking place that could ensure the steady climb of mortgage rates.  One of the biggest factors can be seen by looking to the Far East, particularly China and their actions.  But while China’s actions may be raising alarms, their actions are simply reactions to what our government is doing.  And the US governments response?  Typical politicians, empty promises.

So what has China been up to.  For starters, they have backed out of buying longer term US debt instruments, including mortgage bonds.  They remain part of the purchasing of short term US Treasuries, but they are opting to buy gold versus US debt.  They have even been voicing publicly their concerns of the USA’s ability to back their debt up, something that Standard & Poors, the rating agency has also noted in their talks of the US losing its AAA rating. 

Is China really concerned that the US can’t repay their debts?  Not necessarily, rather they are concerned about what that debt will actually be worth after the US government has finished debasing the dollar through its current monetary policy of “quantitative easing”.  Yes, the more and more our Federal Reserve and Treasury Department throw good money into the markets in a feeble attempt to fight a recession, the less the dollar will likely be worth.  (And why are we fighting a recession anyway since it is part of a healthy economic cycle?)  Since the US switched to the current fiat currency system in 1971, the purchasing power of the US dollar has dropped 81%.  It is down 94% since 1933 and the breakaway from the gold standard.  With the printing presses running 24/7 these days, chances are the dollar’s value is going to drop significantly, which we have already been seeing recently as the euro, pound, and other currencies are hitting highs for 2009 and looking to break to new heights again. 

And getting back to inflation.  While the dollar continues to lose its value, aided by Big Ben Bernanke and his buddies whom think that debasing the dollar will get us out of this mess, guess what results we receive?  Yes, that’s right, inflation (if not hyper-inflation).  We can see it in the recent run-ups of oil, gold, and even silver.  You can bet that the next set of inflationary data is going to reflect the results.  And since inflation is the archenemy of mortgage rates, the most likely result is higher mortgage rates.

But wait, the Fed has been buying up mortgage bonds to drive mortgage rates to 4.0% (Jim Cramer of Mad Money on CNBC even praised the Fed for their actions) and save the housing markets.  First off, the Fed can buy MBS, but the markets dictate prices and thus mortgage rates.  That reason is the beginning of why the Fed needed to buy MBS, it being the only way to artificially drive mortgage rates down.   They were successful at bringing the rates down, though not as low as the media and everyone wanted.  And now?  Well, the Fed has cut back on their MBS purchasing, part of the reason for the rapid increase in mortgage rates we saw last week.

How Certain Are Mortgage Rates Moving Higher?

Part of the reason mortgage rates are headed higher can be seen in the MBS pricing charts.  Just like any other type of security, the charts create patterns which tend to be indicative of future movement.  Most recently (namely the last 6 months, MBS  pricing has essentially been in a sideways trading range and mortgage rates have been fluctuating somewhat, but remaining low overall.  Now, as you can see, that trading range has been violated and a new trend will take place after some corrective movements occur.

The pattern most likely to form based on economic issues and the view of the charts is a downtrend in pricing, or an uptrend in mortgage rates.  Can the Fed stop it?  Maybe, but I wouldn’t bet on it.  Traders are already demanding higher rates of return on their money to hedge against inflation risks and that demand will likely continue to grow, resulting in higher mortgage rates in the future.

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Is the Mortgage Rate Bubble About to Pop?

by Florida's #1 Mortgage Planner on May 22, 2009

If any of you have been following my work, especially over at Florida Mortgage Daily where I post regular mortgage market commentary, you knew I coined the next bubble the “Mortgage Rate Bubble” a long time ago.  Others are now using the “Bond Bubble”, focusing on Treasuries and not mortgage backed securities and mortgage rates, but it is essentially going to happen the same to MBS as it is to Treasuries.  So, just what is it and when is it going to happen?

First off, just in case you haven’t been following me for a long time, you need to understand that mortgage rates are derived from the mortgage backed securities market and they do not follow the 10-year Treasury Note like many mortgage professionals, real estate professionals, and others trying to act like they know what’s going on say.  In case you don’t believe me, take a look at this picture snapped about a  week ago when the T-Note was actually trading dramatically opposite mortgage bonds!!  Still think mortgage rates can be tracked by those watching the 10-year Treasury Note?

Again, for those whom have not been following my work, I have explained that the archenemy of mortgage bonds (MBS) is inflation and that inflation will eventually arise and attack the markets.  But there are other factors, news and economic data among the greater forces, that drive yields on mortgage bonds and ultimately mortgage rates.  Did you notice how mortgage rates have climbed since yesterday morning, after they appeared to be in good shape?  Still waiting for those 4.5%, 4.0% or even lower mortgage rates to show up as promised by the “media”, such as Jim Cramer (CNBC’s Mad Money)?

Well, yesterday and into today, news of Standard & Poor’s actions have been making the headlines and some other more subtle things are occurring that you should be aware of, all of which will help the “Mortgage Rate Bubble” pop.  Let’s just say there are some pins poking into the bubble right now.  What are they? Take a look…

Standard and Poor’s is a rating agency, most of you have probably already heard of them from the news over the last year.  But what you may not know is that they rate government debt like they do corporate debt and that is what is raising concerns right now.  You see, yesterday, Standard & Poor’s threatened to take away the AAA rating of the U.K., which essentially means that their is more risk of failure to repay that debt.  This then translates to investor demand for higher yields on that debt to offset the added risk, and higher yields when associated with mortgage backed securities equates to higher mortgage rates.  To make matters worse for our own mortgage rates, Standard & Poors also stated that the USA’s rating of AAA is in jeopardy as well. 

If you watched all of the markets yesterday, and even into today, you would have noticed a fairly rare occurrence and one that may signal the “Mortgage Rate Bubble” popping. Typically, when the stock market drops, Treasuries and mortgage bonds see their yields drop as well (as their prices climb).  That was not the case yesterday as stocks dropped and mortgage rates climbed!!! 

Adding to the problems for mortgage rates is the fact that the Federal Reserve has cut back on their MBS and Treasury purchasing.  In fact, during an auction yesterday, the Fed only purchased $7.3B, or roughly 16% of the total debt offered, which is down from 30% at an auction earlier this week.  Yesterday also saw the Treasury announce another $162B of debt that will flood the markets next week.  That brings the total marketable U.S. debt to around $6.3 trillion and just who exactly is going to buy all this up?  China?  Think again, but that story is for another blog if I can get to it, but let’s just say that a collapse of the US dollar may be imminent.

So why would mortgage rates keep climbing in this economic environment, even when inflation hasn’t even come forth as a problem yet?

The 10-year T-note has passed through its 200-day moving average, raising concerns that the upcoming supply flood, along with the Fed’s quantitative easing measures, will bring forth overwhelming challenges for the Treasury market, and that will likely spill over into the mortgage backed securities market.  In fact, most likely the only hope the markets have a chance to maintain current mortgage rates is if the US’s macroeconomic data gets more alarming than it is, which has not been the case and does not look like it will for the foreseeable future.  For those that have not been heeding my warnings thus far…

“If you have been planning to refinance your mortgage or even purchase a home this year, do it now, before it is too late.”


Are You Having Trouble Figuring Out How Much a Trillion Dollars is?

by Florida's #1 Mortgage Planner on May 15, 2009

With the Obama Administration on a spending spree like no other president before, coming up with a $3.6 trillion budget for 2010, you would think the American public, among all the politicians, would be outraged at the potential effects that will result.  But then again, many Americans are only being able to comprehend how much a thousand is, and some may even understand a million or even a billion.  How are they supposed to comprehend a trillion?

A recent poll showed that when asked how many millions are in a trillion, only 21% of Americans got the answer correct.  That is less than 1 out of every four.  In fact, that is almost as bad as 1 out of every 5!!!  Is it really any wonder why Americans have no clue where Obama is taken the US financially?  Any wonder why inflation, even hyper-inflation, is not on the tips of everyone’s tongues?  Are you one of those people out there that do not know the correct answer to the survey question?

Well, in case you are wondering what the answer is, there are one million millions in a trillion.  Getting a better idea of just how much a trillion is?

Here is one analogy that may help you, and may even blow your mind.  If we equate a dollar to one second in time, how much time is one trillion dollars?  Any guesses?  Did you know before you saw my tweet and FB update?  Be honest now.

Let’s break it down…

$1 = 1 second
$1,000 = 16 minutes, 40 seconds
$1,000,000 = 11 days, 13 hours, 46 minutes, 40 seconds
$1,000,000,000 = 31 years, 251 days, 7 hours, 46 minutes, 40 seconds

You now know how much a billion dollars is worth at a dollar per second.  Any guess as to a trillion now?  Well, here is the answer…

316 centuries, 88 years, 32 days, 1 hour, 46 minutes, 40 seconds!!!

Think you can live that long?  And that is factoring in Leap Years folks.  Now, let’s look at Obama’s wonderful budget, focusing only on the projected deficit.  Peter Orszag, the Budget Director, said this year’s deficit will be $1.841 trillion, or just over 583 centuries.  Factor in that the Obama budget is based on the economy growing 3.5% this year, a good number even in good times, and you may as well add a few hundred more centuries to that figure.

Now, I am not even going to calculate the Gross National Debt, which is over $11.3 trillion dollars right now, but you can see that Obama is certainly not going to help things with all of his spending.  In fact, the US could easily go bankrupt at the rate we are going.  But wait, we have the Federal Reserve and Treasury Department, which are already running the printing presses, so why not just create more money and we can solve our problems that way.  Yeah, that’s the ticket.  That is the way the government will likely develop the necessary money, creating it out of thin air, which the end result is none other than inflation.  As far behind as we are getting and with the dramatically increased government spending, hyper-inflation is ultimately going to have to occur, that is unless somehow, these trillions can be vacuumed up as easily as they have been created, and I wouldn’t bet on that.

Now, what will mortgage rates do?  Well, they hate inflation, so they will climb, most likely into double digits, maybe high teens, maybe even higher, setting new records.  What can you do to survive financially?  The answers to that vary and your answer may be different than the person’s living next to you, so I am not even going to go down that path, but you had better be prepared, just in case this all really does happen.

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