Fed Keeps Twisting

In This Issue

Last Week in Review: The Fed met and extended their “twist” into things. Forecast for the Week: June comes to an end with a full week of economic reports,  with news on housing, inflation, consumer sentiment and more. View: Forgetting someone’s name is never good, be it in a personal or professional  setting. The tips below can help sharpen your memory...and prevent that  embarrassment.

Last Week in Review

"Twist and shout." Operation Twist is back on the table after the Fed said last week  that it is extending the program. But will this decision – or the Fed’s lowered forecasts  for US growth and inflation – be cause for shouting? Read on for details. The week began with  speculation that the Fed  would extend “Operation  Twist” after its two-day  meeting of the Federal  Open Market Committee.  Remember, Operation  Twist is where the Fed  sells its holdings of  short-term securities and  Notes and then purchases  longer-term Notes and  Bonds in order to try and  lower longer-term rates even further. The Fed extended the program, which began  last fall, because the Fed feels that access to cheaper money will help spur on  economic growth. And while the Fed did not mention anything about another  round of Bond buying (called Quantitative Easing, or QE3), they laid some  groundwork for additional stimulus if necessary.  The Fed’s decision to extend Operation Twist – and their lowered forecasts for  our economic growth – partly came from disappointing economic reports we’ve  seen recently. The Fed noted that "growth in employment has slowed in recent  months, and the unemployment rate remains elevated." Last week’s higher than  expected Initial Jobless Claims exemplified that. In addition, the housing market  continues to muddle along the bottom with numbers showing only modest  improvement. Though there was some good news last week – even though  Housing Starts were a bit below expectations, Building Permits (a sign of future  construction) surged 8%. So what does all of this mean for home loan rates? Home loan rates continue  to benefit from the drama in Europe and the weak economic reports here at   home, as investors continue to see our Bonds (including Mortgage Bonds, to   which home loan rates are tied) as a safe haven for their money. But it’s important  to note that additional hints of QE3 could push Stock prices higher, shifting cash  out of the Bond trade and hurting home loan rates in the process.  The bottom line is that now continues to be a great time to purchase or  refinance a home, as home loan rates remain near historic lows. Let me  know if I can answer any questions at all for you or your clients.

Forecast for the Week

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jun 22, 2012) The economic calendar heats up this week, with several important reports: The economic calendar kicks off on Monday with the New Home Sales data for May. This comes after last week's weaker than expected Existing Home Sales data. Pending Home Sales will be released Wednesday. Consumer Confidence will be delivered on Tuesday, followed by Consumer Sentiment on Friday. These reports will gauge how the consumer is holding up in a weakening economic environment. Another look as to how the consumer is doing will be Wednesday's Durable Goods report, which measures products lasting at least three years, such as washing machines and dishwashers. Gross Domestic Product (GDP) will be reported on Thursday for the final reading of the first quarter of 2012. Weekly Initial Jobless Claims will also be reported on Thursday and have remained stubbornly high. Last but certainly not least is Friday's Personal Income and Spending data, which will be released along with the closely watched Core Personal Consumption Expenditure (PCE) report. The Core PCE is the Fed's favorite gauge of inflation. In addition, the Treasury will sell $99 Billion total in 2, 5 and 7 year T notes this week and the results could impact trading. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on. When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse. To go one step further — a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning. As you can see in the chart below, Bonds and home loan rates remain near record best levels. I’ll continue to monitor this situation closely.

The Mortgage Market Guide View...

Exercise Your Brain Forgetting names or important details never feels good...be it in a personal or professional setting. The key is to stay mentally active. Here are some great tips you can share with your clients, referral partners, and family members that can help keep their memory in tip top shape:  1. Memorize Something New. Memorizing almost anything is one of the best exercises you can give your brain. Start small by memorizing your shopping list or daily schedule, or you can take it to another level by learning a musical instrument or a new language. Doing any of these exercises can potentially lead to quick and substantial improvement in memory, which will be helpful both personally and professionally.  2. Get a Hobby. Whether you choose something like gardening, bird watching, or flying model airplanes, taking on any new hobby is good for mental stimulation as well as overall mood. Look for activities you really enjoy and that allow you to learn and have fun, simultaneously. All of these traits are components to living a happy and rewarding life, and remaining mentally sharp.  3. Challenge Yourself. Daily patterns can be the enemy of mental sharpness. It’s one thing to keep a schedule or to plan out daily events. What we're talking about is having the exact same routine, nearly every day. Falling into rigid patterns promotes mental passivity, or the opposite of stimulation. So try mixing things up a bit. Challenge yourself by participating in new activities. Join a softball league, a reading club, or even a theater group. At the very least, play around with your daily schedule.  The brain is a complex organ, able to create new connections between nerve cells when it is properly stimulated. Those connections lend themselves to optimal brain function, increased intelligence, and improved memory. The above tips will help people notice a difference in their memory in no time. Economic Calendar for the Week of June 25 - June 29 Date ET Economic Report For Estimate Actual Prior Impact Mon. June 25 10:00 New Home Sales May NA 343K Moderate Tue. June 26 10:00 Consumer Confidence Jun NA 64.9 Moderate Wed. June 27 08:30 Durable Goods Orders May NA 0.0% Moderate Wed. June 27 10:00 Pending Home Sales May NA -5.5% Moderate Thu. June 28 08:30 GDP Chain Deflator Q1 NA 1.7% Moderate Thu. June 28 08:30 Gross Domestic Product (GDP) Q1 NA 1.9% Moderate Thu. June 28 08:30 Jobless Claims (Initial) 6/23 NA NA Moderate Fri. June 29 08:30 Personal Income May NA 0.2% Moderate Fri. June 29 08:30 Personal Spending May NA 0.3% Moderate Fri. June 29 08:30 Personal Consumption Expenditures and Core PCE May NA 0.1% HIGH Fri. June 29 08:30 Personal Consumption Expenditures and Core PCE YOY NA 1.9% HIGH Fri. June 29 09:45 Chicago PMI Jun NA 52.7 HIGH Fri. June 29 10:00 Consumer Sentiment Index (UoM) Jun NA 74.1 Moderate

The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors. As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you. Mortgage Success Source, LLC is the copyright owner or licensee of the content and/or information in this email, unless otherwise indicated.   Mortgage Success Source, LLC does not grant to you a license to any content, features or materials in this email.   You may not distribute, download, or save a copy of any of the content or screens except as otherwise provided in our Terms and Conditions of Membership, for any purpose.

Tame Inflation Helps Home Loan Rates

Last Week in Review

Last Week in Review: Tame inflation news, poor economic reports, and the drama  in Europe impacted the markets and home loan rates. Find out how. Forecast for the Week: The economic report calendar lightens up, but an  important Fed meeting is ahead. View: Wondering about the state of the housing market? An important report was  just released, with key details below.

Last Week in Review

“Have the nerve to go into unexplored territory.” Alan Alda. And Bonds and  home loan rates continue to reach the unexplored territory of record best levels.  Read on to find out why. Several factors  are helping  Bonds and home  loan rates at the  moment. First,   inflation remains  tame, as evidenced  by the Consumer  Price Index (CPI),  which fell by 0.3%  in May. This drop  in CPI is the lowest  in three years.  The Producer Price  Index for May  also came in below  expectations,  showing that inflation at the wholesale level is tame as well. Remember, inflation hurts  the value of fixed investments like Bonds (thus, hurting home loan rates, which  are tied to Mortgage Bonds)...so inflation staying in check is crucial when it comes  to home loan rates remaining at or near record best levels.  Also helping Bonds and home loan rates are weak economic reports here in the US  and the ongoing drama in Europe. With Greece, Ireland, Portugal and Spain receiving  bailouts — and with the recent uncertainty related to the elections in Greece —  investors overseas continue to see our Bonds as a safe haven for their money.  Here at home, last week’s Initial Jobless Claims Report, Consumer Sentiment Report,  and US Empire Index Manufacturing Report were all worse than expectations, while  Retail Sales matched expectations. This data will be on the Fed's radar screen at  next week's Federal Open Market Committee meeting (FOMC). A growing number of  pundits feel that the Fed may mention some new stimulus in the form of a third round  of Quantitative Easing (QE3). The news could initially bode well for Stocks — and, in  turn, could be negative for Bond prices and home loan rates. So this is an important news  story to watch!  The bottom line is that home loan rates remain near historic lows, as now continues  to be a great time to purchase or refinance a home. Let me know if I can answer  any questions at all for you or your clients.

Forecast for the Week

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jun 15, 2012) The economic calendar is light this week, but there’s still the potential for market-moving news: Housing Starts and Building Permits will be released on Tuesday while Existing Home Sales will be released on Thursday. Investors continue to look for any signs that the housing markets are turning the corner to greener pastures. Speaking of housing markets, check out the View article below regarding a new report released about the State of the Nation’s Housing. Weekly Initial Jobless Claims will be delivered on Thursday as usual. The number of claims remains stubbornly high and points to a troubled labor market. Also on Thursday, the Philadelphia Fed Index will be closely watched as to the state of factory conditions in that region. In addition, all eyes and ears will be glued to Wednesday's announcement from the Fed. The FOMC meeting will begin on Tuesday and end Wednesday at 12:30pm ET with the release of the monetary policy statement.  Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on. When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse.  To go one step further - a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.  As you can see in the chart below, Bonds and home loan rates continue to improve. I’ll be watching closely to see what happens this week.

The Mortgage Market Guide View...

Outlook for a Housing Market Recovery Home prices may well find a bottom this year, and stronger sales should pave the way for a pickup in single-family construction over the course of 2012.  That’s the assessment made by Harvard University’s Joint Center for Housing Studies (JCHS) in its recently released “State of the Nation’s Housing” report. The report — which has been released since 1988 — is an essential resource for both public policy makers and private decision makers in the housing industry.  The bottom line of the report is that — after several false starts — there is reason to believe that 2012 will mark the beginning of a true housing market recovery.  However, employment growth remains a key factor, providing the stimulus for stronger household growth and bringing relief to some distressed homeowners. And, if the broader economy weakens in the short-term, the housing rebound could again stall.  Here are just some of the findings in the report: The monthly mortgage payment for the typical home currently compares more favorably to rents than at any time since the early 1970s. By the first quarter of 2012, existing home sales were 5.2 percent above year-earlier levels, with single-family sales up 6.3 percent. Sales of newly constructed homes in the first quarter of 2012 stood 16.7 percent above year-earlier levels. The inventory of existing homes for sale shrank by some 23 percent in 2011, reducing the supply in the first quarter of 2012 to its lowest level since 2006. Single-family permitting, a leading indicator of starts, was also up 16.9 percent in the first quarter of 2012. The complete report provides a current assessment of: The state of the housing market and the foreclosure crisis The economic and demographic trends driving housing demand The state of mortgage finance Ongoing housing affordability challenges You can download the full report from the JCHS’s website. You can also download a convenient handout of Key Housing Industry Facts from the website.  Economic Calendar for the Week of June 18 - June 22 Date ET Economic Report For Estimate Actual Prior Impact Tue. June 19 08:30 Housing Starts May NA 717K Moderate Tue. June 19 08:30 Building Permits May NA 715K Moderate Wed. June 20 12:30 FOMC Meeting Jun No Change .25% HIGH Thu. June 21 08:30 Jobless Claims (Initial) 6/16 NA NA Moderate Thu. June 21 10:00 Existing Home Sales May NA 4.62M Moderate Thu. June 21 10:00 Philadelphia Fed Index Jun NA -5.8 HIGH

The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors. As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you. Mortgage Success Source, LLC is the copyright owner or licensee of the content and/or information in this email, unless otherwise indicated.   Mortgage Success Source, LLC does not grant to you a license to any content, features or materials in this email.   You may not distribute, download, or save a copy of any of the content or screens except as otherwise provided in our Terms and Conditions of Membership, for any purpose.