Crude oil prices have been increasing lately and that tends to lead to higher gas prices at the pump.
The heat map at right is courtesy of GasBuddy.com, a Web site that tracks gas prices on a national, state, county, city and hyper-local basis.
According to GasBuddy.com, gasoline prices are beginning to rise after 7 weeks of decline.
Typically, higher gas prices lead to less disposable income for Americans and that normally puts downward pressure on mortgage rates.
This year, however, traders have been largely ignoring that once-common Rule of Thumb because — despite the cost of the world around them — consumers continue to consume at a dizzying pace.
Mortgage rates will likely not respond to crude oil or gas prices unless they reach new all-time highs.
(Image courtesy: GasBuddy.com)______________________________________________
Tony Gallegos - Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta. Subscribe to The Mortgage Cicerone:
The stock markets faced large losses last week and the bond market was a beneficiary. That was good news for mortgage rates, but the news could have been better.
Unnerved by losses in the sub-prime market, investors are beginning to question the safety of mortgage bonds overall. Once considered a “safe” investment, mortgage bonds may be losing their luster and that could drive mortgage rates higher.
Less demand for mortgage bonds forces mortgage rates up.
This week, markets should stop taking their cue from “sentiment” and instead focus on actual data. There’s a lot of inflation-related news coming up.
Tuesday is the first big data day of the week, featuring Personal Consumption and Expenditures (PCE) and the Employment Cost Index. The former answers “What is the cost of living for ordinary people?” and the latter answers “What is the cost of keeping a workforce?”.
Increases in either will be viewed as inflationary which should contribute to a rise in mortgage rates.
Then, on Friday, the Bureau of Labor Statistics will release the jobs report from July. Markets are expecting 135,000 new jobs created, a 3,000 increase over June 2007.
As always, though, the real story in the Non-Farm Payrolls report is not the headline, but the upward or downward revisions to May’s data and June’s data.
It’s been a wild ride for mortgage rate shoppers lately. This week does not figure to get any smoother.
(Image courtesy: Seeking Alpha)
Tony Gallegos - Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta. Subscribe to The Mortgage Cicerone:
The honors for suburban towns on the north side of metro Atlanta keep rolling in endlessly. Subsequently, Suwanee, Georgia was named by Money Magazine (August, 2007 issue) as one of the top ten places in the nation to live. Factors considered by Money included economic opportunity, good schools, safe streets, things to do, and a real sense of community.What makes Suwanee such a great place to live? According to Money, Sauwnee has:
Located about 13 miles north of Atlanta, Suwanee is well-known around the region for its distinctive parks, crowd-pleasing events, and high-quality mixed-use developments.
June’s Existing Home Sales reported weaker than expected and dropped from prior levels, according to the National Association of REALTORS.
Because our country (A) loves to discuss real estate, and (B) loves statistical headlines, expect tomorrow’s newspapers to emblazon one (or both) of these data points on the front page:
Those are two of the negative points from the NAR report.
There were positives in the report as well, but they’ll likely get buried deep in the newspaper coverage.
For example, homes are more affordable today than they were a year ago. Mortgage rates for “A” paper home buyers (i.e. strong income, assets and/or credit rating) are slightly lower today in June 2006.
Additionally. the number of homes on the market dropped in June which led to, in part, an increase in the median home sale price.
We bring the up today because it’s important to remember that real estate is not a national news story — it’s hyper-local. That’s why newspaper headlines need to be taken with a grain of salt.
Your home is a part of your neighborhood and that has its own “real estate market”. Just like on any street in America, your street has good buys and outright lemons listed for sale. What’s happening on the national scene has absolutely nothing to do with what’s happening in your backyard.
Unfortunately, this is a truth that remains largely untold.
Prospective pool of buyers can be frightened by negative headlines like the ones we’ll likely see tomorrow morning. Fewer buyers means less demand for homes, placing additional downward pressure on the housing market.
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Tony Gallegos - Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta. Subscribe to The Mortgage Cicerone:
The Atlanta metro area continues to be one of the fastest growing areas in the Country. This week Forbes Magazine released their list of the ten fastest growing suburbs in America and Woodstock, Georgia came in at the number ten spot.
Woodstock natives often refer to their city as “a place modern amenities meets olde time Southern charm.” Maybe that’s the reason so many individuals in the Atlanta area are choosing to make Woodstock their home.
Woodstock Links:
Note: Forbes compiled this list by using U.S. Census growth data from 2000 to 2006 that was provided them by Demographia, a St. Louis-based research firm.
Source: America’s Fastest-Growing Suburbs (Forbes Magazine)
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Tony Gallegos - Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta. Subscribe to The Mortgage Cicerone:
The Dow Jones Industrial Average lost 311.50 points yesterday. On the rankings of Top 10 Daily Losses of All-Time, 311.50 doesn’t even come close, according to djindexes.com (and the charts below)
So, as we always do, let’s put Thursday’s action in perspective for the average person.
#7 on the “total points” list happened five months ago today — February 27, 2007. On that day, the Dow lost 416.02.
Was it a crisis? Probably not. We know that because if you pulled your money out of the market February 27, you would have missed the 10.3% in market gains since that day.
Yesterday’s loss doesn’t register in the Top 10 on a points basis, and on a percentage basis, it’s even farther off the chart. At 2.3%, the loss is just a blip.
The point is this: If you are invested in stocks, don’t react too swiftly to the headlines. Many passive investors lose money when trying to time the market’s ups-and-downs. If you’re nervous about your exposure to stock market fluctuations, speak with your wealth planning professional for advice.
The Dow’s worst day ever remains Black Monday on which the market lost 22.61%. Since that date, however, the Dow Jones Industrial Average has added more than 12,000 points. Investors that stayed the course endured temporary pain, but emerged as winners.
Don’t let yesterday’s losses get your down.
(Image courtesy: Dow Jones Indexes)
As homeowners insurance premiums rise across the nation, Bankrate.com writes a helpful story on ways to keep your premiums down. The tips may surprise you.
Some of the highlights include:
The article also provides a fair amount of myth-busting so it’s worth a read. A few minutes could save you some good money on your home insurance.
(Image courtesy: Spot Lite Magic & Costumes)
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The Bureau of Labor Statistics says that the average American family spends $614 a month on automobiles. This includes finance payments, gasoline, repairs, and insurance.
Let’s relate that $614 per month to home buying.
Based on a 6.500 percent, fully-amortizing mortgage payment, that same $614 yields an equivalent of $97,000 in additional home purchasing power.
With an interest only home loan, it balloons to $113,000.
In other words, if your lifestyle does not require the full-time use of an automobile, you may want to consider trading in your car in for a larger and/or upgraded home.
For the temporary use of a car after a trade-in or sale, of course, you can phone a local car rental agency, or ask a friend to borrow (and be sure to fill up the tank as a courtesy).
You can also try priceline.com’s Name Your Own Price feature which makes cars available for a fraction of the “standard” rental cost — sometimes as low as $10 per day.
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Mixed news from the sub-prime sector, depending on how you look at it. Many lenders discontinuing their short-term ARM products.
Washington Mutual, Countrywide and Wells Fargo are among the sub-prime lenders no longer offering the 2/28 mortgage product.
The “2/28″ is a adjustable rate mortgage in which the interest rate remains fixed for two years, and then adjusts for the loan’s remaining 28 years.
The 2/28 mortgage was the basis of all sub-prime lending in recent years.
First Franklin has gone a step further, eliminating the 2/28 and the 3/27. As you’d expect, the 3/27 is a mortgage in which the interest rate remains fixed for three years, and then adjusts for the loan’s remaining 27 years.
Lenders are continuing to offer 5/25 mortgages and 30-year fixed mortgages.
The mortgage lenders hope that longer “fixed rate periods” on their mortgage products will help keep their loans from defaulting so soon.
Today, 2/28s originated in 2003 and 2004 are in their adjustment phase and are contributing to rising foreclosure rates across the country.
For homeowners, the downside to loan portfolio paring is that longer fixed-rate periods creates more “time risk” for the lending bank and, therefore, leads to higher interest rates for home loans.
The potential upside, though, is that better sub-prime loan performance overall will reduce the risk levels in sub-prime, thereby lowering mortgage rates. Either way, borrowing money classified as “sub-prime” continues to get more difficult.
If you believe you are a sub-prime borrower, speak with your mortgage lender and/or financial planner and craft a plan to improve your credit rating and lending risk profile.
(Image courtesy: The Wall Street Journal)
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With more ups-and-downs than an elevator, the mortgage market has not been for the faint of heart since March.
Last week provided more good news than bad, though, and mortgages rates closed out the week slightly improved overall.
The good news for mortgage markets came in three distinct parts:
The bad news in mortgage markets is that sub-prime loans continue to lose their luster as default rates rise.
Last week, Bear Stearns acknowledged that sub-prime losses wiped out $1.5 billion of investor capital.
This major loss could scare investors away from buying any mortgage-backed securities in the future and if the demand for MBS is lower, the price of the urderlying bonds will be lower, too.
Because mortgage rates move in the opposite direction of mortgage bond prices, this would cause mortgage rates to rise.
There are two housing reports this week — Existing Home Sales (Wednesday) and New Homes Sales (Thursday)– but neither figure to move mortgage rates too much; traders have lately turned a blind eye to news from the beaten-up sector.
Expect rates to continue bouncing this week.
(Images courtesy: Wall Street Journal Online)
Managing your credit can be tricky, even when you’re single. Add a new spouse to the mix, and you have to be extra careful to ensure your credit remains in good standing.
Honesty is the best policy
First of all, both you and your spouse should put all your financial records on the table. This includes savings, salaries, investments, real estate, and especially credit. If one of you has a less-than-perfect credit history, it will affect the other as soon as you start applying for credit together and opening joint accounts. In addition, your new joint accounts will appear on both spouses’ credit reports in the future, so be sure to pay careful attention to your bills and pay them on time.
Once you’ve aired your credit laundry, you’ll need to decide whether or not to merge all of your financial accounts. Many couples do this because consolidated accounts often make for easier record keeping. Just remember, both of you are responsible for all debt incurred in any joint credit accounts. So, regardless of who’s incurring the debt, a missed payment or two on a joint account could negatively affect both of your records.
The same is true in community property states, where virtually any debt entered into during marriage is automatically considered joint. Also, if you miss a payment on an individual account, it could impact your ability to open joint accounts in the future, since both credit histories will be considered.
It’s not terms of endearment, but rather terms of your joint accounts
The best way to keep your record clean starts with a solid understanding of the terms of your joint accounts. That means paying close attention to interest rates, credit limits, annual fees, late payment fees and cash advance limits. If you decide to consolidate your accounts, you might want to keep at least one credit account in your own name as a safeguard in the event of an emergency. Not to rain on your nuptial parade, but keeping an individual account can also be a good thing in the event of divorce to reestablish an individual credit history.
When the honeymoon is over
Women who take their husband’s surname after getting married need to notify the Social Security Administration, as well as any current creditors. You do not need to notify the credit agencies of a name change – they will automatically update the name on a credit report when creditors report it.
If you plan to have children, you can best prepare yourself now by building a cash reserve to meet the eventual expenses of having a baby. This will help you avoid overextending your credit to meet expenses such as cribs, strollers, diapers, clothes, playpens and toys. Also, building a savings account is also essential for buying a home and being prepared to face such emergencies as severe illness, disability or job layoff. Finally, planning for your retirement early on in your marriage can help make your golden years more comfortable and less stressful.
The key to a successful credit marriage as a couple is to understand that your individual credit behavior affects both you and your partner. To ensure that you are able to quickly get credit at the best possible terms, be sure you both understand all the implications that accompany a joint account.
We’ve all heard of the butterfly effect; the idea that one butterfly could have a far-reaching ripple effect on subsequent events.
It’s a Wonderful Life” (1946) is arguably the earliest illustration of the butterfly effect in a movie. In it, an angel shows main character George Bailey (a mortgage guy) how rewriting history so that George was never born would detrimentally affect the lives of everyone in his hometown.
In the 1952 short story by Ray Bradbury, “A Sound of Thunder,” the killing of a butterfly during the time of dinosaurs causes the future to change in subtle but meaningful ways: e.g., the spelling of English and the outcome of a political election.
In the Simpson’s Halloween episode, “Time and Punishment,” Homer repeatedly travels back to the time of dinosaurs with a time machine (à la Bradbury’s story). Each time there, Homer’s actions drastically change the future (for example, Homer squishing a butterfly results in Ned Flanders ruling the world, and Homer wiping out the dinosaurs with a sneeze which results in his extraordinary wealth, well-behaved kids, his sisters-in-law dead, and donuts raining from the sky).
Yet, one of the most powerful examples of the “butterfly effect” is drawn from a true story that has had far reaching effects for all of mankind.
A Poor Scottish Farmer
One day in the countryside of Scotland, a common and poor farmer was toiling in his field when suddenly he heard a cry for help. Startled, he recognized someone was in trouble and the plea was coming from a nearby bog. Immediately he dropped what he was doing and ran to the source of the plea. When he located the voice calling for help, he stumbled upon a terrified boy up to his waist in black muck, screaming and sinking deeper and deeper into the bog as each minute passed.
The farmer calmly retrieved ropes from nearby, pulled the boy out of the bog and saved his life.
The next day, an elegantly dressed nobleman arrived at the farmers small and simple home. When the nobleman stepped out of his carriage, he introduced himself as the father of the boy the farmer had saved.
Emotionally, the nobleman thanked the farmer and asked to repay the farmer for saving his son’s life. The farmer waved off the offer and informed the nobleman he could not accept payment for doing what was right.
At that moment, the nobleman asked if the farmer had a son in which the farmer replied he did. Subsequently, the nobleman insisted he provide the farmers son an education on par with that he would provide his own son. Upon leaving the farmers house, the nobleman told the farmer, “if the lad is anything like his father, he’ll no doubt grow to be a man we both will be proud of.”
The nobleman’s prediction concerning the farmers son proved to be prophetic.
True to the nobleman’s word, the farmers son attended the best schools in the world and eventually graduated from St. Mary’s Hospital Medical School in London. More importantly, he went on to become known throughout the world as the noted Sir Alexander Fleming, the discoverer of Penicillin.
Years afterward, the same nobleman’s son who was saved from the bog was stricken with pneumonia.
What saved his life this time?
Penicillin.
The name of the nobleman?
Lord Randolph Churchill.
His son’s name?
Sir Winston Churchill.
… Small things do make a difference!
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If you own a home and somebody else depends on your income, consider that the leading cause of home foreclosures is not “adjustable rate mortgages”.
As cited many times over (including by a Harvard law professor), the answer is medical bills.
Even for the insured, medical expenses can dramatically impact a family’s finances and push it into bankruptcy.
Over one million families discovered that sad fact in 2004 and medical bills have not gotten any cheaper, says the Bureau of Labor Statistics.
Death is another major cause of foreclosure.
When a family’s primary wage-earner dies, the secondary wage-earner is now obligated to pay the family’s monthly obligations and that may include a mortgage payment. Sadly, that income may not be enough to cover the bills.
A strong life insurance policy can offset bills, ease transition periods, and even pay off the home’s remaining mortgage obligation.
Whether you’re a first-time buyer or a seasoned investor, consider protecting yourself and your family with adequate medical and life insurance coverage, as well as taking preventative health care steps.
There are resources online to help you determine what coverage is necessary, but the best place to start for this highly personal discussion is with your personal financial planner.
Life is a series of surprises and it’s never too soon to be prepared.
(Image courtesy: NCSALL)
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The pie chart at right comes from a Bankrate.com survey, sampling 1,000 adults about their current housing situation.
The question asked: What type of mortgage do you currently have?
While the 34% “Don’t Know” figure is troubling, even more frightening is the 6% “ARM” figure.
The sample size was small, but far more than 6% of homeowners carry adjustable rate mortgages. Some of the survey responders may have mistaken their “5-year fixed rate mortgage” for a true fixed rate mortgage — even though they are aware that the rate can change after 60 months.
According to the Federal Reserve, ARM holders tend to be unaware of how often their home loan can adjust, the maximum interest rate to which it can adjust, or even the rules by which the new, adjusted interest rate is calculated. That all can lead to financial stress in a household.
If you own a home, you need to understand the basic structure of your own mortgage the same way that you need to balance your checkbook each month. Even if you have a fixed rate mortgage — you may be mistaken, after all.
It’s never too late to look over your mortgage statement or reviewing your closing documents. If you don’t know how to interpret what you’re reading, feel free contacting me and I would be happy to help you.
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Credit “piggybacking” used to be a handy way to boost a person’s credit score in order to help them get a home loan approval. Starting in September, it’s going the way of Saber Tooth Tiger.
Piggybacking involves linking one person’s strong credit rating to another person’s weak credit rating.
By adding the latter as an authorized signer on the former’s credit cards, the weaker credit scores are pulled higher because of better payment histories and lower debt-to-limit ratios.
Recently, credit repair companies began paying people with good credit several hundred dollars monthly to “rent” their credit to people with poor credit scores.
The agencies charged the low credit scoring group up to $1,000 for the service, promising (and delivering) an increase to their FICO. Outed by Kenneth Harney in April and under pressure from credit scoring stakeholders, the practice will soon be halted.
Beginning in September, credit agencies will protect their scoring methods from gamers of the system.
There are no records documented how many people have abused piggybacking and credit scoring loopholes.
The change will negatively impact people that legitimately use authorized accounts, including children and spouses. There are an estimated 41 million people in that category.
There are also close to 2 million people that only have authorized accounts in their credit history. For these people, their credit history is about to go blank.
Source
Can you ‘piggyback’ on a credit score?
Liz Pulliam Weston
MSN Money, June 18, 2007
Before paying down your mortgage balance with extra principal payments, be sure to plan carefully.
The biggest risk in lending for banks is that you will suddenly stop paying your mortgage. In that event, the banks hope that you owe them as little as possible against the value of the home.
That way, your mortgage balance is covered in full and paid off in a discounted sale via foreclosure.
The fear of foreclosure is why lenders are eager to take your dollars and to help you increase your equity position through bi-weekly payments and other systems.
When banks encourage you to pay down your principal balance, their hope is that you will voluntarily decrease their risk in lending to you.
Important to remember, though: your interest rate is determined by the risk that you represent to the bank. When you pay down your mortgage balance with extra principal payments, your risk to the bank decreases.
However, do you think that the bank will call you to offer you better interest rates now that your risk is lower?
Therefore, before paying extra principal dollars, consider some of your alternatives first:
There are many more options, of course, but just remember that you have choices. Once you give the money to the bank on your first lien, you can’t get it back without a refinance.
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Tony Gallegos - Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta. Subscribe to The Mortgage Cicerone:
Momentum trading and safe haven buying created a roller coaster-like week for mortgage rates last week.
This week, mortgage bonds should trade on data, by contrast.
Tuesday, at 8:30 A.M. ET, three important releases hit the wires:
The first release reveals the cost to business to produce goods; the latter two reveal the volume of production and the stress its places on the economy overall.
Despite last Friday’s weak Retail Sales figure, markets remained unconvinced about inflation. So, together, these three releases will give some sense from a business perspective of whether the economy is shrinking or growing.
Mortgage rate shoppers would do good to lock their rates prior to Tuesday morning because the data may reveal anything and changes in rates have been very sudden lately.
Wednesday, we’ll get the Consumer Price Index — also a major inflationary gauge. Rates should dance around this release, too.
Then, amid a host of other data, Thursday main focus will be on the FOMC’s June 28 meeting minutes.
Once the data starts rolling in Tuesday, mortgage rates will close out the week based on the strength of data. Any numbers suggesting growth or increases will move rates higher; numbers suggesting weakness will push rates lower.
With so much data hitting the street, it may be best for rate shoppers to get locked in to a rate as soon as possible.
(Image courtesy: The Wall Street Journal Online)
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Tony Gallegos - Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta. Subscribe to The Mortgage Cicerone:
The Mortgage Cicerone
Larry Gallegos is The Mortgage Cicerone. Why should you listen to Larry? Because he has studied and experienced America's "debt and mortgage industry" from the inside...and he thinks it's high time you FINALLY heard the TRUTH straight from the horses mouth. So get your smelling salts out...What you will learn from Larry about the debt, credit and mortgage industry will send many into a dead faint.
Cicerone - cic•e•ro•ni (-nē)
A guide for sightseers or person who is eloquent in sharing knowledge.
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