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Weekly Rate Lock Advisory

This week brings us the release of only three pieces of economic news in addition to the minutes from the last FOMC meeting. Only one of those three can be considered of high importance to the markets and mortgage rates, so we may see a fairly calm week for mortgage rates.

The first data comes tomorrow morning with the release of April's Leading Economic Indicators (LEI) at 10:00 AM ET. This Conference Board report attempts to measure economic activity over the next three to six months. It is expected to show no change from March's reading, meaning that economic activity is likely to remain flat during the next few months. A decline would be good news for the bond market and mortgage rates, while an increase could cause mortgage rates to inch higher tomorrow.

The second report of the week April's Producer Price Index (PPI) Tuesday morning, which helps us measure inflationary pressures at the producer level of the economy. If this report reveals weaker than expected readings, we should see the bond and stock markets rally. The overall index is expected to show an increase of 0.4%, while the core data that excludes food and energy prices is expected to rise 0.2%. A smaller than expected increase in the core data would be ideal for mortgage shoppers.

There is no relevant economic news scheduled for release Wednesday, but we will get to see the minutes from the last FOMC meeting. Market participants will be looking for how Fed members voted during the last meeting and any comments about inflation concerns in the economy. The goal is to form a guess about what the Fed's next move will be. The minutes will be released at 2:00 PM ET, so if there is a market reaction to them it will be evident during afternoon trading.

The National Association of Realtors will give us the Existing Home Sales report Friday morning. This data tracks resales of homes in the U.S., giving us a measurement of housing sector strength. However, it is not considered to be of much importance to the bond market unless it varies greatly from forecasts. Current forecasts are calling for decline in sales between March and April.

Overall, it may be an interesting week for mortgage rates. We could see little movement in rates if the stock markets remain calm and the week's data doesn't reveal any major surprises. Tuesday's PPI report is the single most important data of the week, but the FOMC minutes may also lead to some volatility in the markets. Also worth noting is an early close in the bond market Friday afternoon ahead of the Memorial Day Holiday Monday. These early closes sometimes lead to additional volatility bond prices as investors prepare for the long weekend and trading thins with many traders starting the weekend early.

If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Biggest Credit Myths, Mistakes, and Misconceptions

Good credit is well worth the effort it takes to both achieve and preserve it. If you have good credit, the following tips will help you keep it that way. If you are looking to improve your credit, however, now is the time to get started. Give us a call. We'll review your credit and find out exactly where you stand. In the meantime, if you plan on entering into a loan transaction in the next 6 to 12 months, you simply cannot afford to make the following credit mistakes:

Don't fall behind on existing accounts. This includes your mortgage and car payments. One 30-day late can cost you anywhere from 30-75 points.

Don't pay off old collections or charge-offs during the loan process. Paying collections will decrease your credit score immediately due to the "date of last activity" becoming recent. If you want to pay off old accounts, do it through closing, and make sure that 1) you validate that the debt is yours, and 2) the creditor agrees to give you a letter of deletion.

Don't close credit card accounts. If you close a credit card account, it will appear to FICO that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit history. If you have to close a credit card account, do it after closing, and make sure that it is an account you’ve opened more recently.

Don't max out or overcharge your credit accounts. This is the fastest way to bring about an immediate drop of 50-100 points in your credit score. Try to keep your credit card balances below 30% of their available limit at all times during the loan process. If you decide to pay down balances, do it across the board. Meaning, make an extra payment on all of your cards at the same time.

Don't consolidate your debt onto 1 or 2 credit cards. It seems like it would be the smart thing to do; however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above. If you want to save money on credit card interest rates, wait until after closing.

Don't do anything that will cause a red flag to be raised by the scoring system. This would include adding new accounts, co-signing on a loan, or changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.

Don't do it alone. If you feel that the credit challenges you're facing are too much, or you don't have enough time to do the work necessary to improve your own credit, don't lose hope and give up. Give us a call. We can help. In many cases, small changes to your credit profile could yield big results that could save you thousands of dollars on your mortgage. However, if professional credit repair does become necessary, we'll gladly provide you with a referral to an experienced professional credit repair specialist you can trust.

Stay tuned for more great credit tips!

Weekly Rate Lock Advisory

The Conference Board will start the week's releases by posting their Consumer Confidence Index (CCI) at 10:00 AM Tuesday. This is a very important release that measures consumer willingness to spend. If the index rises, it indicates that consumers feel better about their personal financial situations and are more apt to make large purchases. If confidence is sliding, analysts think consumer spending may slow in the near future. The latter is good news for the bond market because it should ease concerns about inflationary pressures, making bonds more attractive to investors. This should boost bond prices and push mortgage rates lower Tuesday morning. It is expected to show a reading of 61.0 after April's 62.3 reading.

April's New Home Sales data will be released late Tuesday morning. This report gives us a measurement of housing sector strength and future mortgage credit demand. However, it is actually the least important release of the week and probably will not have much of an impact on mortgage pricing. It is expected to show another decline in sales.

Wednesday morning we will see April's Durable Goods Orders data. This report gives us an indication of manufacturing sector strength by tracking orders at U.S. factories for big-ticket products. It is currently expected to show a decline in new orders of approximately 0.7%. If this report shows a stronger than expected reading, we should see mortgage rates rise because it indicates manufacturing growth. If it shows a large r than expected drop, we should see rates improve Wednesday morning.

The first of two revisions to the 1st quarter Gross Domestic Product (GDP) will be released at 8:30 AM Thursday. The second revision to this report comes next month but isn't expected to have much of an impact on the financial markets. The GDP is the sum of all goods and services produced in the U.S. and is considered to be the best indicator of economic growth. Last month's preliminary reading revealed a 0.6% annual rate of growth. Analysts expect an upward revision to this reading with the consensus being a .9% annual rate. If true, we may see the bond market react negatively and mortgage rates move higher.

Friday brings us the release of two pieces of data with the first being April's Personal Income and Outlays data at 8:30 AM. This report gives us an indication of consumer ability to spend and current spending habits. An increase in income means that consumers have more money available to spend. Since consumer spending makes up two-thirds of the U.S. economy, this data can cause movement in the financial markets and mortgage rates. Current forecasts are showing a 0.4% rise in income and a 0.4% increase in spending. Weaker readings would be considered good news for bonds and mortgage rates.

The last report of the day and the last important data of the week will come from the University of Michigan who will update their Index of Consumer Sentiment for May. An upward revision would be considered a negative for bonds.

Overall, I think we have a busy week ahead of us. With the markets closed tomorrow, Tuesday's data will set the tone for the first part of the week. The big reports of the week are Tuesday's CCI and Wednesday's Durable Goods. If Thursday's GDP revision varies greatly from forecasts, it can also lead to sizable changes in rates.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

Rebuilding Credit: It's Not Too Late

It's true, negative credit items can remain on your credit report for up to 7 years (up to 10 years for public records, such as a bankruptcy, tax lien or judgment). But this doesn't mean that you have to wait 7 to 10 years to begin reestablishing a good credit rating. Because credit scoring models typically lend more weight to your recent activity than to the mistakes you’ve made in the past, you can change your habits right now and begin reestablishing yourself as a good credit risk for a purchase or refinance loan in just 6 to 12 months.

The following are a few Dos and Don'ts when it comes to rebuilding your credit:

1) Three months prior to securing your mortgage, DON'T apply for, close, or pay off any collections, charge-offs, loans, or other kinds of credit without speaking to your mortgage professional first. Any one of these actions, as innocent as they might seem, could seriously affect your credit score, adding significant costs to your mortgage should your score suddenly drop.

2) If you have any credit card accounts with excellent credit histories, DO use them - but use them strategically. Keep your balances below 30% of their limits for 3-6 months prior to entering into a loan transaction, and use them only for small purchases that you can easily pay off completely at the end of the month. Remember, creditors like to see evidence of stability, so the goal is to keep the good reports coming month to month without falling into the same financial traps that led to credit challenges in the past.

3) If you don't have a credit card, DO get a secured card immediately. This is a great way to rebuild or establish credit quickly. Because this account is secured by funds that you deposit (typically between $100 and $400) you're not seen as a great risk to the card issuer because of your initial investment. Again, use this card strategically to build a strong credit history. Pay your bill on time every month, and it won't be long before you qualify for an unsecured credit account. Talk to your mortgage professional about which cards to apply for.

For some, opening a credit account with a co-signer could be a better alternative, but it's important to note that both you and your co-signer are equally responsible for any activity on this type of account, good or bad, so this strategy could backfire in the end if you or your co-signer makes poor decisions. DON'T mistake "authorized user" for a co-signed account. While, in the past, becoming an authorized user on an account in good standing would benefit everyone on the account, the credit bureaus have reconsidered this practice, and new credit models have all but eliminated "piggybacking" your way to good credit.

4) Finally, DO monitor your credit. Ask your mortgage professional to refer you to a professional credit repair company you can trust. Having an experienced professional on your side will allow you to focus on your long-term credit goals without having to make reestablishing your credit a second career.

Give us a call at your convenience. We'll be glad to review your credit and see what, if anything, needs to be done to help you meet your financial goals and needs.

Stay tuned for more great credit tips!

Weekly Rate Lock Advisory

 There are several important pieces of economic news scheduled to be released this week, but two stand out above the others. There are a total of five reports scheduled for release, so it can be considered a fairly active week. There is no relevant data due out tomorrow, so expect the stock markets to help drive bond trading and mortgage rates.

The first piece of data is the release of April's Retail Sales data early Tuesday morning. This is an extremely important report for the financial markets as it measures consumer spending. Since consumer spending makes up two-thirds of the U.S. economy, this data can have a pretty significant impact on the markets. Current forecasts are calling for no change in sales from March to April. A weaker than expected level of sales should push bond prices higher and mortgage rates lower Tuesday. However, a larger increase could fuel bond selling and lead to higher mortgage rates.

Wednesday's only relevant report is April's Consumer Price Index (CPI). It is similar to next week's PPI report, but measures inflationary pressures at the more important consumer level of the economy. Its results will be watched closely and can lead to significant volatility in the bond market and mortgage pricing. Current forecasts are calling for increases of 0.2% and 0.3% respectively in the overall index and the core data readings. The core data is the more important of the two since it excludes more volatile food and energy prices.

April's Industrial Production is Thursday's only relevant news. It measures manufacturing sector strength by tracking output at U.S. factories, mines and utilities. It is expected to show a 0.2% decline in production, indicating that manufacturing activity is slowing. A larger decline in output would be good news for the bond market and mortgage rates because it would indicate that the manufacturing sector is weaker than expected.

There are two pieces of data due to be posted Friday. April's Housing Starts is the first and is the least important of the two. This data measures housing sector strength and mortgage credit demand by tracking new permits and actual starts of new home construction. It is expected to show a decline in new starts from March's readings. But, since this report is not considered to be of high importance to the bond market, it likely will have little impact on mortgage rates unless it varies greatly from forecasts.

The last report of the week is May's preliminary reading to the University of Michigan's Index of Consumer Sentiment. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. It is expected to show a reading of 63.0, which would be a slight increase from last month's final reading. If it shows a decline in consumer confidence, bond prices will likely rise. This should lead to mortgage rates moving slightly lower Friday.

Overall, it likely will be a moderately active week for mortgage rates. Besides the week's important economic news, look for the stock markets to be a major influence on trading. I suspect we will see a fair amount of volatility in stocks, which should affect bond prices. Significant stock weakness should translate into bond gains and lower mortgage rates. However, if the major stock indexes rally, we could see mortgage rates move higher as a result.

If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

5 Ways to Raise Your Credit Score - And Fast

If you are looking to improve your credit score quickly, now is the time to get started. Give us a call. We'll review your credit and find out exactly where you stand and where you need to get to. In the meantime, here are some great strategies you can utilize right away to give your score a little boost.

Create Some Balance: While paying down installment debt (car, school, mortgage, etc.) will definitely boost your credit score, paying down or paying off revolving debt, such as credit cards, can cause a quick jump in your credit score. The trick is to get and keep your balances below 30% of your credit limit on each card. For faster results, attack those cards with balances closer to their respective credit limits first, as opposed to those cards with simply the highest debt. Remember, if you pay off any credit cards completely, do not close your accounts without discussing it with your mortgage professional first. Cancelling those cards may inadvertently undo all of your hard work.

Know Your Limits: Make sure that your credit card issuers are reporting the correct limits on your accounts to the three major credit bureaus. Without an available limit, your account will appear to be maxed out at its highest reported balance each month. This could cost you up to 80 points in certain instances. Some creditors, such as American Express® and certain cards issued by Capital One®, actually have a policy of not reporting available credit. However, most companies will report your credit limits if you ask them in writing.

Take Some Credit: If you have a credit card account in very good standing, make sure that all three credit bureaus know about it. Just like your credit limits, some creditors don't report your information to all three credit companies - this is why credit scores often vary between bureaus. If this is the case, give them a call to find out why. Correcting this oversight could provide a significant boost to your score. Also, if you're in very good standing, ask your creditor for a lower rate or higher credit limit. This will increase the gap in the debt you owe versus the credit you have available. Sometimes hinting about closing an account can suddenly bring out the generous spirit of certain card issuers. Give it a try. The worst they can say is no.

Protect Your Interests: Your credit is calculated based solely on the information available to your creditors. If you have a HELOC, make sure it's listed as a mortgage or an installment account on your credit reports and not a revolving debt. If you had a bankruptcy, be sure that all items associated with the bankruptcy are being reported correctly, that is with a zero balance. This action could increase your score by 50-100 points. Because simple mistakes like these can wreak havoc on your credit score, it's important to monitor your credit every four to six months.

Even the Score: If you find information on your credit report that you believe is inaccurate or incomplete, then you have the right to dispute it free of charge. For the fastest results, visit the appropriate credit bureau's website and file a complaint online. If supporting documents are necessary, you have to file your dispute by mail.

If you'd like more information or a copy of our Sample Dispute Letter, give us a call right away. We'll be glad to help you in any way we can or, if it becomes necessary, refer you to credit professionals you can trust.

If you or anyone you know has any questions about credit scores or what can be done to repair them, please don't hesitate to call.

Weekly Rate Lock Advisory  

This week is very light in terms of economic releases scheduled to be posted. There are actually three reports scheduled that are worthy of addressing, but none of them are considered to be highly important to bonds and mortgage rates. The Institute for Supply Management (ISM) Services Index was posted this morning and came in stronger than expected. However, the variance between the actual reading and the forecasted reading was not enough to cause much concern in the bond or mortgage markets.

The Labor Department will release its 1st Quarter Productivity and Costs data early Wednesday morning. This information helps u s measure employee productivity in the workplace. High levels of productivity help allow low-inflationary economic growth. If employee productivity is rising, the bond market should react favorably. However, a decrease could raise inflation concerns that cause bond prices to drop and mortgage rates to rise Wednesday morning. It is expected to show a 1.5% increase in productivity.

March's Goods and Services Trade Balance report will be released early Friday morning. This report gives us the size of the U.S. trade deficit but likely will not have much of an impact on the bond market or mortgage pricing. It is the least important of this week's data.

In addition to this week's economic data, we also have Treasury auctions that can influence bond trading and affect mortgage rates. The Treasury will hold a 10 year Note sale Wednesday and 30 Year Bond sale Thursday. Results of the auctions will be posted at 1:30 PM ET. If they were met with a strong demand from investors, we could see bond prices rise enough during afternoon trading to cause downward revisions to mortgage rates. However, lackluster bidding could lead to higher mortgage pricing those afternoons.

Overall, I am expecting to see a fairly quiet week in mortgage rates, especially compared to last week's volatility. As long as the stock markets remain fairly calm, I think the day to day changes in mortgage rates will remain relatively small.

If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

In order to answer this question, it is helpful to understand the four major interest rates that are affected by the Fed:

Discount Rate (currently 2.25%) - the interest rate that banks pay when they borrow money directly from the Fed. The rate has been largely symbolic in the past because banks prefer to get short term financing by:

Fed Funds Rate (currently 2%) - the interest rate that banks pay when they borrow money from each other here in the US. This rate is also determined by the Fed because banks in the US are part of the Federal Reserve System. You see, the Fed's main role is to maintain "monetary stability" by keeping a close eye on the flow of money throughout the economy. One way they do this is by regulating the interest rates that banks charge each other for short term funds.

LIBOR Rate (One Month LIBOR is currently 2.80%) – the London Interbank Offered Rate (LIBOR) is the interest rate that banks pay when they borrow money from other banks anywhere in the world (primarily in the international wholesale money market based in London). There are various types of LIBOR rates including the 1 week LIBOR, 1 month LIBOR, 6 month LIBOR, and 1 year LIBOR; these are the rates banks would pay if they want to borrow funds for 1 week, 1 month, 6 months, etc. Although the LIBOR rates are determined by the financial markets at any given time, they are very closely related to the Fed in that LIBOR most often changes when the market anticipates that the Fed will change their Fed Funds Rate. LIBOR is the base rate that is used on most adjustable rate mortgages (ARMs) in the US and large corporate / commercial loans. The reason LIBOR is used most often for US adjustable rate mortgages is because LIBOR is really the most accurate measure of a bank's cost of borrowing funds since most banks do business internationally these days.

Prime Rate (currently 5%) – the Fed Funds Rate + 3; this is the base rate that is used for most consumer loans such as credit cards and home equity lines of credit, as well as most small business loans. Like the LIBOR, the Prime Rate is also tied to the Fed Funds Rate.

You see, as the Fed lowers the Fed Funds Rate, the business and consumer-based interest rates of LIBOR and Prime will also go down. The Fed would be reluctant to continue lowering rates if they feel that businesses and consumers would start borrowing and spending so much money that inflation will go up significantly.

Remember, the Fed's main goal is to "maintain monetary stability" by keeping a close eye on the flow of funds in the US economy. It would be reckless of them to artificially encourage too much borrowing and spending as this would only artificially drive up asset prices and cause money to lose its purchasing power. This phenomenon is known as "inflation."

How does the Fed affect mortgage rates?

Well, if you have a home equity line of credit based on Prime or short term ARMs based on LIBOR, you should see an immediate reduction in your interest rate in the coming weeks. However, if you are considering a fixed rate loan or longer term ARM with a fixed period of 3, 5, 7 or 10 years, rates on those types of loans are not directly related to the Fed. Instead, these rates are closely tied to the Mortgage Backed Securities that trade on the bond market. For more on how this process works, please reference the article entitled, Saga of the US Mortgage Industry.

With all this in mind, it is more important than ever to work with a Certified Mortgage Planning Specialist^™ who can decipher market conditions and help you make informed decisions in today's volatile market. A CMPS^® professional can look at Fed decisions and economic reports that are coming out and help you make the right mortgage choices. Whether you have or are considering an ARM or a fixed rate loan; whether you are buying, selling or refinancing a home; whether you are dealing with a primary, vacation or investment property; now is the time to be dealing with an expert.

CMPS^® professionals are committed, qualified and equipped to help you navigate today's turbulent mortgage marketplace. Don't delay in implementing the mortgage and real estate equity planning strategies that will make a positive impact in your life and the lives of your loved ones!

Mark Brekhus, CMPS^®