Credit Cards Are Evil. Really??

First, let me say that I really appreciate Dave Ramsey – I believe he has the heart of a teacher and wants to help people be financially successful. Secondly, I firmly believe that one of the biggest contributors to financial failure, for many people, is credit card debt. I’m adamantly opposed to it myself, but is the best solution to follow his advice of not having credit cards? He and I disagree on the answer to this question.

If you avoid getting any credit cards, it will remove the temptation of over-spending and I get that. However, responsibility is the real issue here. Not spending more than you can pay off at the end of each month and not overspending because "there is less emotional pain when paying with a card", should always be our practice. Now, if you completely buy in to avoiding all debt and not having any credit cards, where does that leave you? It may keep you out of debt, which I am a HUGE fan of, but it is also going to keep you from having a credit score.

Does that mean you can’t get a mortgage loan? No. Does that mean it is going to make it much more difficult? Absolutely. There are options where non-traditional credit (things that don’t show up on your credit report like rent, utility payments, insurance etc.) can be provided to support a loan. Many times options like FHA and THDA work just fine, but what about conventional loans?

I worked with a client this week that has the ability to put 20% down, which will enable her to avoid mortgage insurance. In her case, a conventional loan is the best option. She has a great job, low debt to income ratios and plenty of cash. She has lived a very disciplined life and has no debt – and no credit. Period. For several reasons (interest rates being tied to credit scores as the primary), it is going to be incredibly difficult to get her the financing she deserves. We’ll find options for her, but it will require additional documentation on her part and will likely be less favorable pricing. There is a better way.

For clients like this, who live frugally and are committed to saving, what is the danger to owning a couple of credit cards? In my opinion, when done strategically, there isn’t any. I have a daughter in college that has been taught from the time she had a concept of money, that she better never carry a balance on a credit card. When she graduates, she will have at least two cards that will have been opened for 24+ months. They will have no annual fee and have a maximum limit of $500. She can’t get in trouble this way and she will have a stellar credit rating when she graduates. So let's be responsible and take advantage of building good credit to our advantage.

If you are ever interested in reading prior weekly emails, please visit my Facebook page: Mike Smalling Mortgage Advisor

The Week Ahead
The biggest economic release this week likely will be the Fed Minutes from the April 30 FOMC Meeting which will come out on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. Investors also will be watching the housing data. Existing Home Sales will be released on Thursday and New Home Sales will come out on Friday. Mortgage markets will close early on Friday in observance of Memorial Day.

The Week That Was
The two biggest reports on economic growth released last week both fell short of the forecasts, which was favorable for mortgage rates. In addition, expectations increased for a bond purchase program by the European Central Bank (ECB), which also was positive for mortgage rates. As a result, mortgage rates ended the week near the lowest levels of the year.

In recent weeks, the economic data generally has shown a solid rebound from the weather-related slowdown seen this winter. Last week's data for April activity caused investors to grow a little more cautious about the outlook for the rest of the year, however. While the forecast was for a third straight month of large gains, April Retail Sales rose just slightly from March. Retail Sales account for roughly one third of consumer spending, so a big miss is significant. Another important indicator of economic activity, Industrial Production, showed a sharp decline, surprising most economists.

A bright spot in last week's economic data came from the housing sector on Friday, and the better results offset some of the improvement seen in mortgage rates earlier in the week. April Housing Starts increased 13% from March, far exceeding the consensus forecast, and they were 26% higher than one year ago. April Building Permits rose 8% from March to the highest level since June 2008. Most of the increase came from multi-family units, however. Excluding multi-family units, Housing Starts showed much more modest gains.

Navigating Mortgage Insurance

I'm finding that more and more customers are opting for financed mortgage insurance on conventional loans. When a borrower has a very good credit score, there's only about a .25% addition to the interest-rate, even on a 95% loan, to forgo the monthly MI payment. So, for example, someone borrowing $200,000 on a 95% conventional loan would pay $1,013 for principal and interest at 4.5% and another $90 for mortgage insurance, for a total of $1,103 not counting taxes and homeowner's insurance. The same person could take a rate that is .25% higher and have a payment with no monthly MI payment. The principal and interest would increase to $1,043 per month, but with no mortgage insurance payment, the total is $60 less per month.

Obviously, the main advantage of financing the MI is a lower monthly payment. The other significant advantage is a little more interest to deduct from a tax perspective. The main disadvantage is that the borrower now has a permanent rate that is .25% higher than it would have been had they taken the lower rate and paid the monthly MI. Most mortgage insurance payments are only required to be made for two years and then only until the loan is paid down to 80% of the home's current value. So at some point the mortgage insurance can be dropped which would leave the borrower with a payment that is a little less long-term, taking the monthly mortgage insurance payment option.

The key is finding the break-even point of how long someone would need to stay in the home, paying on that loan, to determine which option works best. That is where we come in - to advise clients on how to structure this part of their loan so that they receive the most benefit. But it is important for you to understand that there are options.

If you are ever interested in reading prior weekly emails, please visit my Facebook page: Mike Smalling Mortgage Advisor

The Week Ahead
This week, Retail Sales will be released on Tuesday. Retail Sales account for about 70% of economic activity. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for finished goods which are sold to consumers. Housing Starts will be released on Friday. Industrial Production, Philly Fed, and Consumer Sentiment will round out the schedule.

The Week That Was
Last week was a light week for economic data, and investors mainly focused on the central banks of the US and Europe. Comments from Fed and ECB officials remained favorable for bonds, and mortgage rates moved down a little during the week, to the lowest levels of the year.

At the beginning of the year, the consensus outlook was for a moderate pace of economic growth in the US and for mortgage rates to slowly climb higher. Despite a weather-related slowdown over the winter, the growth outlook appears to be on target, yet mortgage rates have moved lower this year.

There are several factors which have contributed to the decline in mortgage rates this year. One reason is that inflation has remained low. The major indicators, such as the Consumer Price Index (CPI) and the PCE index, show that core inflation is well below the Fed's target level of 2.0%, and it is expected to remain low in coming months. Expectations for future inflation are a major factor in setting mortgage rates.

The conflict in Ukraine is also favorable for mortgage rates. During periods of uncertainty, investors typically shift to relatively safer assets, increasing the demand for mortgage-backed securities (MBS). Another influence has been the expectation that the European Central Bank (ECB) will begin a bond purchase program similar to the one used by the Fed over the last few years. The expected added demand for bonds from the ECB has pushed down rates around the world.

Get Rich Quick

It is very rare that someone hits it big overnight and goes from Average Joe to Joe Millionaire. When I’m counseling my clients, I always encourage them to look at their personal finances and wealth building as a process, not an occurrence. It may be boring, but things like living within a specified budget, eliminating non-mortgage debt, investing in retirement accounts, saving for kid’s college, paying cash for cars – and buying them used, are all vital components to a long term strategy that helps us develop financial security over a lifetime. I’m constantly in that mode personally and always advising in that manner.

When I ran across Seth Godin’s blog this past week titled Get Rich Quick, it caught my attention. But as I quickly realized, he took a different slant. He is obviously not talking about building monetary wealth, but enriching our lives. I thought it was incredible and worth sharing. Here is how you really get rich quick:

• Enrich your world by creating value for others.
• Enrich your health by walking twenty minutes a day.
• Enrich your community by contributing to someone, without keeping score.
• Enrich your relationships by saying what needs to be said.
• Enrich your standing by trusting someone else.
• Enrich your organization by doing more than you're asked.
• Enrich your skills by learning something new, something scary.
• Enrich your productivity by rejecting false shortcuts.
• Enrich your peace of mind by being trusted.

If you are ever interested in reading prior weekly emails, please visit my Facebook page: Mike Smalling Mortgage Advisor

The Week Ahead
Next week, ISM Services will be released on Monday. The JOLTS report, measuring job openings and labor turnover, will come out on Friday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. A meeting of the European Central Bank (ECB) on Thursday also may influence US markets. The ECB is considering a bond purchase program similar to the one in the US that is currently being wound down.

The Week That Was
The major economic data released last week continued to show an even better than expected bounce back from a weather-related slowdown during the winter. Despite the economic strength, though, there were few signs of inflationary pressures, helping mortgage rates end the week lower, near the best levels of the year.

The economy added 288K jobs in April, far more than expected, and the largest monthly increase since January 2012. Average job gains over the last three months were a healthy 238K, up from 167K over the prior three months. The Unemployment Rate unexpectedly dropped from 6.7% to 6.3%, the lowest level since September 2008. Looking below the surface, though, a large part of the decline in the Unemployment Rate was due to people leaving the labor force. Average Hourly Earnings, a proxy for wage growth, were flat, limiting the upward pressure on inflation.

The impact of unusually severe winter weather appears to have taken an even bigger bite out of economic activity during the first three months of this year than what had been expected. The initial reading for first quarter Gross Domestic Product (GDP), the broadest measure of economic growth, was just 0.1%, down from 2.6% during the fourth quarter. This report often receives large revisions, though, as more data is collected.

Beggars Can't Be Choosers!

I wonder, how many times have you said this? I can’t count how many times I've repeated those words, particularly when someone gives me something that he or she may not think is much of a gift, or might even be embarrassed to be giving.  But hey, if it is something I need, and they don’t, and they are willing to give it to me, I love it.  Beggars can’t be choosers, right?

I was greeted once again this past week by the guy that sells papers on the exit ramp from Old Hickory Blvd. to I-65. I always try to buy a paper from him when I get stopped there. He was smiling and waving to everyone, like he always does, as I rolled down my window to buy my paper. Not realizing that I didn’t have any bills on me as I rolled the window down, I started scrambling for change. Then I realized that the papers were now $2 versus the $1 that they had always been, so I’m scrounging for nickels and dimes to come up with the $2. I give him the handful of change and apologize for taking so long and loading him down with coins. He looked at me with a big smile and said, “Hey, beggars can’t be choosers. I really appreciate you.”

That really hit me and I can’t get the thought, or vision of him, out of my head. I’ve bounced all over the place with it. First, I'm thankful that I've been blessed with a life that allows me to choose versus beg. Second, I'm amazed at the grateful attitude and response from an individual that sees himself as a mere beggar. I wonder why this guy isn’t in sales somewhere instead of being homeless – with a personality like that, shouldn’t he be able to find a great job? Is that even fair for me to ask? I know nothing about him.

So what does that mean for you and me? Just thinking here... What if I treated everyone that crossed my path on a daily basis the same way this guy does? With a smile and an attitude of gratefulness. That would create quite an impact!  That’s my plan. How about you?

If you are ever interested in reading prior weekly emails, please visit my Facebook page: Mike Smalling Mortgage Advisor

The Week Ahead
Next week will be packed with major economic events. The next Fed meeting will take place on Wednesday. Investors expect the Fed to continue scaling back its bond purchases, but comments about the strength of the economy or the timing of the first fed funds rate hike could have a large impact. First quarter Gross Domestic Product (GDP), the broadest measure of economic growth, will be released the same day. The important monthly Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Pending Home Sales, ISM Manufacturing, Construction Spending, Core PCE inflation, and ISM Services will round out a crowded schedule.

The Week That Was
The last two weeks have been relatively light ones for economic news. Mortgage rates moved a little higher late last week ahead of Easter weekend, and they reversed that increase during this week. Headlines from Ukraine added a short burst of volatility but had little lasting impact.

Overall, the economic data released this month has been better than expected. After slowing due to unusually severe winter weather, most sectors of the economy appear to be picking up. The economy added jobs at a healthy pace. Retail Sales and manufacturing posted solid gains. This week, Consumer Sentiment jumped to the highest level since July of last year.

Despite the good results this month, however, investors require more evidence that the improvement is sustainable before they will raise their long-term outlook for economic growth. The steady economic outlook over the last several months has helped keep mortgage rates in a fairly narrow range.

One sector which has lagged in its pace of improvement is housing. March Existing Home Sales were roughly the same level as February, which was very close to the consensus forecast. A tight supply of inventory in many regions was one factor holding back sales. Offering potential for future activity, the total inventory of existing homes available for sale rose 5% in March. March New Home Sales showed a sharp drop from February, but this data is extremely volatile month to month.

Generational Selling

This week I want to talk about communication.

Communication is the driving force behind any relationship. Regardless of the level of the acquaintance (friend, family, client, co-worker, etc…), the degree of the relationship will depend on the effectiveness of the communication.

Communication can come in several mediums (face to face, phone, text, email; and even TV, radio, and print from an advertising perspective). Effective communication, particularly if you are selling something, doesn’t come in a “one size fits all” action plan. In other words, we have to figure out how to relay our message to the receiver in a manner that he/she will best receive it. My friend Jim Holmes, with Tim Shaver and Associates Nashville Sales Training.com shared a great presentation with a group that I was a part of last week that does just this – teaches us how to communicate more effectively to an individual based on his or her generation.

For the first time in history, there are four different, yet clearly defined generational types – Veterans, Baby Boomers, Generation X and Generation Y. Each has its own set of distinctive characteristics and each has its own preferred communication mechanics. Let me encourage you to download Jim's presentation by clicking here GENERATIONAL SELLING.PDF (98kb) It may take a little longer to review than my normal weekly update, but I promise the material is worth the time to review. Happy selling!

If you are ever interested in reading prior weekly emails, please visit my Facebook page: Mike Smalling Mortgage Advisor

The Week Ahead
Next week, Existing Home Sales will be released on Tuesday, and New Home Sales will come out on Wednesday. Durable Orders will be released on Thursday. Consumer Sentiment and Leading Indicators will round out a light schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. News from Ukraine could influence mortgage rates as well.

The Week That Was
Last week, stocks posted large losses and mortgage rates improved, as investors grew more concerned about the strength of the economy. The reverse took place this week. Better economic data and comments from Fed Chair Yellen boosted stocks and caused mortgage rates to end the week higher.

The economic data released this week was generally better than expected. The biggest report, March Retail Sales, rose 1.1% from February, which was the largest monthly increase since September 2012. Industrial Production, another important indicator of economic activity, showed a comparable increase. Weekly Jobless Claims held steady near the lowest levels since 2007. The Philly Fed manufacturing index jumped to the highest level since July of last year. Stronger growth is good for the economy, but it increases expectations for future inflation, which is negative for mortgage rates.

Dovish comments from Fed Chair Yellen on Wednesday suggested that the Fed is not in a rush to raise the fed funds rate. Yellen explained that the timing of rate hikes will depend on when the economy meets the Fed's goals for the labor market and inflation. According to Yellen, a great deal of slack remains in the labor market, and this calls for accommodative monetary policy. Because loose policy boosts economic growth, Yellen's comments were viewed as positive for the stock market, and investors shifted assets from bonds to stocks.

Cash is King

If you ever have a financial emergency, which would you rather have, equity in your home or money in the bank? Let's say you unexpectedly lost your job. Would you rather have cash on hand to pay your bills or extra equity in your home?

I mentioned in an email a couple of weeks ago how someone is truly debt free when he/she has liquid funds sufficient to pay off any outstanding loan balances (including a mortgage). The argument was made that it makes sense in most situations to invest money (stocks, bonds, etc...) versus paying down mortgage debt. The main reason for the argument is that typically arbitrage exists (when investment rates are better than mortgage rates) and compound interest takes effect, allowing money to grow faster when invested than it will by using the same funds to reduce mortgage debt.

The thing that I didn't mention, that helps the argument even more, is that Cash is King!! Not only is a dollar in your hands worth more today than it will be 10+ years from now, there is no better insurance to fend off difficult situations than cash on hand.

If you have sufficient liquidity, I certainly recommend paying off non-mortgage debt, particularly if you are paying a rate of 3 to 4% or more on the debt. But, if the only debt you have is a mortgage, I’d argue that liquidity trumps equity. I guess I could also make the argument that if you have a home equity line of credit with sufficient availability on it, that it could be used to some degree as an emergency fund as well. When it comes to living a stress-free financial life, there is no substitute for liquidity (cash available invested wisely). Liquidity can always be converted into equity by paying off/down mortgage debt, but the opposite isn't always the case.

If you are ever interested in reading prior weekly emails, please visit my Facebook page: Mike Smalling Mortgage Advisor

The Week Ahead
Next week, Retail Sales will be released on Monday. Retail Sales account for about 70% of economic activity. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Tuesday. CPI looks at the price change for finished goods which are sold to consumers. Housing Starts and Industrial Production will come out on Wednesday. Philly Fed and Empire State will round out the schedule.

The Week That Was
The stock market was the biggest influence on mortgage rates this week, as investors shifted assets from stocks to bonds. The Fed Minutes also were favorable for mortgage rates, and rates ended the week lower, near the lowest levels of the year.

Beginning with the Jobs report last week, investors became more bearish about the stock market, and investors grew more concerned this week that upcoming earnings releases will be weak. As a result, investors have reduced their positions in stocks, causing the Dow stock index to fall over 500 points from last week's record high. Some of the proceeds from the stock sales were used to purchase bonds, including mortgage-backed securities (MBS). MBS prices increased from the added demand, leading to an improvement in mortgage rates.

Wednesday's release of the FOMC Minutes from the March 19 Fed meeting also helped mortgage rates. In the Minutes, some Fed officials expressed concern that inflation would remain below the Fed's target level of 2.0% for years. While this may be bad from the Fed's point of view, low inflation is positive for mortgage rates.

Gift Funds

When you have a client with excellent credit, but he/she is depending on a gift for the funds needed to close (down payment and closing costs), we can do a conventional loan up to the maximum amounts when a gift is provided.

In the past, borrowers have been required to put a certain amount of their own funds (3% or 5% depending on the loan type) when doing a conventional loan. So many times, an FHA loan is suggested in that scenario (FHA has always allowed the full amount of the up-front money to come from a gift). However, the advantage with the conventional loan is that the mortgage insurance will likely be much less expensive going that route versus the typical FHA.

Last week, we had a client buying a $200,000 home. She had great credit and her parents were providing a gift for her needed funds. It had been recommended to her that she take out an FHA loan. We showed her that by putting an extra 1.5% down ($3,000 in this case), she would be able to significantly lower her payment. How? Well, the monthly mortgage insurance payment would be $95 per month on a conventional loan versus $217 per month on the FHA. Granted, the conventional loan in this case would require an additional $3,000 down, but with a monthly savings of $122, her parents were more than happy to give her the additional amount needed.

Another great benefit with the conventional loan is she will have the ability to remove the Mortgage Insurance once her loan balance has dropped to 80% loan to value. FHA will require the Mortgage Insurance to be paid for the life of the loan.

As fast as things change in our industry, sometimes it is good to be reminded of simple strategies like this. Make it a great week!

The Week Ahead
Next week, the JOLTS report, measuring job openings and labor turnover rates, will be released on Tuesday. The FOMC Minutes from the March 19 Fed meeting will come out on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Friday. Import Prices and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
This week, all eyes were on Friday's key monthly Employment report. Adding to the focus, Fed Chair Janet Yellen emphasized on Monday that future Fed policy will primarily be determined by the performance of the labor market. The jobs data was right in line with expectations, and mortgage rates ended the week a little lower.

After a rough start to the year, partly due to unusually severe winter weather, job growth has returned to the levels expected by most economists and the Fed. The economy added 192K jobs in March, and upward revisions to the data from the prior two months added another 37K jobs. Anticipating even stronger data, which would be more inflationary, investors had pushed mortgage rates a little higher earlier in the week. After the report was released, mortgage rates completely reversed those increases.

The biggest surprise in the jobs data may have been the surge in the labor force. The Unemployment Rate remained unchanged at 6.7%, above the consensus of 6.6%, but the flat reading was due to an unexpectedly large number of people entering the labor force. The Unemployment Rate measures the percentage of people who want a job but are unable to find one. Growth in the labor force is a sign of an improving labor market.

Debt Free?

What do you think it means to be "debt free?” I asked a client that this week as we were discussing financial issues. Her response - “Well, I suppose it means that you don’t owe anyone anything.” I told her I thought that was a great response and one that I would have expected her to give. While I can’t necessarily argue with that, I think I may have a better answer.

For me, being debt free means this:

You have the ability to pay off any debt you have, anytime you want.

In other words, you have enough cash on hand to write a check for whatever debt you may have. So any debt you have, you have by choice – not out of necessity. For example, if the only debt you have is a mortgage and you have more money in the bank than you owe on the mortgage, you are totally capable of being debt free.You simply choose to have the debt. I also think there is a pretty justifiable argument in most situations for having a mortgage loan. Let me show you what I mean.

Jim and Sandy are in their early 50's, buying a $400,000 home and debating whether or not to take out a loan or just pay cash. Their ultimate desire is to have no mortgage when they retire. Let's say they choose to borrow $300,000 on a 15 year loan instead of paying it all in cash. Their payment would be $2,175 per month at today’s rate. So over the 15 years, they would pay a total of $391,500 in payments. But since they kept the $300,000 invested and earned 6%, their investment would grow to $719,000 by the end of the 15th year. At 8%, they would earn over $950,000. Even at 3%, it’s $467,300 or $76,000 more than the payments made for the 15 year loan. So in each of these cases, they are better off.

I see way too many people who have a goal of paying off their mortgage while under funding their savings. Primarily things like emergency funds, retirement accounts or college savings accounts. Paying off a sub 5% mortgage when these type of investment accounts are not suitably funded makes no sense to me. Sure it is nice to not have to “pay the bank” each month, but cash is king. Put it to work for you and enjoy the benefit of compounding when you can afford it!

The Week Ahead
There will be some big economic events in both the US and Europe next week. A key report on inflation in the euro zone will come out on Monday. The next ECB meeting will take place on Thursday. Given the wide range of investor expectations, the ECB decision could have an impact on US mortgage rates. In the US, the important monthly Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, ISM Manufacturing, Construction Spending, ADP Employment, and ISM Services will be watched by investors.

The Week That Was
It was a very quiet week for mortgage rates. There were few surprises in the economic data. Talk of easing by the European Central Bank (ECB) was positive for US mortgage rates, helping rates end the week a little lower.

Mortgage rates are primarily set based on expectations for future inflation. The Fed has an inflation target of 2.0%. Most economists think that inflation rates well above or well below this level could have negative consequences for the economy. Recent readings for core inflation have been holding steady, below 2.0%. The Core PCE price index released this week revealed that core inflation was just 1.1% over the past year. Last week's widely followed Core Consumer Price Index (CPI) showed an annual rate of 1.6%. The majority view on the Fed, though, is that inflation in the US will gradually climb due to an improving economy and a tighter labor market. To prevent inflation from rising too far, the Fed is on track to end its bond purchase program later this year, and Fed Chair Yellen has indicated that the first fed funds rate hike is expected to take place next year.

The situation in Europe is very different. The economic recovery has been much weaker there. Recent inflation readings have been low and appear to be heading even lower. Traditionally, the ECB is known as a stricter inflation fighter than the Fed, meaning that it is more reluctant to add stimulus. Given current economic conditions, though, officials across the euro zone have suggested that the ECB may cut rates or begin to buy bonds to help stimulate the economy and increase inflation. Increased expectations for additional ECB stimulus helped push bond yields lower around the world, including US mortgage-backed securities (MBS).

On Stage

I had the pleasure, once again, of getting the Disney experience on spring break this week. I'm not sure there is a company that has had more of an entertainment influence on American families over the past few decades. One very unique aspect about Disney is that they do not have employees. They have cast members, and as cast members, they are always "on stage."

You see, every "cast member" that has contact with a patron, regardless of the task they perform, has a responsibility to be part of the magic that is Disney. So, regardless of whether you are at a park, a cruise or staying at one of their hotels, a cast members responsibility is to make their visitors feel like they are not only being treated with special customer service, but like they are part of the total Disney experience. Every single person plays a significant role in making our visits memorable.

How about us? When we are dealing with our customers and referral partners, should we not maintain that same philosophy? We are always on stage. Every aspect of our interaction with our clients should be treated as another opportunity to make them feel special – that they are getting treated to something extraordinary. That is the kind of attitude and approach that will create loyal customers and fans that tell others about us. Plus, it makes our job a lot more fun!

How will you create an extraordinary experience for your customers this week?

The Week Ahead
There is a wide range of economic data for investors to consider next week. The primary reports will be New Home Sales, Durable Orders, Pending Home Sales, and Core PCE inflation, the Fed's preferred inflation indicator. Personal Income, Consumer Sentiment, and Consumer Confidence will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Changes in the situation in Ukraine also could influence mortgage rates.

The Week That Was
A short comment by Fed Chair Janet Yellen caught investors off guard on Wednesday, and the reaction was not good for mortgage rates. In addition, a reduction in tensions in Ukraine cause investors to return to riskier assets, hurting safer assets such as mortgage-backed securities (MBS). As a result, mortgage rates ended the week higher.

As widely expected, the Fed scaled back its bond purchases by $10 billion to $55 billion per month. According to Yellen, if the Fed's economic outlook does not change significantly, the bond purchases are expected to end in the fall of this year. Fed officials have long maintained that they expect that the fed funds rate, the Fed's primary tool for monetary stimulus, will remain near zero for a "considerable period" of time following the end of the Fed's bond purchases. The big surprise came during Yellen's first press conference as Fed Chair, when she defined the meaning of a "considerable period" as about six months. This would place the first fed funds rate hike in the spring of next year. Before Yellen's comments, the market consensus was for the first rate hike to take place near the end of next year. While mortgage rates are not directly tied to the fed funds rate, the economic strength implied by the expected timing of the first fed funds rate hike was unfavorable for bonds of all maturities.

The housing reports released this week revealed that conditions in February were little changed from January. February Existing Home Sales decreased slightly, while Building Permits increased 8%. The March NAHB Housing Index showed that home builder confidence increased slightly. It is widely believed that housing activity over the last couple of months has been depressed by the usually severe winter weather, which means the pent up demand could be a positive in coming months.

I Walked on Fire!

Have you ever done something that you thought was absolutely impossible for you to do? I mean something that in your wildest dreams you never imagined yourself doing? Riding a motorcycle? Skydiving? Running a marathon? You fill in the blanks. What would it feel like after you did the very thing you thought impossible? Would you feel accomplishment? Relief? Excitement? This past weekend I had the opportunity to feel all three.

I found myself standing barefoot at the end of a 12 foot bed of 1,200 degree burning hot coals! I had just done something I never thought I would do. Yep, I walked right through it – completely unscathed.
IT. WAS. AWESOME!

Why do I tell you this story? Well, number one is because it is fun to tell! However, the main reason is because I think too often, we allow our self-imposed limitations to keep us from doing amazing things. I know I do it to myself. “I’ll never get that deal." "I’ll never succeed like him." "I’ll never achieve that much...” I'm sure you have heard similar statements in your own thoughts. None of us have supernatural powers, but I also believe, when we set our minds to it, we are all more powerful than we give ourselves credit for. That was definitely proven to me last week.

So this week, when YOU hear the voices of doubt and fear, let me encourage you to set your mind, take the first step, then keep moving forward. You will experience some amazing things too.

The Week Ahead
The most significant economic report next week will be the Retail Sales data on Thursday. Retail Sales account for about 70% of economic activity. Before that, the JOLTS report, measuring job openings and labor turnover, will come out on Tuesday. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Friday. Import Prices and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Changes in the situation in Ukraine also could have an impact on mortgage rates.

The Week That Was
It was a volatile week in mortgage markets. Early in the week, rapidly changing conditions in Ukraine caused a great deal of movement in mortgage rates, but there was little net impact. Later in the week, stronger than expected labor market data was negative for mortgage rates, and rates ended the week higher.

Against a consensus forecast of 140K, the economy added 175K jobs in February, and the figures for the prior two months were revised a little higher. This took place, according to the Bureau of Labor Statistics, despite the largest weather related disruption since 1996. The Unemployment Rate unexpectedly rose from 6.6% to 6.7%, but this was due to an increase in the number of people that entered the labor force. The solid jobs report exceeded expectations nearly across the board. Since stronger economic growth raises future inflationary pressures, this was unfavorable news for mortgage rates.

After Russia moved troops into Ukraine, the threat of an escalating conflict caused a "flight to safety" in financial markets on Monday. This involved a shift by investors to relatively safer assets, resulting in a large decline in stocks and significant improvement in bonds, including mortgage-backed securities (MBS). A complete reversal took place on Tuesday, however, after the Russian President said that Russia would not use military force in Ukraine.

You're Rich...Now What?

Imagine yourself sitting in an auditorium, listening to someone speak. Now the speaker says, "Raise your hand if you are rich." How would you reply? Yeah, if you are like me, that hand is not going up.

“Rich” is always a couple of income brackets above wherever you are currently. It’s just human nature. We don’t like to think of ourselves as rich, but let me give you a few stats:

• If you own a car, you are in the top 6% of richest human beings worldwide.
• If you make $37,000 per year or more, you are in the top 4%.
• If you own a house, you are in the top 3%.

Knowing this, does it make the answer to the question any different for you? We are living in the richest nation on the planet, at probably the richest time period in history.

My suggestion: Become Good at Being Rich How? Follow these four principles:

1. Don’t forget that everything you have is a gift. If you believe, like I do, then you understand that none of it is yours anyway. You're just here to take care of it.

2. Don’t be arrogant with wealth. That is pretty easy if you recognize you are not the one responsible for it in the first place.

3. Don’t trust it. Your relationships? Yes. Your abilities? Yes. Your passion? Yes. Money? No.

4. Don’t think it is just for you. You leave your legacy by what you gave, not what you made.

The Week Ahead
The biggest upcoming event may be an important vote in Ukraine's Crimean region on Sunday. If Crimea votes to secede from Ukraine, investors will be concerned that it could lead to an escalation in the tensions between Russia and the US / Europe. In the US, the next Fed meeting will take place on Wednesday. Investors expect the Fed to proceed with another cut in its bond purchase program. Industrial Production will be released on Monday. Core CPI inflation and Housing Starts will come out on Tuesday. Existing Home Sales and Philly Fed will be released on Thursday.

The Week That Was
Tensions in Ukraine flared up again this week, causing investors to shift assets from stocks to the relative safety of bonds. Weaker than expected economic data in China also favored bonds over stocks, while the US economic data was roughly neutral. As a result, mortgage rates ended the week lower.

The most significant US economic report released this week, Retail Sales, contained some good news and some bad news. On the positive side, the results for February were stronger than expected. Unfortunately, the figures for January were revised lower. Overall, this left the data over the two-month period a little weaker than expected. Given the offsetting effects of the solid headline number and the downward revisions, combined with weather related distortions, the report caused no change in the economic outlook and had little impact on mortgage rates.

There was a lot of talk in the mortgage industry this week about a proposal out of the Senate Banking Committee that would replace Fannie Mae and Freddie Mac. Together Fannie and Freddie purchase or insure the majority of fixed-rate mortgages, so any changes to their structure would have enormous implications for mortgage lending. In the proposal, a new government entity would take over many of the functions of Fannie and Freddie, while some of the default risk would be shifted to private insurers. Both political parties support a reduction in the risk to taxpayers, but beyond that opinions vary widely about the appropriate role of government in the housing market. As a result, this proposal is viewed as a starting point for a long political debate, and the implementation of major reform of Fannie and Freddie is projected by most experts to be many years away.

Living the 10-10-80 Life

Are You Up For The Challenge?

First, let me make clear that I’m not talking about a piggyback mortgage where you put 10% down, get a 10% second mortgage and an 80% first mortgage. This is a different concept entirely. I had the pleasure of speaking to a high school group this week and I shared this simple concept with them:

Give the first 10% of everything you make
Save the next 10% and
Live on the remaining 80%.

Granted, it takes discipline and strategy (yes, budgeting requires both) to live on 80%, but learning to do this, truly live on 80% of your take home pay, is the key ingredient to making this strategy work. Doing this allows you to “pay yourself first”. I’m sure you have heard that concept before. It’s why the 10-10 comes in front of the 80 and not vice-versa. By putting the important things first and committing to them, they get done instead of becoming an “afterthought” of something to do once all the monthly expenses have been paid.

In my mortgage career, two things stick out to me that cause most financial disasters – over-extension, or spending more than you make, and lack of savings to deal with emergencies. Many times the two go hand in hand. By following the simple principal of the 10-10-80 Rule, you overcome both of these obstacles. The things that you are able to accomplish in life, at least from a financial perspective, are accomplished via those first two components of the 10-10-80 Rule – Giving where there is a need and Saving to be able to address future needs. That is how you become a difference maker. It is how you grow your legacy and it is the key to your financial freedom. If a group of high school kids can get it, all of us can. Are you up for the challenge?

The Week Ahead
The important monthly Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, ISM Manufacturing, Personal Income, Core PCE inflation, and Construction Spending will come out on Monday. ADP Employment, ISM Services, and the Fed's Beige Book will be released on Wednesday. Factory Orders, Productivity, and the Trade Balance will round out the schedule. tion Spending will come out on Monday. ADP Employment, ISM Services, and the Fed's Beige Book will be released on Wednesday. Factory Orders, Productivity, and the Trade Balance will round out the schedule.

The Week That Was
The economic data released this week contained mixed results and had little impact on mortgage rates. Strong demand for US fixed income securities was the main influence this week, helping mortgage rates end the week a little lower.

There were strong indications this week that foreign investors, most likely in Japan and China, increased their purchases of US bonds, including mortgage-backed securities (MBS). The currencies of Japan and China have weakened recently versus the dollar, and the economic policies currently in place in both countries have caused investors to expect their currencies to weaken further. This makes US bonds more attractive to investors in those countries as the investor not only receives interest on the investment, but also expects appreciation in the value of the investment.

After a couple of months of weaker readings, the New Home Sales report released this week was a pleasant surprise. January New Home Sales jumped 10% from December to an annual rate of 468K units, far above the consensus of 400K. This was the highest level since July 2008. Also released this week, January Pending Home Sales posted a slight increase.

THe "F" Word

How To Flip Your View on Failure

As I’ve watched the Olympics the past couple of weeks, I’m reminded again and again the fraction of a difference that separates victory from defeat. The concept that intrigues me is how will those that didn’t win a gold medal, or particularly any medal at all, handle their loss? Is their failure going to serve as motivation for improvement or bring fear of future failure into their psyche?

Think about the women’s hockey team. Three and a half minutes from a gold medal with a 2-0 lead, only to give up 2 goals in that time frame and another in overtime to lose. How will they cope with that loss? How do you handle failure? I have to be honest here - I wish I enjoyed it more. I know that sounds strange, but to accomplish anything truly remarkable, I have to get really comfortable with failing. If I’m not failing, then I’m not risking enough. I’m free to fail. I hope you are encouraged by the words of some who have pushed through failures to accomplish great things.

Abraham Lincoln
Lincoln was defeated for the U.S. Senate in 1854. In 1856 he was defeated for the nomination for Vice President and in 1858 defeated once again for U.S. Senate before being elected President in 1860.

"My great concern is not whether you have failed, but whether you are content with your failure." - Abraham Lincoln

Thomas Edison
For 2 years Edison and his team worked on over 3,000 theories to develop the modern light bulb. Edison said "I tested no fewer than 6,000 vegetable growths, and ransacked the world for the most suitable filament material."

"Many of life's failures are people who did not realize how close they were to success when they gave up." - Thomas A. Edison

Steve Jobs
In 1985, after poor sales of the Lisa computer, Jobs lost his position in the company as head of the Macintosh division. He then founded the company NeXT, which flopped.

"I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life." - Steve Jobs

Week that Was: Rates Higher after Fed Minutes
The positive momentum in mortgage rates shifted direction after the release of the Fed Minutes on Wednesday. Investors viewed the Minutes as somewhat positive for stocks and negative for bonds. As a result, mortgage rates ended the week a little higher.

The Minutes from the January 29 Fed Meeting revealed that Fed officials remained very divided as to the appropriate path for future policy. Overall, though, the perception of investors was that the position of the hawks remained solid, while the views of the doves may have weakened a little. As a reminder, "hawks" tend to favor less stimulus to help keep inflation low, while "doves" prefer more stimulus to boost economic growth. The Minutes stated that "a few participants" considered the possibility that it "might be appropriate" to raise the fed funds rate sooner than many expect. The Minutes also reinforced Fed Chair Yellen's recent comments that there is a high hurdle for the Fed to pause in reducing its bond purchase program. The Fed's bond purchases have helped keep mortgage rates low, and the Minutes reduced the likelihood that the program could be stretched out for a longer period of time.

The economic data released this week continued to be affected by the unusually severe weather this winter. In particular, the housing reports all fell short of expectations. January Existing Home Sales declined 5% from December to the lowest level since July 2012. They were 15% below the peak levels seen last summer. On the plus side, total housing inventory available for sale increased. The results for January Housing Starts fell even farther below expectations with a decline of 16% from December. Building Permits declined as well. Finally, the February NAHB/ Wells Fargo Housing Market index showed that builder confidence dropped sharply. Both the National Association of Realtors (NAR) and the National Association of Home Builders (NAHB) attributed the weakness in recent data to a combination of bad weather, limited supply, and tight credit conditions.

Week Ahead
Next week, New Home Sales will be released on Wednesday. Durable Orders, an important indicator of economic activity, will come out on Thursday. Pending Home Sales, Chicago PMI Manufacturing, and revisions to fourth quarter GDP will be released on Friday. Consumer Confidence and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.