Net Worth - The Key Ingredient to Home Ownership

The link below is a great blog from NAR with a great reminder to give your clients on why owning a home versus renting is so important. Sure there are the common reasons for why people should buy versus rent (here are 5 good ones):

1. They have to live somewhere anyway, so they might as well get ownership rights and have something they can call their own.

2. They want a hedge against inflation. In other words, rents historically go up. However, once a mortgage is in place, particularly a fixed rate mortgage, the payment for principal and interest stays the same.

3. They want the tax benefit of being able to deduct the mortgage interest.

4. They want the forced savings that paying a mortgage provides. Every payment provides a principal component that steadily pays the loan down, building up equity.

5. They realize that buying a home is a leveraged investment if they have a loan. The house goes up in value the same regardless of whether there is a loan or not. The leverage of a loan allows a higher return because the increase in value provides a greater return due to less invested initially.

But stated more simply, as the link below shows graphically, people who own their home historically have a much larger net worth than those that don’t. There are always those situations that justify renting over buying. But the argument can certainly be made, and the stats back it up, that those who own their homes generally have more money (net worth) than those that don’t.

http://economistsoutlook.blogs.realtor.org/2014/09/08/net-worth-of-homeowners-vs-renters/

Solve the Problem Before it's a Problem

Obviously this is not a new concept. Most of the best solutions to life’s issues are tried and true - there is no reason to reinvent the wheel. To fix the complications that exist in most business processes, I think this is the easiest solution, when properly implemented. I know beyond a shadow of a doubt that the key to having an efficient process in the real estate world is dealing with potentially problematic issues before they become significant issues.

How many times have you been involved in a deal and find out two days before closing that there is a problem and closing will have to be delayed? From what my newer referral partners tell me, that seems to be the one thing that irritates their clients more than anything.

I want to go back again to something that I heard, and really felt to be the main takeaway from the top producer panel at the GNAR convention a couple of weeks ago. Every panel member, both Realtor and mortgage professional, has gone to great lengths to create a process that either eliminates problems or deals with them early in the process. I’ve mentioned before that I think my team has created a world class process (timeline and communication) for our mortgage clients. The driving force behind almost everything we do is eliminating confusion and problematic issues either before they happen or at least early enough in the process that the issue isn’t last minute. Having in house processing, underwriting and closing are a HUGE help with this.

If you are receiving this email, then you are excellent at what you do (another part of my team’s overall process is to only work with referral partners who excel at their profession). You have the experience to be able to recognize possible issues early on in the sales cycle for every client. Have mini-processes (check lists work great) in place that help you with this and complement your overall process. Consistently recognizing complications and dealing with them before they become a last minute issue will separate you and your reputation from your competition.

Get Some Help

I have had at least three different conversations in the past month (2 with Realtors and one with a financial planner) who were all explaining to me their desire is to take their business to that "next level." In each case, the individual feels bogged down by the minutia of the daily routine of paperwork, emails, and general support type activities.

I asked each of them a simple question, “Have you considered hiring an assistant?” All said “yes”, but none had put a plan together to make that happen. Everyone’s concern is what happens if business slows down and then paying for the assistant becomes overbearing? That thought process seems to me to be short-sighted and goes against the whole thought process of taking business to the next level.

While visiting with several folks and listening to different presentations this week at the GNAR annual convention, it became very clear to me. If you want to be exceptional in our business, and I believe it really applies to any sales job, you have to have great help. As a salesperson, I have one overriding responsibility – bring in new clients. It should therefore be my primary focus to spend my time and attention on activities that will do just that. The more time I spend following up on paperwork and dealing with the minutia of any process, the less time I have to build relationships with clients. The best way I know of to stay focused on those activities that are profitable is to have someone or a team of people helping me deal with the grind that takes place behind the scenes.

Fortunately for me, I have someone that helps me handle the “process stuff” that I don’t have time to handle. It doesn’t mean for me, nor does it have to for you, that you lose touch with your clients. It is just a situation where you can devote your time doing the things that create new business and not spending time processing current business. When I hired my first assistant years ago, it was only a part-time job for him. So there are ways to begin the process of hiring someone to help without diving in headfirst (but diving can work too). If you want to go to that next level, getting some help is the best first step.

How to Get a Top Credit Score and Keep It!

I read a great article this week with some really helpful information you can pass along to your clients on how they can get the best credit score possible and keep it there. This is a little longer update than usual, but the information is fantastic. Have a great week!!

There's no doubt about it ‒ when you're applying for a mortgage loan, a high credit score helps you lock in a better interest rate, which can save you thousands of dollars over the life of the loan.

But, on a scale of 300 to 850, only less than 1% of the population has an 850 credit score. While it may seem impossible to achieve a "perfect" credit score, it's good to know that you'll be rewarded with the best interest rates when your credit score is 760 or higher.

It takes consistently responsible financial behavior to maintain a top tier score of 760 - 850. Let's take a look at some of the common traits of high credit score achievers.

Conservative Spending Habits
Never max out your credit cards! People with high credit scores use only 30% or less of their available credit, and those with scores over 800 are using 10% or less. According to a recent survey by Fair Isaac Corporation (the creators of the FICO® Score), people with top level credit scores have an average of four credit cards with balances. So, using your credit cards does help you to build a solid credit history, but it's important to maintain conservative spending habits and keep your balance owed as low as possible.

Make Payments on Time
Did you know? Late payments on your credit report can cost you up to 110 points on your credit score. Ninety-six percent of the people with top credit scores have no late payments on their credit reports.

Have a Well-Established Credit History
FICO® states that the top tier credit scorers have an average credit account of 11 years old, with the oldest credit account averaging 25 years old.

This might be frustrating to hear if you're just starting to establish or re-establish credit. If you're in this position, find out if your bank offers a secured credit card.

With this type of card, you provide a security deposit, which could be a percentage of your spending limit or the actual spending limit. Over time ‒ providing you are making payments and showing responsible financial behavior ‒ the bank may upgrade you to an unsecured card. Before entering into a secured credit card agreement, make sure your monthly payments will be reported to the credit bureaus, and the card will not be flagged as "secured" on your credit reports.

Have a Limited Number of Credit Inquiries
On average, the newest credit account is 28 months old for the top credit scorers. Remember, too many credit inquiries in a short period of time can have a damaging affect on your credit score.

So, don't apply for every credit card that is offered to you in the mail or at the mall. Too many recent inquiries from applications for revolving accounts in the last 12 months represent a greater risk when it comes time to apply for your mortgage.

Make Regular Payments on Installment Debt
If you're making payments on a student loan or a car payment, make your regular payments on time.

Do not try to pay it off early! That won't increase your credit scores. However, if you make the regular payments on time, then you're proving that you have the ability to fulfill a financial commitment.

Don't Cut Up Old Credit Cards
If you have a stagnant credit card with a zero balance, make a small purchase and pay it off quickly. Or, use the old card to make automatic payments on a regular monthly expense, such as a utility bill. This doesn't change your monthly budget, it only changes who you're paying the money to. This can raise the Credit History portion of your scores, based on how long you've had the credit card!

Make Sure Your Credit Reports are Accurate
Last, but definitely not least, go through your credit reports carefully (you should have one each from Experian, Equifax and TransUnion) and look for errors.

• Make sure the items listed on your card are yours. If you find charges you didn't make, you may be a victim of identity theft, or someone else's data is being reported to the wrong file.
• Make sure "on time" payments are not listed as "late".
• Make sure any collections that you've paid off have been removed.
• Make sure all creditors you are faithfully making payments to are being recorded.
• Look for negative comments that are older than seven years. You can ask to have these removed.
• Look for bankruptcies older than 10 years, or accounts associated with the bankruptcy that are still showing up. You can ask to have these removed.

Credit Alert! - Deposit Accounts

Last month we had a dilemma arise, but learned a great lesson that we want to pass along. We had a client that we were working with to help him get his credit score improved. We ran an analysis and determined that if he paid a credit card down, we could get the improvement we needed in the score. When he actually paid the card down and we re-ran the credit, the score did not improve as much as we had anticipated. The issue was that the week before, he had opened a deposit account with a local credit union and they pulled his credit when they opened the account. He had no clue they were going to do this so he had not told us about it either. The additional inquiry on his report resulted in the new score being 10 points lower than what our analysis reflected it would be. We wound up having to pay more down to get his score where it needed to be.

When you tell your clients not to do anything credit related when they are in the purchase process (we have talked before about the need to counsel them on not opening any new debts and not even having credit checked during the mortgage process), you may also want to let them know that even opening a deposit account, where all they are doing is putting money in the account, could result in a credit inquiry. Fortunately in our case, we had time and the client had the extra money needed to pay another debt down and get his credit score where it needed to be. But that might not always be the case.

Always remind your borrowing clients that they need to intentionally avoid anything that would result in a new credit item or a new inquiry during their mortgage process. It can cause delays, additional documents needed, and in some cases could negatively impact the score and affect the ability to obtain financing.

A Personal Dilemma (Part 2) The Solution

I shared last week about my dilemma of the disconnection between what I’m selling and what the ultimate end user is buying. I sell service, but my customer, a borrower wanting a home loan, is buying a commodity. Earlier in the year, I had one of my best referral partners make this comment to me: “Mike, you provide better coaching and communication than any loan officer in town, but your rates are killing you.” He went on to tell me about another lender, who is actually a friend of mine, “He provides great service too, but he also has the best rates in town. That is an unbeatable combination. You only offer one of the two.” That statement has been haunting me for almost six months.

Knowing that home buyers want the best deal as their number one priority, I have spent the summer talking to numerous banks and mortgage companies comparing rates and fees. I want my clients, both referral partners and the borrowers they refer, to know that when they call me, they don’t have to worry about someone else offering a better deal. I’ve been giving my clients what I want to give, which is a great service platform. Now I’m also going to give what the client wants, and that is the best deal. So after much prayer and research, I have decided to move my mortgage practice to a place that will allow me to offer both, F&M Mortgage.

It is a win-win combination for everyone and I can’t tell you how excited I am to be able to offer this!

The Week Ahead
Looking ahead, there will be a summit on Saturday between EU officials and Ukrainian officials. This may lead to additional sanctions against Russia. In the US, the important monthly Employment Report will be released 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 will be released on Tuesday. The ADP Employment Change will come out on Wednesday. Productivity and ISM Services will be released on Thursday. Mortgage markets will be closed on Monday in observance of Labor Day.

The Week That Was
The US economic data released last week struggled to elicit a reaction in the market. Instead, investors focused on increased expectations for asset purchases by the European Central Bank (ECB). This news was favorable for US mortgage rates, which ended near the lowest levels of the year.

The ECB has a reputation for being tougher on inflation than the Fed, and monetary policy has been tighter in the euro zone than in the US. Recent comments suggest that the ECB is headed in the opposite direction, though. While an improving US economy has caused the Fed to wind down its bond purchase program, ECB officials have expressed growing support to implement an asset purchase program to counter weak euro zone economic growth. Investors have added European bonds to their portfolios ahead of this expected added demand from the ECB, pushing their yields lower. This has made global bond yields in other regions relatively more attractive, including US mortgage-backed securities (MBS). The extra demand for MBS has helped push down mortgage rates.

Recent data on the US housing market has been mixed. The Existing Home Sales report released last week showed nice improvement, while this week's New Home Sales data revealed a slight decline. The July Pending Home Sales report, which is a leading indicator of future activity, rose to 105.9, the highest level since September 2013. The National Association of Realtors (NAR), which issues the report, defines a reading of 100 as an "average level of contract activity".

A Personal Dilemma

For the last few years, I’ve struggled with a fundamental flaw in my business. I sell service. I provide a phenomenal process for my clients. We communicate incredibly well with all parties involved. I have 24+ years of experience that I use to counsel homeowners and homebuyers on the best way to use their resources to finance their homes and try to help them do that in a manner that meets their lives’ overall financial goals. My referral partners know this and know that we navigate the process in a manner that gets our clients to closing efficiently.

But, in the end, my borrowing clients are ultimately buying a commodity – a mortgage. Sure, they are concerned about the service they receive, but ultimately the customer’s decision is based on the product they will receive. They want the best deal (the rate and fee combination that the mortgage I sell offers). So there is a disconnect.

What I’m selling, superior service, is ultimately not what the customer has as his or her number one priority. It is important, but if my product is not better than those selling the same product, my sale is in jeopardy – regardless of the level of service I provide.

So what can I do about my dilemma? I think I have a solution – be sure to tune in to next week’s update….

Have a great week!

New FICO Scoring Coming

I read an interesting article this week called "How FICO’s New Scoring Could Boost Your Score."

Here are the main takeaways from the article:

1. If you have medical bills in collections, you may see your credit score rise.
2. Paying off a bill in collections now makes sense.
3. Some consumers may now receive better loan rates.
4. The new credit score system will take a while to implement.

Click the link below for the full story.

http://www.cbsnews.com/news/how-ficos-new-scoring-could-boost-your-score

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

The Week Ahead
This week, investors will continue to closely monitor the situation in Ukraine. In the US, 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 also will be released on Tuesday. The FOMC Minutes from the July 30 Fed meeting will be released on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. Existing Home Sales and Philly Fed will come out on Thursday.

The Week That Was
An escalation in the conflict in Ukraine was favorable for mortgage rates last week. Concern about the pace of global economic growth also was positive for mortgage rates, which ended the week near the lowest levels of the year.

Investors remain very sensitive to geopolitical events. This was evident on Friday when news services reported that Ukrainians destroyed part of an armed Russian convoy which had crossed the border into Ukraine. A shift to safer assets quickly took place, causing stocks to decline and increasing the demand for bonds, including mortgage-backed securities (MBS). This added demand for MBS pushed mortgage rates lower.

One concern about the conflict in Ukraine is that it will reduce the level of economic activity in Europe. Euro zone second quarter GDP data released this week revealed very weak growth. Sanctions imposed on Russia are adding to the burden, and any additional sanctions would create an even larger obstacle for the economies in the region to overcome.

In the US, the economic news showed that some parts of the economy are slowing as well. The biggest report was Retail Sales, which account for roughly 70% of US economic activity. During the end of the first quarter, Retail Sales showed a nice bounce back from depressed levels due to unusually severe winter weather. The momentum did not continue, though. For the last several months, the gains in Retail Sales have been diminishing, and the July data showed no increase from June. Slower economic growth reduces future inflationary pressures, which is positive for mortgage rates.

Millennials Balk at Buying

I read a great article in “Real Estate and Lending Insider” about the significant shift in our market concerning first-time home-buyers (link to the article is below). Market conditions have improved greatly for home-buyers since 1984, yet first-time home-buyers are now more hesitant than ever to buy.

Check this out (2014 percentages based on data through May):

First-time buyers affordability index: 1984 – 64.9 | 2014 – 116
Interest rates: 1984 – 13.9% | 2014 – 4.1%
Mortgage payments as a share of income: 1984 – 28.2% | 2014 – 14.2%
Unemployment among 24-25 year olds: 1984 – 7.9% | 2014 – 6.9%
1st home-buyers as a share of the market: 1984 – 37% | 2014 – 27%

All the statistics indicate the market is more favorable for first-time home-buyers today than it was 30 years ago. Yet, the percentage of first-time buyers is down 10% from that point and even further when you consider that historically, the market has been closer to a 40% concentration rate of first-time buyers. Why are first-time home-buyers now so hesitant to buy? Couple of thoughts:

• Student loan debt is bogging first-time buyers down (see my weekly update on 7/28/14 - https://www.facebook.com/MikeSmallingMortgageAdvisor )
• They viewed the financial meltdown in 2006-09 from the front row – became the first group in a long time to realize that housing prices don’t always go up.
• They like renting and the lifestyle that goes with it.
• They are not ready to commit to the responsibility of home ownership.
• Qualifying guidelines are more stringent for obtaining a loan than they’ve been in a long time.

So what do we do?

We have to start providing more education to this generation on the benefits of homeownership and how to prepare for it – and it probably starts in high school, before they become jaded by debt (particularly student loans). But therein lies the problem: those that need to hear the message are so young that they won’t be potential homeowners for at least a half a decade or more. So there isn’t any money to be made educating that group – at least not now. Let’s do it anyway. It will cure a lot of ills and give us a pipeline of customers down the road.

http://martinhladyniuk.com/2014/07/11/hes-the-top-u-s-mortgage-salesman-his-daughter-isnt-buying-it/

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

The Week Ahead
The conflict in Ukraine will remain a primary focus this week. The biggest economic report will be Retail Sales on Wednesday. Retail Sales account for about 70% of economic activity. Before that, the JOLTS report, which measures job openings and labor turnover rates, 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, along with Industrial Production. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
With a light slate of economic reports last week, the conflict in Ukraine had the greatest effect on mortgage rates. Shifting sentiment about the likelihood of escalation caused some market volatility during an otherwise quiet week. Mortgage rates ended the week a little lower.

On Tuesday, a Polish official suggested that Russia is massing troops on the border with Ukraine to prepare for an invasion. While there has been a lot of debate about the accuracy of this statement, just the suggestion was enough to worry investors. The concern centers around how the US and European nations would respond. Another round of sanctions would be expected. The level of uncertainty about the outcome of this conflict is very high.

Europe is still struggling to avoid another recession, and trade restrictions with Russia make this even more difficult. GDP growth in the euro zone has been just slightly positive for four quarters after several years of negative readings. Since slower global economic growth reduces future inflationary pressures, this has been favorable for mortgage rates.

A Great Story of Real Estate Success

It seems like we’ve been reliving one horror story after another for the past 6 years about people who bought a home in the 2005 – 2008 range and either lost it all or have been playing the waiting game, hoping to see their equity restored to the level where they purchased. I can’t even count how many clients I’ve counseled over the past few years who have nightmare stories like this. So I thought I’d share a quick story of real estate success!

We closed a loan in February of last year for a client that bought a home over in East Nashville for $240,000 (using an FHA loan). Without doing any significant renovations, he sold it this month for $350,000. Not a bad 18 months worth of appreciation (it’s over 30% annualized if you are doing the math). He was able to take the proceeds from the home he bought last year and buy another comparably priced home this month with an 80% conventional loan, eliminating the $250 per month mortgage insurance that he had been paying on the previous loan.

Is this an exception? Absolutely. But it sure is nice to hear stories like this versus the ones we’ve been hearing for years.

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

The Week Ahead
The economic calendar will be very light this week. ISM Services and Factory Orders will be released on Tuesday. The Trade Balance and Productivity will come out later in the week. None of these reports are generally market movers. Investors likely will be more focused on events outside the US. The number of potential trouble spots around the world has increased. Growth fears in Europe, conflicts in Ukraine and the Middle East, banking troubles in Portugal, and a debt default in Argentina all could influence US mortgage rates.

The Week That Was
In a packed week, the two big economic reports were the main drivers of mortgage rates. The outperformance of the GDP data relative to expectations outweighed the small miss in the Employment report, causing mortgage rates to end the week a little higher. Last week's Fed meeting contained no surprises and had little impact.

Investors expected that the economy had bounced back during the second quarter from weather related weakness in the first quarter, but they were still caught by surprise by the strength of Wednesday's GDP report. The first reading for second quarter GDP, the broadest measure of economic growth, showed an increase of 4.0%, far above the consensus of 3.0%. In addition, revisions to the first quarter results caused improvement from -2.9% to -2.1%. Second quarter recovery was seen in nearly every area, including the key components of Consumer Spending and Business Investment. The GDP report was great news for the economy, but faster growth raises future inflationary pressures, which is negative for mortgage rates.

Friday's Employment report also showed continued improvement, but it fell slightly short of investor expectations. Against a consensus forecast of 230K, the economy added 209K jobs in July. The Unemployment Rate increased from 6.1% to 6.2%. Average Hourly Earnings, a proxy for wage growth, came in below the consensus. Bottom line, the sixth straight month of job gains above 200K was also great news for the economy, but because investors had anticipated even stronger results, mortgage rates declined following the news.

How Student Loans May Cripple Your Retirement

I was reading two separate articles this week. One was about student loan debt and the other about retirement savings. A couple of things hit me. First, out of more than 1,000 U.S. seniors surveyed in March 2014, aged 60 and over, 45% of them indicated that if they could turn back the clock, they would save more money for their retirement years (source: National Council on Aging). Second, the U.S. now has over $1 trillion in student loan debt (for effect, that looks like this: $1,200,000,000,000). On top of that, 14.7% of student loans that entered the repayment phase of the loan in 2010 are currently in default (source: St. Louis Federal Reserve). So what do the two have in common?

I don’t really have any raw data to back this hypothetical question up, but how the heck is someone who graduates from college, with a ton of student loan debt, supposed to save money for retirement (let alone buy a house)??? According to the Federal Reserve, there are 37 million individuals with student loan debt, so the average comes out to about $32,000 each. We have to realize that we are all going to make a sacrifice. We either sacrifice now or later. Here are some thoughts on choosing wisely for retirement.

The earlier someone starts accumulating savings for retirement, the better – it gives the money a lot longer to grow (remember that concept that Albert Einstein called the “8th Wonder of the World" – compound interest)? Let me give you an example: Let’s say Stan starts saving for retirement at 22 and puts in $500 per month, growing at 8%, until he is 35 and then never puts in another penny. At 65, assuming the same growth rate, he will have almost $1.4 million (from an investment of $78,000). Let’s say Ted doesn’t start saving for retirement until he is 35. To have the same amount of money at 65, he will need to save $923 per month for the 30 years between 35 and 65 (an investment of over $332,000). But, by that stage in life, there are so many other things that have to be paid for (children as a prime example), most don’t have the ability or discipline to save that kind of money every month.

So what happens? People get to 65 and wish they could turn back the clock and save more money. We have got to start teaching our kids, and learn this lesson ourselves, that borrowing large amounts of money to pay for an education is crippling. It is becoming one of the most significant detriments to young people buying homes, not to mention long term savings for things like retirement.

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

The Week Ahead
This week, investors will be watching both geopolitical events around the world and major economic news in the US. The next Fed meeting will take place on Wednesday. The first reading for second quarter GDP, the broadest measure of economic growth, also will come out on Wednesday. The important monthly Employment report will be released 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. Core PCE inflation, ISM Manufacturing, Pending Home Sales, and many other reports will round out a very busy week. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday.

The Week That Was
The conflicts in Ukraine and the Middle East had little impact on markets last week, while the economic data was slightly stronger than expected overall. As a result, mortgage rates ended the week a little higher.

The housing data released last week contained mixed news. Fortunately, the good news came from Existing Home Sales, which cover roughly 90% of the housing market. June Existing Home Sales rose 3% from May to the highest level since October 2013, marking the third straight month of increases. Also, the inventory of existing homes for sale rose to the highest level since August 2012. Less encouraging, June New Home Sales, accounting for the remaining 10% of the market, declined 8% from May, and the May results were revised sharply lower. These figures are frequently volatile from month to month. New homes inventories increased as well to the highest level since October 2011. To summarize, the bulk of the housing market showed continued improvement, and the tight supply of homes for sale in some markets may be showing signs of easing.

While Fed officials have recently downplayed the risk of higher inflation, many investors are not quite so certain. The inflation data released on Tuesday eased some concerns, but just slightly. The June Consumer Price Index (CPI), one of the most widely watched inflation indicators, increased at a 2.1% annual rate. Core CPI, which excludes the volatile food and energy components, was 1.9% higher than one year ago. With CPI holding steady close to the Fed's stated target level of 2.0%, investors will be keeping an eye out for signs of rising inflation which could pressure the Fed to tighten monetary policy.

My Client Loves the House, Except...

Have you ever had a client almost love a house, but would really want to buy if it just had that one thing that’s missing? Have I got great news for you.

With our new Cornerstone Renovation loan program, your clients can buy a home and renovate it at the same time! It doesn’t matter if the renovation job is big or small. You can add a bedroom or just replace the kitchen counter-tops. Your client can get that repair done that the seller is unwilling to make, or just improve the house in conjunction with the purchase. Either way, this program works.

Another great feature- this is a conventional loan. No mortgage insurance is required if the loan to value is 80% or less. If a larger loan to value is needed (up to 95%), conventional mortgage insurance applies versus FHA. For borrowers with excellent credit, this is a huge advantage. This program works like a 203K, but is a Fannie Mae program – so conventional guidelines apply versus FHA. The loan to value is based on the acquisition cost (sales price plus renovation costs) or appraised value – whichever is less.

Highlights:

• One loan and only one closing
• Loan to value up to 95% on owner occupant properties
• Second homes and investment properties allowed
• Up to 6 months of housing payments can be financed if house is not habitable during construction (if supported by appraisal)
• Good for room additions, foundation work, in-ground pools, decks, and any permanently-affixed interior or exterior renovations that add value to the property

Call me if you have any questions!

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

The Week Ahead
This week, the focus will remain on the Middle East and Ukraine. Increased tensions in either region likely would cause a larger flight to safety. In the US, 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. Existing Home Sales also will come out on Tuesday. New Home Sales will be released on Thursday. Durable Orders, an important indicator of economic growth, will come out on Friday.

The Week That Was
Geopolitical events were the primary influence on mortgage rates again last week, while the economic data had little impact. After a quiet weekend, investors were willing to take on a little more risk early in the week. Shocking news on two fronts caused an abrupt reversal on Thursday, however, and mortgage rates ended the week just slightly higher.

When a conflict breaks out which could affect global markets, investors generally respond with a "flight to safety". Uncertainty created by the threat of escalation causes investors to reduce the level of risk in their portfolios. This typically involves shifting from stocks to relatively safer assets such as gold and bonds, including mortgage-backed securities (MBS).

Heading into the previous weekend, investors were concerned about the possibility of an escalation in the conflict between Israel and Gaza, so they shifted to safer assets. When there was little change in the situation early last week, investors unwound these positions, pushing rates higher. Then on Thursday, Israel announced a ground offensive in Gaza and a Malaysian passenger plane was shot down in Ukraine. These events caused investors to quickly return to safer assets, offsetting much of the earlier rise in rates.

In the US, there was mixed news from the housing sector. The National Association of Home Builders (NAHB) Housing Market Index revealed that builder confidence jumped sharply in July to the highest level since January. Less positive, the Housing Starts data released last week, which covers the month of June, showed a decline of 9% from May. This data can be quite volatile from month to month, though.

Financing MI on a 90% Loan Versus the 80-10-10

For many years, borrowers have been able to put down 10% and avoid mortgage insurance (MI) by doing a piggyback loan, or an 80-10-10, where there is a 10% down payment and a 10% second mortgage to go with an 80% first mortgage.  But now that Fannie and Freddie have increased pricing for the combo route, there isn’t as much benefit as there used to be with the combo.  Assuming we are talking about a borrower with a great credit score (740 or above), there is a .75 bump to the points (which is the equivalent of .125-.25% in rate) when doing a combo.  The cost to pay the MI up-front on a 90% loan is 1.29 points, or a bump to the rate of .25-.375%.

So here is an example:  Sales Price is $250,000 and borrower has 10% to put down.  For example purposes, we’ll say that the rate would have been 4.25% for this same customer if he/she had 20% to put down.  Option 1 is to do the 80-10-10.  The rate would be 4.5% on the first mortgage and probably prime plus 1.5% on the second (a home equity line of credit with interest only payments and prime is at 3.25%).  Option 2 would be to do a straight 90% loan paying the MI up-front, but building it into the rate, which would be 4.625% in this example.

• Option 1 (80-10-10):  P&I - $1,013 plus payment for second mortgage of $99 (interest only at prime plus 1.5%);  Total: $1,112
• Option 2 (financed MI): P&I: $1,157

So the 80-10-10 still offers a better payment solution in this example ($45 per month cheaper).  But it also means that $25,000 of the total money borrowed is on a fluctuating rate (subject to change with prime) and interest only is being paid.  Versus Option 2 where the total amount of the loan is fixed, so no adjustments to worry about, and principal is being paid towards the entire balance.  We still use the 80-10-10 regularly, particularly for clients that plan on making significant principal reductions to the second mortgage over the short term.  But doing the deal with the straight 90% loan, financing the MI, probably makes more sense if the borrower has no intentions of paying extra.  We will counsel the borrower on which one makes the most sense for the specific situation.

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

The Week Ahead
This week, investors will continue to monitor events in Europe and the Middle East. The biggest US economic report will be Retail Sales, which 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. Industrial Production and NAHB Housing also will be released on Wednesday. Housing Starts and Philly Fed will round out the schedule on Thursday.

The Week That Was
Unexpected events outside the US had the greatest influence on mortgage rates last week. Violence in the Middle East and economic concerns about Europe caused investors to shift to safer assets, helping mortgage rates. Bond friendly comments from the Fed added to the improvement, and mortgage rates ended the week lower.

During periods of uncertainty, investors commonly reduce the risk in their portfolios. Generally, they shift from riskier assets such as stocks to relatively safer assets such as gold or US guaranteed bonds, including mortgage-backed securities (MBS). Added demand for MBS helped mortgage rates to improve last week as investors were confronted with concerns on two fronts. Violence in Israel caused tensions in the Middle East to increase. In addition, there were signs that the largest bank in Portugal may default on its debt. This caused investors to question the level of reserves held by the banks in Europe and the outlook for economic growth in the region.

The news from the Fed last week also was favorable for mortgage rates. There were no big surprises in the FOMC Minutes from the June 18 Fed Meeting and no new guidance on the timing of the first fed funds rate hike. The positive news for mortgage rates came as the Fed provided a little more detail on its plans for its mortgage-backed securities (MBS) portfolio. The Fed's portfolio has been growing at a scheduled pace as the Fed has been reinvesting principal payments received and adding new MBS. The Minutes indicated that the purchases of new MBS will end in October as expected. After that time, the Fed plans to continue to reinvest principal payments received, which will hold the size of its portfolio steady, at least until the first fed funds rate hike. Principal payments have been averaging $16 billion per month, so investors were pleased that the reinvestment will continue for quite a while, as the added demand for MBS helps keep mortgage rates low.

Communicate And Close On Time - It's What We Do

It is a very rare occasion that I use this format to promote what we do here at Cornerstone. I heard something last week that just made me laugh. A buddy of mine, who works for a competing mortgage company here in town (a large bank), told me that in his regional meeting this past week, their regional manager was commending them on increasing their “closing date met efficiency” to 56% in the month of May. In other words, he was pleased that they met the expected closing date a little over half the time. Are you kidding me???

When we opened our Cornerstone office 3.5 years ago, I spent a lot of time interviewing referral partners and potential referral partners asking them what were the most important things for them when working with a mortgage professional. I made a list from a variety of answers such as good rates, great programs, experience, ingenuity, friendliness, availability, etc...  But the two items that were on everyone’s list were Effective Communication and Close on Time. So that has been our focus here. I believe that we offer all the other items on the list as well, but our only real focus is closing on time and communicating well along the way.

We have created a process that is super efficient. Other than a handful of situations outside of our lending process, we haven’t missed a purchase closing date in 3 years. We also communicate in an incredibly effective manner. We have at least 10 touch points with each customer and another five with our clients’ Realtor throughout our process. Over the past 18 months, we have delivered our purchase closing packages to the attorney 48 hours or more in advance of the closing 86% of the time. For us, it is a complete failure if the HUD is not prepared and ready for review 24+ hours in advance of the closing.

If a customer wants nothing but the best rate, s/he should go to the internet to get their loan. I’m certain they can find an interest rate that can beat local lenders. But if they want to close on time and have an efficient process built on effective communication, while still getting a good rate and product, we are tough to beat.

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

The Week Ahead
This week, the JOLTS report, which measures job openings and labor turnover rates, will come out on Tuesday. The FOMC Minutes from the June 18 Fed meeting will be released on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
The big story last week was that job gains in June were significantly higher than expected. Since faster economic growth adds to future inflationary pressures, though, this was negative for mortgage rates, which ended the week higher.

Against a consensus forecast of 210K, the economy added 288K jobs in June, and the figures for April and May were revised higher as well. This was the fifth straight month of job gains above 200K which has not occurred since the late 1990s. The Unemployment Rate declined from 6.3% to 6.1%, the lowest level since September 2008. Average Hourly Earnings, a proxy for wage growth, were 2.0% higher than one year ago. This was a solid report nearly across the board.

Given the surprising strength of recent job gains, the increase in mortgage rates could have been larger. One significant factor in the jobs data has remained favorable for mortgage rates, however. The 2.0% annual rate of wage gains is relatively low by historical standards and creates little concern for future inflation. Fed Chair Yellen has described wage inflation as one of the important indicators of when the Fed needs to raise the fed funds rate. If the pace of wage gains were to increase, then Fed officials would face more pressure to tighten monetary policy.

Financial Success - The Solution is Simple

“What is the secret to a life that is free of financial burdens?”

I get asked this question a lot, in some form or fashion and not always in direct context to mortgage financing. Some people are buying their first home and trying to put together a game plan. Others are moving up in the world and trying to manage career and family. I’ve even had this question come from opposite ends of the time spectrum – high school students, trying to comprehend what a budget is, on one end, and soon-to-be retirees who are trying to figure out how to make their dollar last longer, on the other end. Even if the definition of financial success varies slightly depending on the generation or situation, people want a simple, easy to follow guide.

Well, here is the simple answer – practice stewardship. And here is the quantifiable answer - set up a budget and live on 80% of what you make each month. There you have it, nothing complicated about it. We should treat all of our earthly possessions as if they belong to someone else and it is our responsibility to take care of them. We need to spend our money in a manner that allows us to set aside 20% every month for giving and saving (10% each is a good guide). I will never overextend when I only spend 80% of what I make and I will have a safety net set up from saving at least 10% every month to help with any future, unforeseen need for an immediate cash outlay that is more than the monthly income allows. I know, it’s not rocket science - the solution is pretty simple.

Why is it then that 75% or more of the people I talk to on a daily basis don’t live this way with their finances? It’s kind of like the strategy to lose weight. Everyone knows the simple answer is to exercise and consume fewer calories. So why can’t people stick to what they know works? It’s because knowing what to do and doing it are diabolically different things. Maybe the simpler answer for both scenarios, physical and financial health, is to have self-discipline. Drink water when I want Coke. Save the money even though I want the new outfit. Drive the clunker another couple years when I “deserve” a new car. Go for a walk when I’d rather sit and watch TV. Get up earlier in the morning when I’d rather sleep. Live on a budget so you can experience financial success.

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

The Week Ahead
This week, the important monthly Employment report will come out on Thursday due to the holiday 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, Pending Home Sales and Chicago PMI Manufacturing will be released on Monday. ISM Manufacturing will come out on Tuesday, ADP Employment will be released on Wednesday, and ISM Services also will come out on Thursday. Mortgage markets will be closed on Friday in observance of Independence Day.

The Week That Was
It was another good week for mortgage rates. Weaker than expected economic growth data and increased concerns about Iraq were favorable for mortgage rates. These factors outweighed the negative impact of improving data in the housing sector, and mortgage rates ended the week a little lower.

The biggest surprise last week took place when first quarter Gross Domestic Product (GDP), the broadest measure of economic growth, was revised substantially lower from -1.0% to -2.9%. This was the fastest rate of decline since the first quarter of 2009. The news caused mortgage rates to move lower. The improvement in mortgage rates may have been even greater, but investors took into account that unusually bad winter weather was the main cause. Consumers postponed shopping, and businesses scaled back inventories. Much of the missed economic activity during the first quarter was simply delayed, and GDP growth is expected to rebound to around 3.5% during the second quarter.

The housing data released last week showed nice improvement. May Existing Home Sales increased 5% from April, which was the largest monthly gain since August 2011. Total inventory of existing homes available for sale rose 2% to a 5.6-month supply. May New Home Sales jumped 19% from April to the highest level since May 2008. The April Case-Shiller 20-city home price index showed that home prices were 11% higher than one year ago.

6 Things Highly Productive People Do Every Day

I read a great article this week that I want to share. You may do several of these things already, but I thought if you get even one additional idea, it is worth the read.  You can read the FULL ARTICLE HERE

Here is my quick recap:

1. Manage Your Mood
   a) If you start the day calm, with a routine, it’s easy to get the right things done and focus.
   b) Studies demonstrate that happiness increases productivity and makes you more successful.
2. Don’t Check Email in The Morning
   a) When you read an email, you are putting yourself in position to react instead of taking initiative.
   b) You wind up giving your best hour(s) of the day to someone else’s goals instead of your own.
3. Before You Try To Do It Faster, Ask Whether It Should Be Done At All
   a) Many times the answer to “Why can’t I get everything done?” is because I’m trying to do too many things.
   b) Do what is important AND NOT MUCH ELSE.
4. Focus Is Nothing More Than Eliminating Distractions
   a) Distractions make us stupid.
   b) Have a place that you can “hideout” and escape distractions – for at least portions of the day.
5. Have A Personal System
   a) Productive people have a routine.
   b) Great systems work because they make things automatic – and don’t tax our very limited supply of will power.
   c) Adapt a system using the 80-20 rule where you spend 80% of your time and energy on the most important activities.
6. Define Your Goals The Night Before
   a) Research proves that you are much more likely to accomplish something when it is specific and written down.

Have a great week!!

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

The Week Ahead
With the current focus on inflation, Thursday's report on the May Core PCE price index will be significant. Investors also will be watching the housing data next week. Existing Home Sales will be released on Monday and New Home Sales will come out on Tuesday. Durable Orders, an important indicator of economic activity, will be released on Wednesday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Outside the US, the situation in Iraq will remain the primary focus.

The Week That Was
Inflation concerns were the main influence on mortgage rates last week. A surprising jump in CPI caused mortgage rates to rise on Tuesday. The Fed downplayed the threat of high inflation on Wednesday, however, causing mortgage rates to decline. The net result was that mortgage rates finished the week a little lower.

The May Consumer Price Index (CPI), one of the most widely watched inflation indicators, was 2.1% higher than one year ago. Core CPI, which excludes food and energy, was 2.0% higher, up from an annual rate of 1.6% just two months ago. Core CPI has now reached the Fed's stated target level for core inflation of 2.0%. Another inflation indicator released this week, the prices paid component of the Philly Fed report, also showed a sharp increase. Since expectations for future inflation are a primary factor in setting mortgage rates, this data was unfavorable for rates.

The impact of the negative news did not last long, however. While Wednesday's highly anticipated Fed statement was very similar to the prior one, Fed officials indicated little concern about inflation. Comments from Fed Chair Yellen suggested that current readings reflected normal volatility in monthly inflation data and that the recent uptick did not change the Fed's long-term forecast. In addition, Fed officials place more weight on a separate monthly inflation report, the Core PCE price index. Core PCE measures a different basket of goods than Core CPI, and Core PCE recently has provided readings a good deal lower than Core CPI. In short, looking at Core PCE, inflation remains well below the Fed's 2.0% target, giving them comfort in maintaining an accommodative monetary policy. Not all investors are as confident as the Fed that inflation will remain low, though, and this will be an important area to watch in coming months.

Integration - Taking Balance to the Next Level

"The goal is not just balance, it is integration"

I heard this quote earlier in the week and it has really resonated with me. My goal has always been to have a well balanced life – so that I’m devoting the proper time and attention to the things that are important to my life’s purpose. It doesn’t matter if it is work versus family/play time, eating habits, sleeping habits or exercise – I want to have a positive balance with all those things! I think balance makes sense because I can measure it. In other words, I can examine a 24 hour day and monitor exactly how I spend every hour, making sure that all of the important components of my life’s priorities get their allotted time requirement. Or, I can examine my diet or exercise routine and monitor exactly what I am consuming or the effort put forth in the gym. I’m not saying it is easy to accomplish balance, I’m just saying it is somewhat easy to measure.

But is balance as important as integration? I looked up the term “integration” and it simply means the act or process of making whole. Integration is more than just making sure everything gets its proper attention. To me, it is living out my life’s purpose- taking all of my life’s priorities, those that I’ve always wanted to make sure have the proper balance, and mingling them all together so they are all part of an interwoven theme. Everything I do then becomes integrated for my life’s purpose. Exercise and diet become the fuel that allows my body to be the best it can be for my purpose. My work, my family time, my relationships, how I rest and recreate all become woven together, or integrated, for this same beneficial purpose.  This becomes the motivation then for everything I do.

Having balance is great, but when everything I do becomes part of my life’s purpose and vision, balance takes care of itself.

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

The Week Ahead
This week, the big news will be Wednesday's Fed meeting. Investors will be looking for hints about when the Fed will begin to raise the fed funds rate. The biggest economic data this week will be Tuesday's release of the Consumer Price Index (CPI), the most closely watched monthly inflation report. Industrial Production, Housing Starts, and Philly Fed also will come out next week. In addition, investors will be keeping a close eye on the violence in Iraq. Further escalation could cause investors to shift to safer assets.

The Week That Was
Mortgage rates were influenced by a wide range of factors last week, resulting in a good deal of volatility. Violence in Iraq, comments from the Bank of England, divergent US Treasury auction results, and mixed US economic data all had an impact. Overall, the unfavorable news slightly outweighed the favorable, and mortgage rates ended the week a little higher.

Improvement in the labor market is clearly good for the economy, but it is a negative factor for mortgage rates. Following solid job gains in last week's Employment report, this week's indicators also suggested that the labor market is gaining strength. The JOLTS report measures job openings and labor turnover rates. Because it helps to construct a more well-rounded view of labor market conditions, Fed Chair Yellen is a fan of this data. It showed that job openings jumped to 4.5M in April. This was the highest level in seven years. In addition, a May survey of small businesses revealed that optimism rose to the highest level since September 2007. Small businesses are an important source of job creation.

While many factors affected mortgage rates this week, it was notable that one formerly significant report has lost much of its influence. The May Producer Price Index (PPI) showed a decline from April, while the forecast was for a small increase. This followed a much larger than expected increase in April. At the start of the year, the calculation of PPI was changed to include price changes in services in addition to goods. PPI now captures roughly 75% of the economy, up from around 33%, but the new components make the measure much more volatile month to month. As a result, investors are less likely to react to swings in the PPI data.

Home Prices Continue To Rise BUT, Is That All Good?

According to the latest report from Corelogic, home prices rose year over year for the 26th consecutive month in April. Furthermore, the Federal Reserve reported that due to rising home prices, household equity increased by $758 billion in the first quarter alone. While that is great for so many homeowners who lost a tremendous amount of equity in their homes during the Great Recession, what is it doing to home affordability now and moving forward?

According to a report just provided by Hart Research Associates, over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools.What’s more, the report also showed that at least 15% of American homeowners are living in housing markets where the monthly mortgage payment on a median-priced home requires more than 30% of the monthly median household income. The 30% figure has always been considered  the maximum for rent/mortgage repayments.

Although mortgage rates are still very low, the three most common hurdles for buying a home (which are down payment, credit and tighter underwriting guidelines), especially among young people, still exist. The attached article indicates that ~84% of young people are delaying major life decisions due to the poor economy – and that the slow jobs recovery for them has made saving money difficult. That is likely to be a continued drain on home buying moving forward as first time home buyers represent around 40% of all buyers right now. Increased prices have also caused many investors to jump back on the sidelines as the great deals are no longer available, adding another drain to future home purchases.

So while rising values have certainly helped millions gain back lost value from the recession, it has created other challenges for new homebuyers moving forward.  The good news is that our market continues to be very resilient, still providing quality opportunities for progress.  But we are going to have to be on our A game going forward and continue to add value to our clients in the service we provide.  When we do that, we will continue to see personal success regardless of the market conditions.

Click to read the FULL REPORT

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

The Week Ahead
This week, the biggest report will be Retail Sales, which will be released on Thursday. Retail Sales account for about 70% of economic activity. Before that, the JOLTS report, measuring job openings and labor turnover rates, will come out on Tueday. 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. Consumer Sentiment and Import Prices will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
Ahead of two major economic events, mortgage rates moved higher early in the week. When there were few surprises in either the Employment report or the ECB announcement, though, mortgage rates recovered some of their losses and ended the week just a little higher. This was the first weekly increase in rates in six weeks.

After slowing over the winter due to unusually severe weather, the economy has seen job gains above 200K over the last several months. This was the first time in 14 years that job gains exceeded 200K for four straight months. Against a consensus forecast of 210K, the economy added 217K jobs in May. The Unemployment Rate was flat at 6.3%. Average Hourly Earnings, a proxy for wage growth, were a moderate 2.1% higher than one year ago. The May Employment data was right on target with the forecasts in nearly every area.

The European Central Bank (ECB) took a middle of the road approach in easing its monetary policy. After weeks of hinting that further monetary stimulus is needed to boost economic growth, ECB officials announced a rate cut on Thursday. They also will implement measures to encourage bank lending. Investors were most interested in hearing about a bond purchase program, but ECB President Draghi essentially just suggested that they were holding this key option in reserve to use in the future if necessary. The ECB stimulus did cause bond yields around the world to move a little lower.

5 Questions to Ask Before Choosing a Real Estate Agent

US News had an article this week Click Here to Read addressing this question. I know this may be preaching to the choir a bit, but it made me think that anyone in sales should be proactive in any and all presentations they give to a potential client. As you read through this list, be thinking of ways that you can have these types of questions already answered. You may want to have them in writing and ready to hand to the client before the first question is even asked!

1. How long have you been in the business? Question behind the question: How much experience do you have working with clients who had the exact same need I have?
2. What geographic areas and types of properties do you handle? Real question: How qualified are you to sell my specific property in my neighborhood?
3. How will you communicate with me? Real question: Will you communicate with me exactly the way I want you to – when I want you to and using my preferred medium?
4. Can you share references?  OR Who can I talk to, that is doing what I am doing, that you have helped?
5. What will it cost me to sell this property?  Real issue: What is the bottom line $$ figure I will walk away with?
6. Bonus – my suggestion:  How will you market my property? Better stated: What are you going to do to earn the commission I’m going to pay you?

While these questions are specific to real estate, they apply, in some form or fashion, to all sales. Before meeting with a client, in person or on the phone, we need to have a game plan. It would be best in writing, so that you have answers to all of their questions before they are even asked.

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

The Week Ahead
There will be two major economic events this week. The ECB meeting will take place on Thursday. Investors will be looking for news about additional stimulus measures. 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. Earlier in the week, ISM Manufacturing will come out on Monday and ISM Services will be released on Wednesday. Construction Spending, Factory Orders, the Trade Balance, and Productivity will round out the schedule.

The Week That Was
It was a volatile holiday-shortened week. Mixed US economic data was roughly neutral for mortgage rates. Anticipation of additional stimulus from the European Central Bank (ECB) was favorable, however, and mortgage rates ended the week a little lower.

In the big picture, mortgage rates are primarily being driven by indications about the pace of global economic growth and the resulting implications for central bank policy. In the US, investors are still sorting out the negative impact of unusually severe winter weather, but they expect the US economy to show moderate growth in coming years. The outlook in Europe is less optimistic, however. ECB officials have indicated that conditions in the euro zone warrant additional monetary stimulus to boost the economies in the region. Investors expect the ECB to signal new measures as soon as next week. One possible action could be a bond purchase program, and the potential added demand from the ECB has driven bond yields around the world lower in recent weeks.

The report on Gross Domestic Product (GDP) is the broadest measure of economic activity. As such, the data is revised multiple times. Investors anticipated that the first revision to first quarter US GDP would change the slight increase of 0.1% seen in the first reading to a decline of roughly -0.5%. This week's report showed that the decline was an even larger -1.0% during the first quarter. Investors were not worried by the shortfall, however, since it was due to an unexpectedly large decline in inventories. If inventories drop in one quarter, it means that production, and thus GDP growth, will be higher in future quarters. Current estimates are for second quarter GDP growth of around 3.5%, which would mean an average of roughly 2.0% growth over the first six months of this year.

Happy Memorial Day!

Thank you God for my freedom. Thank you that as I get up every morning, I can do whatever I want to do.  I’m an American and I’m free! Thank you for the men and women who went before me to provide that freedom I have and thank you for those that go before me still. Please bless them and their families today and every day.

Amen

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

The Week Ahead
This week, Durable Orders will be released on Tuesday. Pending Home Sales will come out on Thursday. Core PCE inflation, Chicago PMI manufacturing, and Personal Income will be released on Friday. Consumer Confidence and Consumer Sentiment will round out the schedule. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Mortgage markets will be closed today in observance of Memorial Day.

The Week That Was
Investors viewed the news from the Fed last week as favorable for mortgage rates. A very light batch of economic data contained no major surprises and had little impact. As a result, mortgage rates ended the week a little lower.

Following comments from Fed officials last week, attention was turned to the Fed's plans for its enormous bond portfolio. After years of bond purchases to boost the economy, the Fed owns close to two trillion dollars of mortgage-backed securities (MBS). Investors expect that the Fed will continue to steadily taper its purchases of additional bonds, ending the program around the end of the year. At that point, the Fed's balance sheet will stop growing.

A remaining question is how long the Fed will replace balance sheet runoff (principal payments, prepayments, and maturing securities) to hold the size of its portfolio steady. So far, the Fed has been replacing runoff with new MBS. Prior to last week, the Fed had given little guidance about the timing of future policy changes in this area. Last week, Fed officials indicated that they may continue replacing runoff for a long time, possibly even after the first fed funds rate hike. This would mean more MBS purchases by the Fed than had been previously anticipated, which was favorable for mortgage rates.

The housing data released last week reflected improvement. April Existing Home Sales posted the first monthly increase this year, while April New Home Sales increased 7% from upwardly revised March figures. One factor holding back the pace of home sales activity over the last few months has been a lack of inventory, and the news on this front was also positive. Total inventory of existing homes available for sale jumped 17% from March to a 5.9-month supply.