Mortgage Blog

QUESTION: Why is bad economic news typically good for mortgages… and vice versa?

ANSWER: There’s actually a pretty simple explanation for this seemingly strange phenomenon. But, you first need to understand a couple of important financial concepts:

1. Big money managers – who are always in search of higher returns – avoid holding onto cash. So they invest in both Stocks and Bonds.
2. Home loan rates are actually based on the performance of Mortgage Backed Securities (MBS), which are a type of Bond.

When we put those two facts together, we begin to understand the relationship between bad economic news and good home loan rates. Here’s why: Whenever the economy is on fire and there are good economic reports along with positive economic news, investors tend to put more money into Stocks. That’s because Stocks are more risky, but they generally offer higher returns. To do this, however, investors must remove some of their money from less-risky Bonds. This decreased demand in Bonds causes Bond prices to worsen, which causes home loan rates to rise.

Inversely, when the economy is sluggish and economic reports are negative, money managers tend to remove money from higher-risk Stocks and put it into less-risky Bonds. As the demand for Bonds increases, Bond pricing improves and home loan rates decrease.

They say the only constant is change… and more change is coming! Last month, the sweeping Financial Regulation Bill was signed into law and promises to bring a wave of new changes to the financial system. But the question is: what does this change mean to you? Here’s what you need to know.

Generally speaking, the law calls for a new consumer protection agency and prohibits banks from taking risky bets. While those things are important, it’s also important to realize that this legislation… over 2,000 pages worth… amazingly does nothing to address the core reasons for the financial collapse. Fannie Mae and Freddie Mac are completely left out of this legislation. Additionally, the credit rating agencies – which may have played the largest role in the financial collapse – also go unmentioned.

In fact, when former Fed Chairman Alan Greenspan was asked about Financial Regulation, he noted that this was the first time the Fed was not asked to write a regulation of this kind. He also said that there are “unintended consequences” in every page of this bill.

And one consequence we’ve seen already is that corporations are hoarding cash, and are somewhat stuck like a deer in the headlights due to the uncertainty that this and other pending legislation is creating. And when corporations hoard cash, they don’t typically hire workers, and job creation is crucial to our recovery.

What all this will mean for our economy and home loan rates remains to be seen… which is why now is the perfect time to act, while home loan rates continue to be some of the best they have ever been! If you or anyone you know would like to learn more about this exceptional opportunity, please don’t hesitate to call or email. Or forward this newsletter on to anyone you think may benefit and I’d be happy to talk to them free of charge.

In today’s tough job market, it can pay to have a good memory. That’s because a good memory can help you stand out from the competition – whether you’re networking and trying to remember names or researching a potential employer and trying to remember specific points.

Unfortunately, many of us have trouble remembering the name of someone two minutes after we shake her hand. If that sounds like you, don’t worry. you’re not alone. It’s actually an extremely common occurrence for many people. The good news is there is plenty of research on the subject and there are a number of simple, practical steps you can take to improve your memory now and long into the future.

With that in mind, here are a couple of great tips for proactively strengthening your memory:

Tip #1: Neurobic Exercise

You know all about the wonderful effects aerobic exercise has on the heart, but have you heard of neurobic exercise for the brain?

According to Lawrence Katz, co-author of Keep Your Brain Alive: 83 Neurobic Exercises, the best exercise for the brain is to force it to form “new patterns of association” or new pathways. In other words, challenge your brain every day. take it off autopilot and make it relearn or create new associations with the most routine activities of your day.

Katz’s book offers numerous examples of small changes you can make to activate your brain, including: brushing your teeth with the other hand; taking an alternative route to work; moving your wastebasket to the other side of your desk; closing your eyes while putting your key in and unlocking the front door; and changing where you and your family members sit at the dinner table.

So if you feel like your memory might be starting to slip a bit, try some of these simple neurobic exercises today!

Tip #2: Mnemonic Drilling

There are actually three steps or stages of memorization: acquisition, consolidation, and retrieval. That means, once we acquire new information, like someone’s name for instance, the way in which we consolidate that data will directly affect how well we’re able to retrieve it from memory.

Whether you’re a visual or auditory type of learner, there are many mnemonic devices that can help you to better organize or consolidate the new information that you need to recall.

Here’s an example of simple steps that might help:

First, associate the data you want to remember with common images. For instance, let’s say you meet someone named Jennifer Green. Imagine Jennifer playing golf, or picture her wearing all green clothes, or imagine her face painted completely green.

Second, think of associations you can use to help you remember this person. For instance, link Jennifer to the quality that best fits her personality (use alliteration and rhymes whenever possible): Jolly Jennifer Green.

Finally, connect sound to your memory by saying the name aloud.

Do this regularly and, before you know it, you’ll never forget anyone’s name again! And that can give you a nice advantage in job interviews and networking.

QUESTION: How can you protect yourself from identity theft?

ANSWER: According to statistics released by the U.S. Department of Justice, about 1.6 million households experience theft of existing accounts other than a credit card (such as a banking account), and 1.1 million households discover misuse of personal information (such as their social security number) annually. Here are some important tips for keeping your information safe and sound:

Just the facts – Rather than give unnecessary information (like your date of birth and income level) when you fill out things like warranty cards or supermarket club cards, start sharing only what’s really necessary in every situation.

Navigating the net – Never post your address or your full date of birth on any social networking sites because both are pieces of information needed to steal your identity. Also, when applying for a job, thoroughly investigate companies before you submit your resume and check the privacy policies of any online job boards to make sure they won’t sell your information.

Number no-nos – Never keep your Social Security number in your wallet, glove compartment, or any other easy-to-access place. Also, never have it printed on your checks or use it as your password. Finally, if you use an online job site, never give a potential employer your Social Security number until they are ready to hire you.

Shed it – When you are ready to get rid of old documents that contain important information, make sure you shred them.

The bottom line is this: When it comes to your personal information, share it on a need-to-know basis only!

According to the popular saying “actions speak louder than words.” But the words from various Fed members on the actions they feel need to be taken are getting pretty loud.

So…what could all this potential action mean for home loan rates?

There has been growing debate among Fed members about when to begin raising the Fed Funds Rate. What is the Fed Funds Rate? It’s the lending rate banks charge each other for the use of overnight funds, and it is used as a base rate that many other lending rates are based on, for consumer and business loans. A higher Fed Funds Rate tends to slow economic activity, as it means the cost of borrowing to finance a purchase will be higher, while a lower rate helps to stimulate activity, a ripple effect that expands into all sectors of the economy. As you can see in the chart above, the Fed Funds Rate is currently at a range of 0.0-0.25%, and it has been this low for over a year to help stimulate our economy and move us from recession to recovery.

Why is all this important? If the Fed raises the Fed Funds Rate too soon, it could slow economic activity and cause a “double dip” recession. However, if the Fed waits too long to raise the Fed Funds Rate, inflation could result…and inflation concerns were a big reason for all the Fed chatter last week. Remember, inflation is the archenemy of Bonds and home loan rates.

With mounting debt in the US and concerns that US debt will overtake GDP by 2012 – as well as the problems in Europe – there are many factors the Fed needs to consider before taking action. For instance, recently Fed Chairman Ben Bernanke said that the Unemployment Rate is likely to remain high for a while and he noted that the Fed “can’t wait until unemployment is where we’d like it to be” before tightening credit, or inflation could too easily get out of control. That said, recent unemployment reports indicate that our economic recovery is still fragile at the moment. This means the Fed won’t want to act too quickly, either.

The Fed just met on June 22-23rd and decided to keep the Fed Funds Rate at 0.25%, and also reiterated in its Policy Statement that economic conditions warrant keeping the Fed Funds Rate low for an “extended period.” But more and more Fed members are expressing concerns about the current very accommodative monetary policy in place. The next Fed Meeting isn’t scheduled to take place until August 10, 2010. Although home loan rates are not tied to the Fed Funds Rate, I’ll be watching this situation very carefully as it continues to unfold.

Overall, Bonds and home loan rates have benefitted lately from the situation in Europe and other economic factors. But the situation could reverse quickly – especially in today’s volatile environment.

If you or anyone you know would like to take advantage of the exceptional opportunity that exists in the home loan marketplace at this point in history, please don’t hesitate to call or email. Or forward this newsletter on to anyone you think may benefit as well!