Archive for June, 2007

Making English Out Of Fed-Speak (June 2007 Edition)

David Kosmecki | June 29, 2007 in Uncategorized | Comments (0)

The Fed left the Fed Funds Rate unchanged again today for the eighth time in a row after 17 consecutive hikes. None of this is news to us.

The Fed’s press release, though, highlights a key theme about our country’s economy: inflation may be moderating, but we are far from in the clear.

In other words, there are still a handful of outside factors that could push the Fed back out of their “comfort zone” and force them to raise the Federal Funds Rate.

Mortgage rates were up only slightly after the Fed’s remarks which were neither tough nor soft on inflation and the economy.

Parsing the Fed Statement
The Wall Street Journal Online
June 28, 2007

Which Way Will They Go? Inflation Up, Growth Down, Or Both?

David Kosmecki | June 28, 2007 in Uncategorized | Comments (0)

The Federal Open Market Committee adjourns from a two-day meeting today and so this is a good time to remind yourself: The Fed does not control mortgage rates.

Rather, the Fed sets the Federal Funds Rate.

And the FFR is, in turn, used to determine Prime Rate.

Prime Rate, in turn, is used to determine the rates for credit cards, charge cards and home equity lines of credit.

This is why today’s meeting should be important to holders of debt — the Fed’s decision to lower, raise or hold the FFR at its current level can impact the spending of every American household.

The Fed is widely expected to hold the Fed Funds Rate steady today, but Ben Bernanke & Co will issue a press release discussing the group’s view on the economy and the outlooks for the future.

It is the statement that has the biggest influence over mortgage rates. If the FOMC expresses concerns about inflation, mortgage rates should jump in response. Naturally, the reverse is true.

Yesterday, after starting the day with strong improvement, mortgage bonds gave up their gains to end the day flat. Today, bonds are already trending lower (which means higher mortgage rates).

One thing is for sure: there is a lot of uncertainty surrounding today’s press release and traders are unsure of what bets to make next.

The Fed Starts Its Two-Day Meeting

David Kosmecki | June 27, 2007 in Uncategorized | Comments (0)

The market is now in wait-and-see mode for the Fed's June 2007 meeting

The mortgage markets officially enter “Wait-and-See” mode beginning today as the Federal Open Market Committee begins their two-day meeting.

The importance of the FOMC’s meeting to mortgage markets is all in the words of the committee as opposed to their actions (or lack thereof).

After all, the group has not “done anything” in a year and yet markets always consider its meetings to be a highly-anticipated event.

What will the FOMC say about inflation, the economy, and the outlook for the future? This is what impacts the mortgage markets more than anything else.

If the Fed is fearful of inflation, mortgage rates will go up because the dollar is expected to lose value. That dimishes the value of mortgage bonds to foreign investors.

If the Fed is satisfied that the economy is exhibiting controlled growth, mortgage rates will come down, by contrast.

Right now, markets are anticipating a bullish view on inflation from the Fed and that is one of the reasons why mortgage rates increased so dramatically since March.

It will be looking for further clues at 2:15 P.M. ET Thursday afternoon.

How To Protect Yourself From Becoming A “Trigger Lead”

David Kosmecki | June 26, 2007 in Uncategorized | Comments (0)

The major credit bureaus are selling trigger leads and many credit applicants are unaware

From the CBS News Video Web site, an interesting story for anyone who’s recently applied for credit.

Credit repositories now sell the contact information of people applying for new mortgage loans to other mortgage lenders that want to compete for the business.

Called “trigger leads”, an unsuspecting mortgage applicant can have his credit checked by a mortgage lender, and then discover that the credit bureaus have sold the rights to his personal information to countless other credit firms across the country.

Because trigger leads identify a person making a lending decision right now, one marketer of trigger leads calls them “the best leads in the business”. It’s no wonder that the credit bureaus are marketing them, and that some lenders are salivating over them.

As the family in the CBS video learned, though, it’s difficult to make the phone stop ringing. Some of the calls bordered on harassment.

For consumers, there is a very low-tech opt-out Web site called that is sponsored by the three major credit bureaus (and are also the ones that sell trigger leads). You can opt out for five years, or submit a form by mail to opt out forever.

Watch the video and then go protect yourself.

(Image courtesy: CBS News Video)

The Week In Review (June 25, 2007) : What To Watch For

David Kosmecki | June 25, 2007 in Uncategorized | Comments (0)

For the first week in a long while, mortgage rates ended the week better than how they started.

As we talked about last week, when there are no major data releases, the markets tend to move on momentum and psychology. That’s precisely what pushed mortgage rates lower over the past five days.

This week, though, it’s back to reality.

Beginning in March, mortgage markets started to change their bets about the Federal Reserve’s next steps with the Fed Funds Rate. Previously, investors believed that the Fed would lower the FFR in the first half of 2007, signaling a tamer inflation outlook in the economy.

Data didn’t support that view, though.

Then, at the Fed’s May meeting, the tide really turned as the nation’s monetary policymakers noted how housing was cooling off, but that the economy was roaring ahead despite that.

And that’s right around when the bond market started to take it on the chin.

Well, the Federal Open Market Committee meets again this week for a two-day meeting, adjourning Thursday. The markets will be closely watching every word from Ben Bernanke & Co. to see if the new bets they’ve made on the economy and inflation will be backed up by the Central Bank.

The Fed drops their press release at 2:15 P.M. ET Thursday.

Until Thursday, watch for small movements in mortgage bonds in response to Monday and Tuesday’s housing data, and Thursday jobless claims statistics.

When Selling Your Home, It May Be Profitable To Invest In It

David Kosmecki | June 22, 2007 in Uncategorized | Comments (0)

The NBC Today Show recently ran a Home Staging series that’s worth watching. Hosted by Barbara Corcoran, the trio of 5-minute pieces resemble HGTV Reality Shows but carry much more insight and “everyday tips” that ordinary folks can use.

The video clip above is look at a home on Long Island that, as Barbara called it, is “the worst house on the block”. You can’t help but feel bad for the agent whose name is on the For Sale sign.

Of course, the story has a happy ending — the home is now under contract.

Watch all three home staging clips via YouTube:

“People don’t want to put the money in,” Barbara says. “They’re thinking about taking the money out.”

This series of videos shows how that line of thinking can actually reduce your profits.

Be Wary Of Opinions That Masquerade As News

David Kosmecki | June 21, 2007 in Uncategorized | Comments (0)

Is “news” always news, or is it masked opinion?

When doing research on mortgages, it’s important to pay attention to the objectivity of your research source.

Often, a writer will deploy key adjectives, phrases, and/or images that distort an otherwise factual story.

This cartoon from is a terrific example.

It implies that interest only home loans are for people that can’t otherwise afford homeownership.

The truth is that interest only loans are used by all economic classes of homeowners — not just those that need payment relief.

Many people choose interest only home loans for their flexibility, or as a financial planning tool.

Sure, there are some people that use interest only loans to “get onto the housing ladder”, but that is a statement about the homeowner and not the mortgage product.

Our opinions are often formed by the words and images we hear in a public forum. Sometimes, it pays to look a little deeper.

In The Summer, Mortgage Rates Can Change More Swiftly Than Usual

David Kosmecki | June 20, 2007 in Uncategorized | Comments (0)

Light trading can lead to mortgage rate volatility

It was another favorable day for mortgage rates yesterday as average housing data and momentum trading carried bond prices higher.

Bond prices up, mortgage rates down, of course.

All things considered, mortgage bonds should not have moved as much as they did. But, this is the summer season and in the summer, fewer traders show up for work.

Especially during a week like this one in which there is no major data release.

With fewer traders participating, there are fewer bond buyers to match with sellers, and fewer bond sellers to match with buyers.

Therefore, it is much less likely that a person who wants to buy at a certain price will find somebody who wants to sell at a certain price. Therefore, mortgage bonds (and interest rates) tend to move a lot more sharply during the summer than we’re otherwise used to seeing.

Today, three Fed presidents take the stump: Janet Yellen (San Francisco), Timothy Geithner (New York), and Richard Fisher (Dallas). Markets will listen to the Fed speaker for clues inflation and the economy.

If the speakers indicate worry over inflation, mortgage rates will rise in response.

Gas Prices Dip Below $3.00 But Are Still More Than Double Five Years Ago

David Kosmecki | June 19, 2007 in Uncategorized | Comments (0)

For those that spend a lot of time in their car, this is old news.

Since Memorial Day weekend when gas prices touched $3.24/gallon nationally, the cost of filling up dipped below $3.00. According to Gas Buddy, Monday’s average cost per gallon was $2.995.

Despite the dip, gas prices are still much higher for late-June than in years prior.

2002: approximately $1.40/gallon
2003: approximately $1.48/gallon
2004: approximately $1.92/gallon
2005: approximately $2.14/gallon
2006: approximately $2.82/gallon
2007: approximately $2.99/gallon

Gas prices change quickly and those changes can be attributable to the price of crude oil, increased demand for gas from road travelers (i.e. summer road trips), or an interruption in the overall production (i.e. supply) of Gulf Coast refineries or from crude oil sources.

Since 2002, all three factors have contributed to the increased cost of gasoline. Over the past three weeks, though, we’ve all gotten a break.

The Week In Review (June 18, 2007) : What To Watch For

David Kosmecki | June 18, 2007 in Uncategorized | Comments (0)

After a tame Consumer Price Index report Friday, mortgage bonds staged a brief rally and rates retreated slightly.

Earlier in the week, mortgage rates were at their highest point in almost a year.

Unfortunately for rate shoppers, mortgage investors are behaving like Dr. Jekyll and Mr. Hyde right now. One moment, they hate the outlook on inflation; the next, they love it.

What’s really confusing is that data points that made mortgage rates move higher or lower 6-9 months ago (i.e. jobs report, crude oil prices, housing stats) are now being discounted.

Broader data points such as CPI seem to have taken center stage.

At least for now.

This week, there are virtually no data points of consequence aside from Tuesday’s Housing Starts data. Given last month’s seasonable weather across the county, don’t be surprised if the number surprises to the hot side.

So, without data, expect mortgage rates to respond to external factors, technical trading factors, and/or irregular weather patterns.