Your Certified Mortgage Planner — Michael Eiden, Mortgage Blogger

As promised, last week was heavy on data and on drama. And mortgage rates continued their slide lower.

This week, by contrast, is devoid of data and markets are already digesting the Federal Reserve’s surprise 0.750% rate cut this morning.

Mortgage rates are falling in response, but not because of what the Fed did as much as what the Fed implied by doing it.

The Federal Reserve does not control mortgage rates, per se, but it does exert an influence. This is because when the Federal Open Market Committee makes changes to the Fed Funds Rate, it is making a broader statement about the health of the economy.

This morning, and in advance of its 2-day meeting January 29-30, the Federal Reserve chopped the Fed Funds Rate by 75 basis points to 3.500%. This signals to markets that the Federal Reserve is keen on engineering a soft landing for the economy.

Mortgage rates are falling for a different reason.

The chart above is from last week and illustrates what traders thought the Fed would do to the Fed Funds Rate at its January meeting.

Note that over a two-month span, the market expectation changed. The blue line (4.250%) represents the Fed Funds Rate prior to this morning.

Two months ago, markets overwhelmingly expected the FOMC to lower the Fed Funds Rate by 0.250% at its January get-together(as represented by the white line).

As time passed, however, that expectation changed and mortgage rates changed, too. This is not a correlated event, however. Both the Fed Funds Rate and mortgage rates tend to fall during times of economic weakness.

On the right of the chart is last Friday. At that time, market expectations for the January meeting were equally split between a 0.500% drop and a 0.750% drop (as represented by the orange and red lines, respectively).

The 0.500% drop signals weakness; the 0.750% signals dramatic weakness.

So, after the Federal Reserve’s surprise move this morning, it turns out that the Fed sees dramatic weakness. Mortgage markets are reacting to this “news” and resetting their bets by buying more mortgage bonds.

This added demand is causing rates to fall, but not anywhere near the three-quarter percent levels by which the Fed cut the Fed Funds Rate.

Mortgage rates are down slightly.

(Image courtesy: Federal Reserve Bank of Cleveland)

Overall, mortgage rates are at their lowest levels since late-2005.

Despite rates falling, however, not everyone can take advantage.

This is because mortgage lenders started to tighten the guidelines of what they will lend and to whom, also beginning in late-2005.

In other words, the chart at right doesn’t apply to all homeowners equally.

If you are new in your home, or have refinanced your mortgage within the last 24 months, make a call or send an email your loan officer to ask about today’s low-interest-rate environment.

(Source: Bankrate.com)

Here's a great story that reminds us to slow downand look around. Take Stock of your life and your business.

A young, successful executive named Josh was driving down a neighborhood street. He was talking on his cell phone and going a bit too fast in his brand-new, sleek, supercharged Jaguar XKR. Suddenly - WHUMP! A brick smashed into the Jag's pristine black door! SCREECH!!! Brakes slammed, gears ground into reverse, and tires madly spun the Jaguar back to the spot where the brick had been thrown. There stood a young boy, looking desperate.

Josh jumped out of the Jaguar, grabbed the boy and pushed him up against a parked car. 'What was that all about and who are you? That's my new Jag, and that brick you threw is going to cost you a lot of money. Why did you throw it?'

'Please, mister, please…I'm sorry! I didn't know what else to do! I threw the brick because no one else would stop!' Tears dripped down the boy's chin as he pointed around the parked car. 'It's my brother,' he said. 'He rolled off the curb and fell out of his wheelchair and I can't lift him up. Would you please help me get him back into his wheelchair?' the boy pleaded. 'He's hurt and too heavy for me.'

Stunned, Josh desperately tried to swallow the rapidly swelling lump in his throat. He gently lifted the young man back into the wheelchair, then took out his handkerchief and wiped the scrapes and cuts, checking to see that everything was going to be OK. He watched as the younger brother eased the wheelchair down the sidewalk and around the corner. Then Josh spent a long time looking at his brand-new, sleek, supercharged Jaguar XKR.

Josh never did fix the side door of his Jaguar. He kept the dent to remind him not to go through life so fast that someone had to throw a brick at him to get his attention.

That brick was a blessing!

Sincerely,

Michael Eiden

P.S. Do you have a great story you would like to share? Post it in the comment below. See you soon.

Only buy or fill up your car or truck in the early morning when the ground temperature is still cold.

Remember that all service stations have their storage tanks buried below ground. The colder the ground the more dense the gasoline, when it gets warmer gasoline expands, so buying in the afternoon or in the evening… your gallon is not exactly a gallon.

In the petroleum business, the specific gravity and the temperature of the gasoline, diesel and jet fuel, ethanol and other petroleum products plays an important role.

A one degree rise in temperature is a big deal for this business, but the service stations do not have temperature compensation at the pumps.

When you’re filling up do not squeeze the trigger of the nozzle to a fast mode. If you look you will see that the trigger has three (3) stages: low, middle, and high. In slow mode you should be pumping on low speed, thereby minimizing the vapors that are created while you are pumping.

All hoses at the pump have a vapor return. If you are pumping on the fast rate, some of the liquid that goes to your tank becomes vapor. Those vapors are being sucked up and back into the underground storage tank so you’re getting less worth for your money.

One of the most important tips is to fill up when your gas tank is HALF FULL or HALF EMPTY. The reason for this is, the more gas you have in your tank the less air occupying its empty space.

Gasoline evaporates faster than you can imagine. Gasoline storage tanks have an internal floating roof. This roof serves as zero clearance between the gas and the atmosphere, so it minimizes the evaporation. Unlike service stations, every truck is temperature compensated so that every gallon is actually the exact amount.

Another reminder, if there is a gasoline truck pumping into the storage tanks when you stop to buy gas, DO NOT fill up–most likely the gasoline is being stirred up as the gas is being delivered, and you might pick up some of the dirt that normally settles on the bottom.

Hope this will help you get the most value for your money. SHARE THESE TIPS WITH OTHERS!

Best,

Michael Eiden

It’s a point that’s always worth repeating:

Ben Bernanke and the Federal Reserve do not control mortgage rates

This is particularly relevant today as newspapers, television programs, and market pundits posit that the U.S. is in the midst of a recession.

The latest evidence supporting that assertion is that Retail Sales grew at its slowest pace since 2002 — the last time the U.S. was in a recession.

Many people fear recessions, but they are natural parts of a business cycle. As the nation’s protector of the economy, though, the Federal Reserve can weaken a recession’s impact on the economy by lowering the Fed Funds Rate.

When the FFR is lower, businesses and consumers pay less interest on business debt and consumer debt, respectively. This leaves more money available to spend on goods and services, thereby providing a subtle boost the economy.

This is why the Fed Funds Rate is integral to financial markets and why it gets so much attention in the press. It’s also why some people are calling for a drastic rate cut at the Fed’s next meeting — many believe that the economy is hurting pretty badly.

It’s not a coincidence that this outlook is causing mortgage rates to fall.

When Corporate America is struggling (or expected to struggle), investors don’t like to be over-exposed to the stock market because of its variable nature. By contrast, the fixed returns of the bond market provides a little bit more safety.

As demand for stocks wanes during a recession, therefore, demand for bonds can pick up.

Mortgage rates can fall at times like this because rates are “born” from the price of mortgage bonds. The higher the price, the lower the corresponding rate.

So, as investors leave the stock market and buy bonds — including mortgage bonds — the increased demand raises prices and pushes mortgage rates lower.

All of this happens independent of the Federal Reserve — it’s a natural function of the stock and bond markets.

The Federal Reserve does not control mortgage rates but it does control the Fed Funds Rate. And both tend to respond to economic weakness.

For all that’s been said about the proposed Bank of America-Countrywide merger, what’s not getting talked about is how the merger will impact existing Countrywide customers.

The short answer is that it won’t.

A mortgage (and its corresponding note) is a legal contract between the lender and the lendee, signed on the date of closing. It is binding and cannot be altered by either party, even if the mortgage is transferred between lenders.

As a homeowner, the only way to “end” the contract is to satisfy the home loan with a full repayment. That can happen one of three ways:

1. The home is sold and the mortgage is repaid
2. The home is refinanced and the mortgage is repaid
3. The home loan is paid down to $0 balance by the homeowners

Mortgage payment servicers commonly transfer home loans between each other. This happens on an everyday-basis — not just when there’s a merger, or a closure.

When mortgages are transferred, HUD requires the former lender to send a 15-day advance notice to its lendee; the new lender is required to send a similar notice.

So, for homeowners that write their mortgage checks to Countrywide every month, it’s possible that the address to which you mail your payment may change, but the terms of your mortgage cannot.

Markets are welcoming the return of cold, hard data this week.

Most of last week was spent making sense of Fed speakers, recessionary fears, and a takeover of the nation’s largest lender.

This week, we’ll find out if the recent fears of recession are on target, or overblown.

The data deluge starts Tuesday with the Retail Sales report.

Markets are predicting the worst Holiday Shopping numbers since 2002 and those low expectations have already been priced into mortgage bonds. Therefore, only a completely terrible number will cause mortgage rates to move lower.

Also on Tuesday, markets get hit with the Producer Price Index. This is like a “Cost of Living” measurement, but for business. If businesses are paying more to operate, it’s likely that those costs get passed to consumers.

Last month, PPI was the highest on record since 1973 because of high energy costs. If it comes in high again, mortgage rates should rise on the expectation that consumers will eventually bear the burden of higher costs.

Wednesday, the consumer Cost of Living index gets released in addition to the Beige Book. The Beige Book is the Federal Reserve’s local market reports that point to overall strength or weakness in different regions.

Then, on Thursday, markets will be watching the number of first-time filers for Unemployment Claims. After Unemployment Rates jumped last month, it’s expected that jobless will be higher than “normal”, suggesting that employers are still trimming their workforces.

This is recessionary and should help to hold mortgage rates down.

Lastly, on Friday, it’s the University of Michigan Consumer Sentiment report. Mostly used as a “confidence” gauge, strong readings are thought to push the economy forward because a confident consumer is likely to spend more.

Statistically, though, that correlation is not clear. But, mortgage bonds are sensitive to the report and that’s why we watch it.

It’s a busy week of data and expect markets to get a firmer sense of where the economy is headed. Weakness is expected and mortgage rates are already pricing it in.

Therefore, be wary of better-than-expected results this week because mortgage bonds could correct quite quickly.

Clipped from NBC’s Today Show, real estate maven Barbara Corcoran talks about preparing your home for sale. As usual, her remarks are spot-on.

Some highlights from the 5-minute video:

1. Go online and shop for your own home first
2. Empty your home of two-thirds of the “stuff”
3. Keep your home immaculately clean

Corcoran also offers pricing tips that can help get your home sold faster.

Watch the entire interview at MSNBC.