Another classic Yogi Berra-ism is, “I never said most of the things I said.” Luckily, the Fed can’t make the same claim. This coming Tuesday, the “Meeting Minutes” or open commentary of the Fed’s last monetary policy meeting will be released to the public. If there are inflammatory comments, the market could respond quickly.

Remember, when Bond prices move higher, home loan rates move lower. And as you can see in the chart below, Bonds have rebounded higher off of their key 50-day moving average support level, and are moving back toward the upper portion of their current trading range. This means if Bond prices continue to move toward the upper boundary of the range, we could see home loan rates improve slightly.

Chart: Fannie Mae 5.5% Mortgage Bond (Friday Apr 04, 2008)

“I KNEW THE RECORD WOULD STAND UNTIL IT WAS BROKEN.” ~ Yogi Berra A record was broken on the job front last Friday as the Labor Department reported a much worse than expected loss of 80,000 jobs in March - the greatest jobs loss reported in five years. In addition, revisions to both January and February’s Jobs Report delivered an additional loss of 67,000 jobs - that’s on top of the previously reported loss of 85,000 jobs for that two-month period.

And…the story might be even a bit gloomier than it already appears. The Labor Department uses a lot of averaging to help it come up with its numbers more quickly, but this practice can skew the current picture significantly. Think of it this way - and because it’s now baseball season, here’s a Baseball analogy - let’s say that mid-way through the season, a red-hot hitter with a batting average of 340 declines into a bad slump for several weeks. While he now can’t even hit a basketball thrown underhand to him, his average - while lower to 300 - is still very strong due to his previous hot performance. So someone looking at just the statistics may think that this batter is still absolutely terrific, but he is really someone the fans are booing as he approaches the plate. This is not very different from current numbers being reported by the Labor Department - previous averaging is likely causing an understating of the ACTUAL number of job losses…which somewhat masks how bad the job market really is.

This bleak Jobs Report greatly boosts the odds of not only a first-quarter recession, but perhaps a worse economic downturn than many economists fear. The Federal Reserve may respond to this increasing trend in job losses with additional interest rate cuts when they next meet to determine monetary policy on April 30 and June 25. As we’ve seen in the past though, such rate cuts do not translate into lower long-term rates for mortgages, so there is no better time than right now to refinance an existing mortgage or to structure a new one. Let’s work together to make sure your current financing is a home run!

Citigroup Inc., the biggest U.S. bank, may need additional capital from outside investors as losses stemming from the collapse of the U.S. subprime mortgage market increase. Bond market quiet and relatively unchanged. Stock futures point towards a lower open after Intel Corp. said lower chip prices will hurt earnings.

Here we go again…another action packed week in store, with the main event being Friday’s monthly official Jobs Report. This report is always of high interest, as it gives a good read on the health of the economy. Boiled down simply — if businesses are hiring, it means their outlook is good for the future growth of their business and the economy overall. Additionally, the more employed workers there are, the more dollars being earned that can be used to buy goods and services - also good for keeping the economy thriving.But the headline number often comes with “revisions” of past numbers — which is often the wildcard within the report. Some past revisions have actually added more jobs to the count than the current month’s number in total. And for added excitement, in advance of Friday’s official Jobs Report, gigantic payroll company ADP will release their own count on job growth on Wednesday. And while the numbers are not “official” and are sometimes seen as unreliable — the markets won’t be able to help but take notice of their findings, and may react to their release.Bottom line — volatility remains in vogue. The chart below shows how Bonds improved significantly over the past week, helping home loan rates improve as well. But remember — another Fed Cut is likely in the cards, just a few short weeks away. As we’ve discussed in the past, a Fed Rate Cut can often result in a move higher for home loan rates, as a Fed Rate Cut often spurs on spending and therefore inflation, the arch-enemy of Bonds and home loan rates. So while Bonds and home loan rates have seen nice improvement of late, they are heading towards both a technical “ceiling of resistance”, as well as a March 18th Fed meeting that could cause rates to worsen. If you - or one of your friends, family members, neighbors or coworkers - have been considering a refinance or purchase, feel free to reach out to me to discuss taking advantage of current low rates.

Chart: Fannie Mae 5.5% Mortgage Bond (Friday Feb 29, 2008)

“I DON’T MEASURE A MAN’S SUCCESS BY HOW HIGH HE CLIMBS…BUT HOW HIGH HE BOUNCES WHEN HE HITS BOTTOM.” General George S. Patton And the General himself would certainly consider Bonds to be a success last week, as they moved lower to hit a technical “bottom” at the 200-day Moving Average, but then bounced significantly higher throughout the course of the week, helping fixed home loan rates improve by about .25 to .375%.What caused all the activity? Remember that weak economic news tends to be bad for Stocks, but good for Bonds and home loan rates, as money flows out of Stocks and into Bonds. And last week had its share of weak economic news, combined with testimony before Congress by Fed Chairman Ben Bernanke.The news included higher wholesale inflation with the Producer Price Index (PPI) jumping to its highest level since October 2004 on surging energy and food prices. But price inflation on the producer or wholesale side can’t always get passed directly on to the consumer on the retail side. Friday’s Personal Consumption Expenditure (PCE) reading showed consumer inflation to be higher, but just slightly, as expected. The PCE is the Federal Reserve’s most highly watched measure of inflation, and the current overall rate of year-over-year inflation at 2.2% does remain just above the Federal Reserve’s comfort zone for consumer inflation.And speaking of the Fed, Chairman Ben Bernanke testified before Congress last week, making comments that prompted Stock investors to sell off and move money over into Bonds. The Bond market also enjoyed “dovish” comments made by Gentle Ben about inflation and the recent aggressive cuts made by the Fed, and his testimony was largely responsible for the improvement in Bonds and home loan rates. But read on, and learn how the next official Fed Meeting and Rate Decision on March 18th could impact home loan rates…it might surprise you.THE ECONOMIC STIMULUS PLAN HAS BEEN ALL OVER THE HEADLINES…BUT DO YOU KNOW HOW IT WILL IMPACT YOU? LEARN ABOUT REBATE CHECKS AND MORE IN THIS WEEK’S MORTGAGE MARKET VIEW!

After a closed market on Monday, all of the coming week’s economic reports will be delivered on Wednesday and Thursday - but don’t expect that any volatility will be limited to those days.The most recent read on inflation will come via the Consumer Price Index, being reported on Wednesday alongside the latest Housing Starts and Permits data. And of particular interest - the “Meeting Minutes” from the last Federal Reserve meeting will be released as well. These Minutes give the inside commentary between members - and remember, Dallas Fed President Richard “Loose Lips” Fisher was not in agreement with the most recent cut to the Fed Funds Rate. His seemingly uncontrollable remarks regarding his concerns over inflation have rocked the markets of late, with Mortgage Bonds losing 187 basis points since his tirade on February 7th - that translates into about .375% higher for home loan rates. Bottom line - the inflation data and Fed Meeting Minutes could be real market movers. Since inflation erodes the value of the fixed return provided by a Bond, if the news of the week continues to reek of inflation - this could spell more bad news for Bonds and home loan rates.

Chart: Fannie Mae 5.5% Mortgage Bond (Friday Feb 15, 2008)

“CUTS LIKE A KNIFE, BUT IT FEELS SO RIGHT” Bryan Adams And financial pros will tell you it’s wise to never try and catch a falling knife. Seems like decent advice in general - but in the financial world, it means that when the price of a Stock or Bond is in the midst of a severe decline, be very cautious about stepping in to buy…even if it feels so right because the price starts to look cheap. That’s because when prices declines sharply, it often gets even worse, making it hard to call the bottom. That’s why many investors, who attempt to buy on the way down, say the feeling cuts like a knife. And over the past week - Bonds have been dropping much like a knife, and home loan rates have risen by about .25% across the board.And speaking of sharp objects, Cupid’s arrows might have been flying around everywhere last week - but little love came calling for the Bond market. First, Retail Sales for January were far better than expected - which was good news for Stocks, but as money flowed into Stocks, pulled money out of Bonds and caused Bond prices to move lower. Next, Fed Chairman Ben Bernanke gave it to us straight from the heart, as he testified that the Fed would keep the door open to more rate cuts, which worried Bond Traders about the risk of more inflation ahead. And unlike the media seems to believe, cuts to the Fed Funds Rate generally cause home loan rates to rise, not decline. Why? Because Fed Rate Cuts can spur on more inflation, as it becomes less expensive to finance business and personal purchases. And as a result, inflation erodes the value of the fixed return provided by a Bond - so in the face of inflation, Bond prices fall, and home loan rates rise.Finally, Moody’s credit rating agency downgraded FGIC - one of the very largest Bond insurers in the world. This is another concern for Bonds, as the downgrades of Bond insurers in turn threaten the ratings of the Bonds they insure. If the added safety from insurance on Bonds is in doubt, the yield or rate on those underlying Bonds must increase to compensate investors for the additional risk. All in all - a tough week for Bonds and home loan rates - read on to find what’s in store for the week ahead.AND DON’T MISS THIS WEEK’S MORTGAGE MARKET VIEW - ALERTING YOU TO IRS SCAMS, TO WHICH EVEN THE SAVVIEST HAVE FALLEN PREY.

By Roger Showley

UNION-TRIBUNE STAFF WRITER

February 9, 2008

Congress may be issuing $600-per-person tax rebate checks this spring, but the temporary mortgage revisions in the economic stimulus package passed this week could have a greater effect on San Diego’s economy, particularly its beleaguered housing market.

Graphic: Conforming loan limit

That’s because the package, expected to be signed next week by President Bush, could save some homeowners hundreds of dollars a month in mortgage payments and rescue other owners wanting to refinance out of adjustable-rate mortgages.

Specifically, the stimulus package temporarily raises the maximum size of mortgages that government-sponsored mortgage companies Fannie Mae and Freddie Mac can buy and market as securities from $417,000 to as high as $729,750 in expensive parts of the country, including some in California.

Lenders and real estate agents said that change in the “conforming loan” limit will allow more people to buy homes and refinance existing loans at a lower interest rate. Buyers needing bigger loans typically have to sign up for “jumbo” loans that have higher interest rates and tougher qualification requirements.

“For San Diego and other high-home-price areas, that part of the package is definitely more important than the tax rebate,” University of San Diego economist Alan Gin said.

The consumer reaction has been almost immediate, said Sherm Harmer, president of the San Diego County Building Industry Association.

At two downtown projects Harmer oversees, several potential buyers said they are ready to sign sales contracts now that the higher loan limits will reduce their costs.

“They’re paying attention,” Harmer said. “Everybody wants to own a home. Who doesn’t?”

However, the exact loan limits for San Diego are unknown, because the U.S. Department of Housing and Urban Development won’t announce them until early next month. Until then, mortgage brokers said they expect lenders to approve some loans in anticipation of what the new limits might be.

The amounts, which will be tied to median home prices in each metropolitan area, can vary between 125 percent and 175 percent of the median, but can be no higher than $729,750. The legislation says eligible loans must be made between July 1, 2007, and Dec. 31 of this year, when the limits would revert to existing levels unless Congress extends the cutoff date.

For San Diego County, the median price set by the Federal Housing Administration is $505,000, said David Ledford, vice president for housing finance and housing policy at the National Association of Home Builders.
That means the limit for conforming loans in the county could rise to at least $630,000, unless HUD issues other maximum loan limits for the area.

The gap in interest rates between jumbo and conforming loans has been stubbornly large for months. Last week, it was close to a full percentage point, compared with 0.2 of a percentage point in July, according to financial publisher HSH Associates. Freddie Mac’s most recent weekly national mortgage survey placed the average 30-year, fixed-rate conforming loan at 5.67 percent.

Lower interest rates are crucial to determining whether some buyers can afford the homes they want. They also affect owners who want to refinance out of adjustable-rate mortgages that are resetting to higher levels.

Martin Lopez, a loan officer at Park Avenue Mortgage, said several of his clients are eager to take advantage of the higher loan limits. One buyer in Poway stands to save as much as $400 a month on a $625,000 home, he said.

Lori Staehling, president of the San Diego Association of Realtors, called Congress’ action “incredibly good news.”

“I would anticipate a spike up in sales,” she said.

In the past two or three weeks, lenders have reported an increase in prequalification loan applications, Staehling said.
“That’s the first sign for us (of a possible turnaround),” she said. “I’ve also heard signs from real estate agents that open houses are being much more heavily attended.”

According to DataQuick Information Systems, nearly 50,000 San Diego County homeowners who bought or refinanced in the past two years stand to benefit from the higher loan limits. If their credit is sound and they have the required equity in their homes, they could refinance their jumbo loans to lower-priced conforming loans. That was about 20 percent of the 258,607 home loans of all sizes and types made in 2006 and 2007.

The significance of the conforming-loan-limit increase becomes clear when comparing San Diego’s housing prices and loan limits over time.

In 1988, the first year DataQuick began tracking San Diego housing, the median price stood at $138,500, well below the conforming-loan limit of $168,700. But starting in 2002, the local median exceeded the loan limit – $320,000, compared with $300,700.

As prices skyrocketed to a peak $517,500 in November 2005, more and more buyers were forced to sign up for jumbo loans, peaking at 55.2 percent of the market that year, DataQuick figures show. Last year, 32 percent of buyers used jumbos.

Now, with the new limit higher than the local median, buyers will have more wiggle room.

“It’s going to open up a window of affordability,” said Greg Wickstrand of Home Services Lending.

The Associated Press contributed to this report.Roger M. Showley: (619) 293-1286; roger.showley@uniontrib.com
“That’s the first sign for us (of a possible turnaround),” she said. “I’ve also heard signs from real estate agents that open houses are being much more heavily attended.”