For the first time in over a month, the Best-Execution rate for 30yr fixed mortgages rose from a rounded average of 3.875% to 4.00% today.  The underlying borrowing costs associated with 3.875% didn't rise by a significantly painful amount, but the small increases across the board, combined with one huge move by a huge lender, was enough to bring the average rate closer to 4.0% than 3.875%.   

You may well wonder what the heck this all means.  So we'll go into more detail tonight for enquiring minds.  Our methodology for determining daily Mortgage Rates is somewhat complex, and involves an objective component based on lenders raw prices as well as subjective impression from our network of originators.  We look at the rate sheet offerings from most major lenders and calculate the buy-ups and buy-downs between each rate (incidentally, rates tend to be offered in .125% increments, which is why we're always conveying best-execution in .125% increments whereas the actual daily average is reflected on the Mortgage Rates page). 

Sometimes, the "sweet-spot" is obvious from looking at lenders raw pricing.  For example, For each .125% lower in rate, you'd have to pay more and more in terms of closing costs (which could be referred to as "discount" or "origination" or "points" among other things, but I'd greatly like to stay out of semantics debate and instead focus on the spirit of the matter.  Bottom line: it costs more money up front to pay a lower rate over time, whatever a lender wants to call that fee).  If it cost 0.4% of the loan amount to move down from 4.125% to 4.0%, another 0.5% to move to 3.875%, but a whopping 1.2% to move to 3.75%, it's clear that this lender's Best-Execution is at least 3.875%.  In some cases, some clients may opt to pay big buydowns if they understand the longer time it will take to breakeven on the extra upfront expense in terms of monthly payment savings from an .125% lower rate. 

Other times, the gaps between rates are fairly close together for several rates near Best-Execution.  This makes the process of deciding that lender's Best-Ex rate much more subjective.  In these cases, we assume scenarios with the best combination of lowest closing costs but not at the expense of monthly interest savings that could be recouped in less than 5 years.  This almost always means a loan with no origination fee.  But when the range of options are similarly viable, we involve the community to get a consensus not only of what they're quoting, but also which options their clients are choosing.  This is combined with the objective measurements taken from lenders, and each lender's best-ex rate goes into calculating the average.

All that to say that this average moved up from 3.92% to 3.98% today.  3.92 rounds down to the closest eighth whereas 3.98 rounds up, thus, the 4.0% Best-Execution today.  But keep in mind that 3.875% is still very much "out there," meaning, deals can be viably structured with 3.875% rates just as easily today as they could have been on Friday, as long as you can afford the increased closing costs.  Also keep in mind that different lenders are continuing to price in the effects of the Tax-Cut-Extension at different times and in different ways.  One large lender priced it in with today's rates and the difference in closing costs would be substantial if you didn't know where they were coming from.  But the tax cut extension calls for a 10bps increase to a fee that lenders have to pay the government on each loan.  That 10bps fee is like 0.1% interest rate increase, almost as much as the .125% increments we just discussed!  So just like moving up and down by .125% increments in rate affected the costs by .4, .5 and even 1.2% of the loan amount, you can see how a difference of 0.1% being priced in overnight could have a drastic effect on closing costs on a particular loan depending on the lender and the initial rate.

Courtesy Mortgage News Daily

Before I talk about bathrooms, I would like to thank Bill Nickerson for this opportunity to introduce myself to you. My name is Ken Howell and I am the co-owner of Synergy Total Home, a residential contractor located in Acton. Together with my partner Julius Dunworth, we have more than two decades of experience transforming our customer’s houses into the home of their dreams. I would welcome the opportunity to speak with you about any project you have been considering. Now let's talk about bathrooms.

With the decrease in housing sales in recent years, homeowners are looking at ways to improve their current homes. One area that continues to be a popular area to remodel is bathrooms. That shouldn't be surprising, every house has at least a couple baths and some have more. At Synergy Total Home, we love doing bath remodels and our customers love the results. Let's look at some bath remodeling tends for 2012:

1.    Large, open custom showers:  Large showers made with designer tile are a big request right now. People like the rich look of tile and the custom appearance it offers. Adding to the open feeling are clear glass doors that are hinged rather than sliding. In addition, people want their baths to be a relaxing spa like retreat and one way to accomplish that is with multiple shower heads.  We do many custom showers with a fixed shower head and a handheld wand.

2.    Jacuzzi's are out, soaking tubs are in: How many of us have a jacuzzi that we never use?  The answer is most of us. And how about all the room some of them take up. Today more people are opting for simpler soaking tubs. A soaking tub is typically larger than a standard tub but still takes less space than a jacuzzi. Add a few candles and you are set for a relaxing evening.

3.    Bring in the light:  Our customers view their master baths as a sanctuary from a stressful world. They want them to bright and cheerful, even sun filled. Many of our customers are requesting more windows or even skylights were possible. Many glass options are available to ensure privacy.

4.    Big fan, little noise: Exhaust fans continue to be a popular request not to mention being required by code in most circumstances. But while people may want what the fan can do they don't really want to hear it doing it. Ultra quiet fans are what most people opt for. Properly installed these fans are almost impossible to hear. Fans are also available with lights and heat.

5.    Water closets: For those that have the space a separate water closet is a big advantage. Let's face it, we may love our spouse but we all need privacy now and then. Sometimes it requires relocating the toilet but with PVC pipes it’s not as complex as it may seem.

That's the first five; I will cover the second five in Bill's next newsletter. In the meantime, if you have any questions please contact me at

978 369 1006 or send me an email at kghowell65@msn.com. You can also check out our website at www.synergyrestorations.com

Article courtesy of:  Ken Howell, Co-owner of Synergy Total Home

This Week; of course it is still most about Europe, the saga that won’t go away, and likely not for years. Treasury rates ended last week at 1.87%. Mortgage rates continue to decline in the MBS market but lenders that buy the loans have not been pricing to the MBS market, holding prices lower than the market itself. The increased fees to finance the 2.0% social security tax cut financed by home buyers and re-financers is causing disruptions in pricing. Some lenders have used the fee increase to increase gains from originators by setting prices much lower than MBS markets trade---over and above making the price adjustments for the fee increases. Watch your lenders and compare MBS prices we report to how your lender is treating you.

This week a few key economic reports that will get traders’ attention; PPI, CPI, Philly Fed business index, Housing starts and permits as well as Dec existing home sales and weekly jobless claims all on tap (see economic calendar). US interest rate markets continue to hold well, at the same time the long end including mortgages is struggling to keep a positive bias. Europe’s travails and this week’s economic data should define whether rates will move lower. That said, with rate increases due to Congress using Fannie, Freddie and FHA to finance the social security tax cut, mortgage rates are not likely to fall much more even if US treasury markets improve somewhat. We remain skeptical on the longer term outlook for rates, rates are likely to increase a little this year with the economy improving. The wild card now is the Fed (Europe is always a wild card on a day-to-day basis); last week there were some that were floating the idea of another easing move from the Fed, still a minority view however. On the 24th and 25th the FOMC meets, likely there will be discussions on the subject.

Have a Wonderful Day!

Bill Nickerson

Vice President    Mortgage Network Inc

179 Great Road, Acton MA 01720

bill@billnickerson.com

978.273.3227

From the KCM Blog:

It used to be that there was logic applied in the world of mortgage lending. An appraiser determined the value of a home by the axiom, “what a reasonable buyer would pay a reasonable seller”. An underwriter weighed the plusses and minuses of a file (after analyzing the income, the assets, the credit profile and the appraisal) and made a judgment call based on their experience.

Loans with sizable down payments used to be more flexible with how income was documented or what quality of credit was required. Even the decision of what made up “good credit” has been reduced to a FICO score. Determining the risk of a loan affected its approval or denial. Further, loans deemed riskier were given less favorable terms (higher rates and/or costs or larger down payments).

But today, everyone has tried to quantify everything and put everything into a matrix. Credit scores are numerical, and the number determines eligibility and cost. Gone is the concept of explaining why you have defects in your credit. We don’t care why, we just look at your score. Appraisers now are being scored and their data being scrutinized to a level most would find mind-boggling. Amenities that make a home worth more for a particular buyer (like a pool or upgraded basement) are virtually ignored. Underwriters have primarily become fact-checkers and quality control as a computer software program underwrites the vast majority of mortgages today.

Gone is common sense. It has been replaced by numerical formulas and a cover-my-behind, justify-everything-with-data mentality. Basically, the pendulum has swung too far. It used to be that lending was too easy (see the subprime debacle), but now we have eliminated too much of the human element. We need common sense back.

·         People who have saved 30% for a down payment know what they can afford monthly. Don’t they?

·         People who had a medical challenge two years ago that is not likely to reappear should not have a twenty year credit history destroyed. Should they?

·         People aren’t likely to overpay for a home with so much inventory and all the media exposure about falling prices. Are they?

·         Bring back some common sense when we need it most!

From the KCM Blog:   http://www.kcmblog.com/2011/12/08/common-sense-isn%E2%80%99t-common-practice/

Bill Nickerson

Vice President Mortgage Network

179 Great Road Suite 214, Acton MA 01720

978-399-1313

Bill's Blog

Providing Mortgages Since 1991

NMLS # 4194

Commercial   Residential     Reverse FHA/VA

This Week; it will continue to be on what happens in Europe with the debt issues. It is not going to fall off the front page for our markets for many months; on Friday the leaders in Europe are scheduled to meeting on Friday. Markets are hoping there will be some kind of plan that emerges to deal with the debts of Spain and Italy but after two years of trying it is a leap of faith to expect anything substantive coming from the meeting. Not much in the way of key economic readings this week; Monday the Nov ISM services sector index and weekly jobless claims on Friday are the only serious data points.

Technically and fundamentally the US interest rate markets remain in narrow trading ranges; the 10 yr note still unable to hold under 2.00% but does find support anytime the yield climbs to 2.12% as it did last week. Mortgage rates and prices trading a even narrower ranges; the price on the 3.5 FNMA coupon has held in a 50 basis point price range now for almost a month. The week will continue to work off how equity markets, stock indexes higher---bond and mortgage prices lower. We remain skeptical that US interest rates will decline much from these levels, the larger outlook is that rates will begin to slowly increase from present levels.

For more information about mortgages and the housing markets, please call or email me anytime.

Bill Nickerson

Vice President Mortgage Network

179 Great Road Suite 214, Acton MA 01720

978-399-1313

Bill's Blog

Providing Mortgages Since 1991

NMLS # 4194

Commercial   Residential     Reverse FHA/VA

The “Books” say an average business cycle is 44.4 months and we have lived through many of them. Some longer than that and some as short as a season in New England.  A business cycle is like the exhibit from our youth…“What makes an ocean wave, wave” at the New England Aquarium.  In the exhibit, you get to move the wave with a lever and if you move the lever too much you have to pull it back as the wave comes crashing down…and again, you go too far the other way and the wave crashes in the other direction.  It’s impossible to control an ocean wave.  So here we are now in the middle of a business cycle “The Ocean Wave”. 

As Americans we do the same thing.  When we feel confident and wealthy, we tend to spend a little too much; perhaps buy a car that has all the bells and whistles or buy the  house we all dreamed of or even dined at the newest expensive restaurant we’ve never been to… building up that ocean wave.  We did this as a nation and created a very large wave.  We are in the “Trough” of the business cycle which is like a dead calm in the sea.  Nothing moves.  We are paralyzed by our own actions and cannot find a direction to get back…there is just no wind for our sails.  As individuals, we are going through our own personal process of what will get us back on track.  In some cases, we cancel our vacations, limit the activities our children participate in at school or even bring lunch every day.  By drastically cutting our spending, we have moved the “wave” too far in the other direction thus hurting the economy even further.  Not only have we given up those fancy dinners…we are not even going to the local diner for the blue plate special.

Consumer confidence is measured at an all-time low today and we are letting our emotions and fear govern our decisions and actions.  The News Media has the ability to heighten this fear by focusing on the negative and over emphasizing the issues at hand.   As FDR said, “The only thing we have to fear is Fear itself”.  This speech was given in 1933 in the middle of one of the biggest bank panics of the century which followed the Stock Market Crash of 1929.  There was a “RUN” on the banks where consumers wanted to withdraw all of the cash they had in the banks for fear it would be gone.  The banks had lent this money out for loans, mortgages etc. and the banks quickly ran out of cash.  FDR implemented the Federal Deposit Insurance Corporation “FDIC” that to this day insures our deposits up to $250,000.  This speech did spark a generation as well as the economy, and it was backed by a plan of how to get us moving as a country.  Today, we do not look up to our leaders.   And as of this moment, we do not have a plan of how to get out of the economic turmoil we are in.  So as a strong country, we must take matters in our own hands and move ahead…full steam ahead.

We are in a very unique situation in the economy: Mortgage rates are creating new historical lows every day, house prices are nearing levels of value we have not seen since 2004.  As we always do, we will look back on this day and say, “I wish I had bought that home, or vacation house or even that investment property”.  Trust me; it happens every time we go through these business cycles.  As I mentioned earlier, we are letting our emotions govern our business decisions.  That is not allowed in business.  It’s business and there is no crying in business!!  Remember the saying “Buy Low and Sell High”.  This is not just some catch phrase.  It is a sound business decision that should be followed regardless of your emotional ties. 

So what do we do now? 

·         Keep spending but in a healthy way.  Make sound buying decisions based on needs versus wants.  By putting some money back into the economy, we will slowly recover.

·         Look to your advisors!!  Not your friends or family, but your financial advisors.  This would be the person that handles your investments, your banking, and your estate.  These are professionals that do this time and time again all day every day. 

·         Be patient.  Throughout history we have experienced turbulent times in the business cycle.  And we have pulled out of it.  In the words of Warren Buffett, “Americans are in a cycle of fear which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We'll break out of it. It takes time.”

Bill Nickerson

Vice President Mortgage Network

179 Great Road Suite 214, Acton MA 01720

978-399-1313

Providing Mortgages Since 1991

NMLS # 4194 

Commercial   Residential     Reverse FHA/VA

You know by now S&P late Friday lowered the US credit rating to AA+ frm AAA; treasuries and mortgages markets opening better today on safety and panic moves while the stock market is being hit hard on the open. S&P has been warning for weeks it was preparing to lower the credit rating, the next thing in the ratings game is that Moody's and Fitch may follow in the next few weeks. What is the real impact? Initially equity markets will be pressured and interest rates will benefit, in the long run S&P has done us a great service in making the move. Congress and the Administration clearly demonstrated they are not willing to make any significant hard choices, maybe the cut in our rating (which is more symbolic than substantive) will shake up voters and politicians that the country is headed for a debt cliff at 100 miles and hour. Lets not get too worked up over S&P move, the US can pay our debts, the country is still the economic engine for the world, and compared to any other country the US is in every respect the strongest and safest place to invest. Don't fall into the camp that is spending the early part of the morning comparing our new credit rating to places like France and other so-called AAA countries.

Tim Geithner out this morning castigating S&P for their decision; Geithner and the Administration are wrong. The downgrade isn't going to matter much, markets understand exactly where the US stands and won't, in the long run, make much of this except that it may help drive home the point the country is on the wrong path and must get serious about the growing debt. S&P can be criticized for the move, the agency has little credibility in our view after being primarily responsible for the subprime disaster that triggered the global financial meltdown. The agency rated CDOs made up of junk mortgages AAA, then after Wall Street couldn't sell the highest risk tranches of the CDOs, it rated the worst of the junk AAA again. If S&P couldn't understand junk mortgages why does anyone expect they know what they are into now? 

There are no economic reports today.

This week has little in the way of data to deal with but there is plenty for the bond and equity markets to think about. Tuesday the FOMC meets and has a lot to talk about, a weakening economic outlook and the rating cut. Treasury will auction $32B of 3 yr notes Tuesday, $24b of 10 yr notes Wednesday, and $16B of 30 yr bonds on Thursday. On Friday July retail sales are expected up 0.5%, ex autos +0.2%. Also on Friday the U. of Michigan consumer sentiment index is expected down to 62.5 frm 63.7, likely that will be revised lower now with the S&P move. 

Crude oil falling again, gold up over $1700.00. The stock market opening very weak as investors are totally over doing the situation. The stock market is of course reacting to the economic slowdown but also this morning investors just dumping everything they can. All of it in the early going is a reaction to S&P which as noted, in our judgment not as big a deal as it seems to be in markets.  

At 9:30 the DJIA opened -210, NASDAQ -85, S&P -22; 10 yr note +26/32 2.47% -11 bp and mortgage prices +7/32 (.22 bp)

The early going is volatile, lets keep our heads though. Mortgages are better but lagging the 10 yr and treasuries in general. Equity markets will drive treasuries through the day; with the FOMC meeting tomorrow and the weakened economic outlook stocks are struggling. Technically the stock market is very oversold in the near term, the bond market overbought. Fundamentally the outlook for the economy is weakening. Over-extended technical’s but the fundamentals are presently over-riding what normally would be improving equities and lower prices on treasuries. As long as panic dominates technical indicators have to take a back seat.

Bill Nickerson

Vice President Mortgage Network

179 Great Road Suite 214, Acton MA 01720

978-399-1313

Bill's Blog

Providing Mortgages Since 1991

NMLS # 4194

Commercial   Residential     Reverse FHA/VA

Treasuries and mortgage markets were rallying early and got an additional boost at 8:30 on weekly jobless claims. Claims were thought to be about unchanged, as reported up 9K to 429K, the 11th week in a row over the key 400K level. Labor said six states were "estimated" due to computer issues so we don't really know what impact that might have had on the data. The data this week is the data that will be used to get to the employment data for the month of June.  Last week's claims were revised higher, to 420K from 414K. Continuing claims were about unchanged, from 3.698 mil to 3.697 mil. The 4 wk moving average on claims was unchanged. The slightly weaker report added to the rally moving the 10 yr note from +12/32 to +18/32 on the initial reaction. The stock market was hit yesterday, the DJIA down 80, at 8:45 this morning the index traded down 86 points and falling.

Yesterday Ben Bernanke and the FOMC meeting confirmed what most had known for two months, the US economy isn't growing much. The Fed lowered its outlook for GDP to +2.7% this year; earlier this yr the Fed was forecasting 4.0% growth but has been lowering the forecast at each FOMC meeting since Feb. Bernanke's press conference is shaking the economic bulls both late yesterday and this morning. For all the debate and discussions about the economy it is becoming more difficult to paint lipstick on the outlook. We have warned for months the economy won't grow much as long as confidence levels remain low.

The FOMC policy statement, its revisions for GDP growth less than previous, and Bernanke's press conference yesterday have cast an "official" pall on markets. Most traders had already recognized the economic slide, now with the Fed joining in the current sentiment has sunk to a new recent low. Increasing concerns of weakness in the outlook were confirmed by the Fed, the final so-called authority.

The decline in confidence in Washington is multiplying rapidly, as it does businesses are less willing to hire and consumers less willing to spend. It should be apparent now that consumers are smarter than most in Washington, getting their budgets under control. In the past consumers were responsible for 70% of GDP, over the next year or two if the economy is to gain growth it will rest on US exports. The short response to that, the US cannot grow if we have to rely on increasing exports.

At 9:00 the IEA (International Energy Agency) held an emergency press conference. The IEA is going to release 60 million barrels of oil to make a move to revive the global economies that are slipping quickly; 2 mill barrels a day for the next 30 days. America will release 30 mil of the total. In Europe sovereign debt problems continue to drag on worsening its outlook. Oil prices at 9:15 down $4.30 (see below for 10:00 level); gold is being slammed this morning on the dollar strength, down $28.00.

The dollar rose against all of its 16 major counterparts after Bernanke signaled yesterday that the central bank won’t add to stimulus measures that could erode the value of the currency. The euro weakened against the greenback before European leaders begin a two-day summit in Brussels today to discuss Greece’s financing needs as the nation struggles to stave off default. That the EU, IMF and Germany and France and Greece cannot get to finality is evidence that Europe's debt problems spread far more than just Greece and the tenuous condition facing the EU and its currency. How the Greek situation is resolved will likely set the tone for Spain, Ireland and Portugal and possibly Italy and then the EU overall.

At 9:30 the DJIA opened down 145, S&P -17 and NASDAQ -33. The 10 yr note 2.92% -6 bp and mortgage prices +8/32 (.25 bp). Running for the door with oil prices and gold falling. Yesterday's FOMC meeting, Bernanke's comments and the never-ending saga in Greece are piling on this morning. The 10 yr note though so far has not cracked 2.90%. The rest of the day in US financial markets will likely see increased volatility.

At 10:00 May new home sales, expected down 4.6%, were down 2.1%. 6.2 month supply. 319K units annualized. Median sales price $222,600 down 3.4% yr/yr. No immediate reaction in the markets on the data.

Although the 10 yr still hasn't pushed to test recent low yields, we will revert to floating overall except for closings occurring in the next 7 days. The Fed has finally agreed that the economic outlook isn't good and with inflation under control and Europe still slipping the bond and mortgage markets should hold. How much lower interest rates can decline is still a huge question in my mind, but there is little reason now to worry that rates will increase. The 10 yr note continues in its 10 basis point yield range. We expect market volatility to remain high for the next week or so.  

Bill Nickerson

Vice President Mortgage Network

179 Great Road Suite 214, Acton MA 01720

978-399-1313

Bill's Blog

Providing Mortgages Since 1991

NMLS # 4194

Commercial   Residential     Reverse FHA/VA

Early this morning the 10 yr note made a new low yield at 2.88% from 2.97% at the end of yesterday on increasing concerns over Europe's debt problems headlined by Greece. The European Union’s failure to contain the Greek debt crisis is sending fresh shockwaves through currencies, money markets, equities and derivatives. The cost of protecting corporate bonds soared to the highest level since January, with credit-default swaps anticipating about a 78% chance that Greece won’t pay its debts. Equities declined around the world, while a measure of fear in fixed-income markets jumped the most since November. Market moves suggest heightened concern that authorities won’t be able to keep Greece’s debt troubles from spreading after Moody’s Investors Service said it may downgrade BNP Paribas SA and two other big French banks because of their investments in the southern European nation.

At 8:30 weekly jobless claims and May housing starts and permits pushed yields up as the data was better than expected; weekly claims were down 16K to 414K. forecasts were that claims would be 421K, continuing claims also fell (21K). May housing starts were about what was expected, up 3.5% with single family starts up 3.7%; April starts were revised from -10.6% to -8.8%. Building permits were thought to be down 0.5% but reported up 8.7% the highest permits since Dec 2010; multi family was the main reason for permits higher, multi-family permits jumped 23%. The two data points took the wind out of the bond market and safe haven buying that had set a new low yield on the 10 yr and had mortgage prices up 8/32 (.25 bp) from yesterday's close.

At 8:30 the Q1 current acc't deficit was -$119.27B lower than -$130B expected. The current account measures the United States' international trade balance in goods, services, and unilateral transfers on a quarterly basis. The levels of exports, imports and the current account indicate trends in foreign trade.

By 9:15 the 10 yr note yield climbed back to 2.96% from 2.88% prior to the 8:30 data, mortgage prices at 9:15 unchanged after being up .25 bp at 8:15. The DJIA futures traded had the index unchanged at 9:15 after being down 70 points at 8:15. Volatility remains high as we noted yesterday.

Keeping the running story going, at 9:30 the DJIA opened down 6 points, the 10 yr at 9:30 +7/32 at 2.95% -2 bp and mortgage prices very volatile this morning up 3/32 (.09 bp). Trade between 9:30 and 10:00 wasn't significant with the 10:00 Philadelphia Fed business index due. Always significant to traders, this time it is even more so after yesterday's NY Fed manufacturing report went negative indicating contraction.

At 10:00 continued volatility with the Philly Fed business index; the index went NEGATIVE indicating contraction. The index was expected at +8 it fell to -7.7 the second report in the last 24 hours that the economy is contracting. New orders in the June report were negative at -7.6 indicating orders declined, the employment component fell to 4.1 from 22.1 in May while prices pd fell to 26.8 from 48.3. May Philly Fed was 3.9. The initial reaction put a small bid back into bonds and mortgages but not as much as we might have thought. The DJIA at 10:06 +26, the 10 yr +9/32 at 2.94% and mortgage prices +3/32 (.09 bp).

Provided by Sigma Research

Bill Nickerson

Vice President Mortgage Network

179 Great Road Suite 214, Acton MA 01720

978-399-1313

Bill's Blog

Providing Mortgages Since 1991

NMLS # 4194

Commercial   Residential     Reverse FHA/VA