House Prices Fall For Third Straight Month

Home prices fell in October for the third month in a row and it appears the housing market is headed for a double dip, according to the Standard & Poor's/Case-Shiller house price index.

Best time to make an offer on a house:

January.

Home buyers face minimal competition during this month because house hunting is no fun when the weather is at its worst. Less competition means greater odds that a seller will accept a low-ball bid. The weather is no better in February, but by then sellers are more likely to hold out until temperatures and the housing market begin to heat up in March.

The first Tuesday of January can be the perfect day to make an offer. Home owners will have recently made a month-end mortgage payment, a reminder of the high cost of holding onto an unneeded home. Tuesday also is a great day to make offers in slow housing markets because by then, home owners realize it's unlikely that other house hunters from the weekend's showings intend to make offers.

Alternate strategy: Make an offer on Christmas Day. Sellers are happy to receive an offer -- even on a holiday -- and people are in a good mood on Christmas, leaving them psychologically predisposed to be flexible and generous in their negotiations. Add a message to your offer explaining that the home would be the perfect place to raise your family -- we tend to become very family-oriented on Christmas. You will need a real estate agent who is willing to work on Christmas to do this.

Market Update

FNMA 30-YR 4.0%

Previous close 98.970
Opened Down 0.09bp @ 98.875

Key Economic Data:

EUR / USD 1.3063 Down 0.0037
USD / JPY 83.1385 Down 0.4330
GBP / USD 1.5407 Up 0.0021

OIL 90.53 Up 0.05
Gold 1,378.20 Down 9.20

Key Economic News:

Three constructive reports for growth
Consumer spending was firm in November atop upward revisions to October, solidifying the case for 4%-plus real growth for this component of GDP in Q4. (overall GDP expected to be 3%.) Although income was slightly better than expected, the composition was soft with only a 0.1% increase in wages and salaries. Core PCE inflation reached a new year-to-year low of 0.8%.

Meanwhile, durable goods orders were much better than suggested by the drop in total bookings, as those declines were concentrated in aircraft and back data were revised up. Unemployment claims continue to suggest labor markets improvement with initial claims in line with expectations and continuing claims dropping further.

Key Numbers:
Durable goods orders -1.3% in Nov (mom, +10.4% yoy) vs. median forecat -0.5%.
Ex transportation +2.4% in Nov (mom, +12.7% yoy) vs. median forecast +1.8%.
Personal spending +0.4% in Nov (mom, +3.8% yoy) vs. median forecast +0.5%.
Personal income +0.3% in Nov (mom, +3.4% yoy) vs. median forecast +0.2%.
PCE core index +0.08% in Nov (mom, +0.8% yoy) vs. median forecast +0.1%.
Initial claims -3k to 420k in week ended Dec 18 vs. median forecast 420k.
Continuing claims -103k to 4.064 million in week ended Dec 11 vs. median forecast 4.105 million.

10:00: Reuters/University of Michigan consumer sentiment for Dec (fianl)...edging higher? The median forecast for this index is slightly higher than the preliminary figure reported nearly two week ago. The median expectation for inflation five to ten years ahead edged back down to 2.7%, the low end of an extremely tight range in which this indicator has fluctuated over the past year.

Median forecast (of 67): 74.5, ranging from 71 to 76.7; last 74.2 (Nov final).

10:00: New home sales for NOv...a bounce off the low? Sales of new homes fell to 238k in October, just 1k above the all-time low reached in May. We expect a small increase. but not one that would move sales outside the 282k-310k range.

Median forecast (of 69): +6.0%, ranging from +0.7% to +13.1%; last -8.1%.

16:30: Federal Reserve balance sheet...The balance sheet now shows a clear break-out from the $2.3 trillion that had prevailed during most of 2010. Today's data will continue that trend.

Advice:

With this information I expect the market to sell off today.

Short term lock, long term float.

Market Update

FNMA 30-YR 4.0%

Previous close 98.750
opened Up 0.41bp @ 99.156

Key Economic Data:

EUR / USD 1.3157 Down 0.0032
USD / JPY 83.6950 Down 0.2873
GBP / USD 1.5554 Up 0.0022

OIL 88.40 Up 0.38
Gold 1,366.00 Up 6.80

Key Economic News:

No news items

Advice:

Short term lock, long term float.

Weekly Market Preview

This Week; Christmas week generally is quiet with little going on and very few players in the markets. No economic releases until Wednesday and Thursday, the markets will be closed on Friday. By 11:00 Thursday the only ones left will be the ones that are charged with turning off the lights. The rate markets are finally rebounding from the swift and deep selling. Last week by the time the bell rang mortgage markets and the 10 yr treasury note were unchanged on the week. Monday should see more improvements but we remain with our view that the path for rates is up, so use the rebound to your advantage.

The data this week includes existing and new home sales for Nov, personal income and spending for Nov and Nov durable goods orders. The outlook for 2011 remains solid in the minds of investors. We are not completely in that camp however; consumers are not as likely to spend as markets presently believe now.

Market Update

FNMA 30-YR 4.0%

Previous close 98.030
Opened Up 0.22bp @ 98.250

Key Economic Data:

EUR / USD 1.3230 Down 0.0014
USD / JPY 84.0690 Up 0.1565
GBP / USD 1.5518 Down 0.0155

OIL 87.53 Down 0.17
Gold 1,72.90 Up 1.90

Key Economic News:

Just the leading index today, hardly worth notice as it mostly repackages old news...

10:00: Index of leading indicators for Nov...a large gain. The big driver this month is the index of supplier deliveries; it should contribute 43bp to the increase. Other notable positives: the yield curve (+27), initial claims (+19), followed by real M2 (+11), stock prices and consumer expectations (+9 apiece), the workweek (+7), and probably small presumed increases in real orders (the Conference Board estimates these on the first round). The only clear negative comes from housing permits (-11).
Median forecast (of 59): +1.1%, ranging from +0.3% to +1.3%; last +0.5%.

Advice:

This news if anything will help to suggest that the economy is still improving and help the market sell today. As we get closer to the holidays we will also see less Traders around and the market could become more volatile. I would recommend locking today.

U.S. Senate passes sweeping tax-cut (really not an increase) compromise.

Fed leaves rates unchanged and sticks to $600 billion bond buy.

Paul R. Spenard
Mortgage Planning Specialist

(410) 668-7077 - PHONE
(443) 219-0700 - FAX

Sent via Blackberry

Key Factors Impacting the Housing Market

FALLING HOME PRICES

Home prices fell 2% in the 3Q following a modest gain in 2009. Home prices are down 1.5% year over year and off 2% compared to the second quarter, according to the S&P Case-Shiller Home Price Index.

RISING HOMES-FOR-SALE INVENTORY

The inventory of homes for sale is high with nearly 3.9 million on the market in October, according to the National Association of Realtors.

Additionally, there is an enormous shadow inventory of home in the wings. It is believed that much of the shadow inventory is due fraudulent mortgage documents so this inventory will only shrink as the documentation issues are resolved.

In the meantime, the inventory looms over the housing market and buyers back away from REO properties that may be 'hung up' in the documentation mess causing delays in or prevent closing.

It is believed that much of the shadow inventory is due fraudulent mortgage documents so this inventory will only shrink as the documentation issues are resolved.

THE FORECLOSURE MESS

The once hot foreclosed homes market has been hit hard as the big banks sputter in restarting the foreclosure process on the delinquent mortgages they hold. This is slowing the sale of shadow inventories and will exert downward pleasure on housing prices until the inventory is depleted.
It is believed that much of the shadow inventory is due fraudulent mortgage documents so this inventory will only shrink as the documentation issues are resolved.

UNDERAPPRAISED VALUES

Since the HVCC was passed the home appraisal process has come under increasing fire. Now that it has been placed under Consumer Protection tension has increased for two reasons: 1) many appraisers are 'low balling' values to cover their behinds, and;
2) other players in the home sales process like Real Estate and Mortgage professionals are kept out of the loop or able to discuss values and comps with the appraiser. Thus, the appraisal can be a deal breaker.

RISING MORTGAGE RATES

Mortgage rates are on the move, at six-month high, threaten purchase, refis and even the Fed. The Fed does not have room to lower rates and their monetary policy is putting upward pressure on rate.

RELUNCTANCE TO MOVE OR SELL

CoreLogic: 10.8 million US properties with negative equity in Q3. This presents a challenge for homeowners who would otherwise sell their homes and relocate for employment or other personal reasons.

Paul R. Spenard
Mortgage Planning Specialist

(410) 668-7077 - PHONE
(443) 219-0700 - FAX

Sent via Blackberry

Attracting What You Want

Here's a simple and effective way to attract what you want when you want, and it's not just about the Law of Attraction. 

Change Your Energy 

To attract what you want change or shift your energy. Everything in this world is made up of energy including us.

Other people pick up on your energy. If you have positive energy you'll attract positive people and positive situations into your life. If you have negative energy, you'll attract negative people and negative situations into your life. If you're not getting what you want then there's avery good chance that you're simply sending out the wrong energy. You'll attract what corresponds to your energy.

Negative energy attracts negative situations. Positive energy attracts positive situations. It's really that simple. So if you're not getting what you want, you're likely sending out the wrong energy. Change your energy and you'll start getting what you want.

Just what is your energy? 

Your energy is based on your thoughts and beliefs. Your subconscious mind picks up on your thoughts and beliefs. It then goes out and creates situations that correspond to your thoughts and beliefs (your energy). Other people pick up your energy on a subconscious level. They're not consciously aware of your energy but they just develop a feeling about you based on your energy. If you have negative energy you'll attract negative people and negative situations. At the same time you'll repel positive people and positive situations.

This is not a good combination if you want to create a positive and successful life. If you constantly think of the worst, if you find that you're regularly negative, if you don't believe that you can ever achieve anything, if you don't believe that anybody can be good, if you constantly complain, if you always see the worst in situations, if you regularly put others down, if you're just a negative person you will develop negative energy and in the end you'll only attract more negative situations into your life. 

These kinds of situations or negative energy will only make your life miserable and in the end it will be even more difficult for you to achieve your goals and create the changes that you want. At the same time you'll push away positive people and positive situations.

So by being negative and having negative energy things will continue to get worse. Being negative is really a no win situation and you should do everything that you can to stop being negative and eliminate any negative energy that you have. Change the way you see things and begin eliminating the negative thoughts and negative beliefs. This will change your energy so that you begin attracting what you want. Start changing how you think. Create positive thoughts and positive beliefs. Focus on finding solutions and you'll begin attracting more positive situations into your life.

Weekly Market Preview

This Week; interest rate markets will start at their highest yields since the huge sell-off began three weeks ago.

Last week there was no real economic measurements, this week the economic calendar has a number of data points that will get close attention; two inflation gauges (PPI and CPI), two regional Fed economic indexes (NY and Philadelphia Fed indexes), housing starts and permits for Nov (both expected to be stronger).

The elephant however is the FOMC meeting on Tuesday; the statement will be critical after the recent increase in rates, will the FOMC try to jaw bone the rate markets to slow the climb?
 
Interest rates, after all the recent hand wringing on the quick jumps in rates, are still historically low as we have reminded more than a few times. Everyone should try and keep the increase in rates in some wider perspective.

Interest rates were destined to increase, it was not logical that rates could stay as low as they were prior to Nov 4th when rates started their ascent.  Rates are increasing across the globe as the economic outlook improves.

China is helping add inflation concerns in the US bond markets; its rate is at 6.0% with increasing talk China may raise their rates. Here in the US the Fed has made it very clear it wants the US inflation rate higher, mix in the expanding US deficits and there are plenty of solid reasons why interest rates have increased.

How much higher? Likely they will continue to increase but not at the swift pace we have now. The bond market this week should do somewhat better as long as it gets a positive trigger from the economic releases.

Economic Highlights for the Week Ending December 10, 2010

MONDAY, December 6th

Treasury prices headed higher, subsequently lowering yields in the bond market today in response to Ben Bernanke's 60-Minutes interview that aired over the weekend. The Fed Chairman said that the central bank could increase QE2 beyond the announced $600 billion limit if necessary. He assessed the economic recovery at this time to be barely self-sustaining and that persistently high unemployment remains a threat. Bernanke said it could take 4 or 5 years to reduce unemployment by half the current 9.8% rate. The 10-year note was up in afternoon trading, as its yield fell to 2.95% from 3.00% late Friday.

TUESDAY, December 7th

Consumer credit increased by $3.3 billion in October compared to expectations for a $1.0 billion decline. Revolving debt balances like credit cards fell by a sharp $5.6 billion as lenders continued to write-off bad debts. Over the past year, revolving debt has fallen by an average of $7.1 billion a month and is expected to continue trending lower in the months ahead. Non-revolving credit categories like car loans increased by $9.0 billion in October after surging $10 billion in September as consumers purchased new vehicles due to better credit availability. Consumer credit usage remains dependent on reliable job growth.

Extension of the Bush tax cuts by the Obama administration and congressional Republicans today improved the economic outlook. The proposed tax cuts will provide a substantial boost to growth in 2011 and virtually eliminate the potential for the economy to slip back into recession. Economists project the economy to grow at a 4.0% rate next year with job creation of 2.8 million. It also greatly reduces the chance the Fed would have to employ additional easing measures. Yields were sharply higher across the maturity spectrum with the benchmark 10-year note yield up 21 basis points to finish at 3.13%.

WEDNESDAY, December 8th

The MBA mortgage applications index fell 0.9% to 603.5% for the week ending December 3. In a reversal of recent trends the purchase index increased in six of the last seven weeks gaining 1.8% last week but still down 12.7% on the year. The refinance index fell for the fourth straight week, down 1.4% and now 8.0% lower than last year.

THURSDAY, December 9th

Long-term fixed mortgage rates rose again this week and are now nearly 50 basis points higher than the record low set in mid-November. Investors fled the bond market this week as progress was made in the European debt crisis and as the outlook improved for the U.S economy. Yields rose and mortgage rates followed suit as the 30-year fixed rate rose to 4.61% from 4.46% in the prior week according to Freddie Mac's mortgage market survey.

Jobless claims dropped 17k to 421k for the week ending December 4. Initial claims for unemployment are trending irregularly lower and are now maintaining well below the 450k level. Claims remain elevated indicating still sluggish hiring conditions however; claims are headed lower showing some progress is being made in the labor market.

FRIDAY, December 10th

The international trade deficit on goods and services decreased to $38.7 billion in October from a trade gap of $44.6 billion in September. The shortfall was due to stronger exports while imports declined. Net exports subtracted 1.75 percentage points from Q3 GDP; October trade data suggests net exports will add positively to Q4 economic growth.

Consumer sentiment increased to 74.2% in early December from 71.6% in November. Consumers' ratings of both current conditions and expectations increased this month. Sentiment is up sharply in the past two months indicating perhaps, a turn toward optimism.

The federal government ran a $150.4 billion budget deficit in November compared to a $120.3 billion deficit in November 2009. Calendar effects on outlays are the reason for the year-over-year deterioration in the budget. Fiscal year-to-date the cumulative budget deficit is running at $290.8 billion vs. a $296.7 billion deficit for the same period last year. After improving somewhat last year the CBO projects the 2011 budget deficit to be on par with the record 1.4 trillion deficit of 2009.

WEEK IN ADVANCE

Very little economic data is due out in the coming week so there may be some carry-over of the disappointing jobs report today. Actions by the lame duck Congress will be watched keenly as the Treasury sets to auction another $66 billion in notes and bonds. Interest rates may fall under downbeat data, policy and supply concerns.

Economic Highlights for the Week Ending December 3, 2010

MONDAY, November 29th

Along with a full slate of economic releases this week, the lame duck Congress reconvenes for their final session. Many weighty issues have been left for decisions during this time including the Bush tax cuts, set to expire January 1 and extension of unemployment benefits for nearly 2 million workers. Some form of relief is likely in both cases. Funding the budget and more importantly, reducing the deficit are also on the agenda. A stronger economy will help broaden the tax base and naturally reduce the need for federal spending. Additionally, deficit reduction will require sacrifices in the form of higher taxes and deep spending cuts in many programs that could impact many Americans.

TUESDAY, November 30th

The S&P/Case-Shiller 20-city home price index fell 0.8% in September the third straight monthly decline. Home prices are now only 0.6% above their year ago level. As recently as May, home prices were up 4.7% year over year. Sharply lower home price gains in the past four months is reflective of soft existing home sales during the period combined with a high percentage of distressed sales. Larger home price declines can be expected going forward as foreclosure inventories work through the market next year.

The consumer confidence index increased to 54.1% in November from a level of 49.9% in October. The gain was led by a higher expectation score though present situation ratings were up slightly as well. Nevertheless, confidence remains mired in recessionary territory as consumers wait for stronger job creation and faster growth.

WEDNESDAY, December 1st

The MBA mortgage applications index dropped 16.5% to 608.8% for the week ending November 26. The purchase index increased 1.1% on the week as the refinance index plunged 21.6%. The refinance index is trending sharply lower over the past several weeks while it appears that purchase activity may finally be recovering from its post-tax credit correction. Currently rates remain near historic lows and credit markets continue to thaw which should encourage homeowners to refinance. Home sales and purchase activity remain dependent on a substantial turnaround in job and income growth.
The ISM manufacturing index slipped to 56.6 in November from 56.9 in October. Manufacturing activity nationwide is holding up well; the level of the index indicates continued expansion in manufacturing activity nationwide with mild expansion in the broader economy.
Motor vehicle sales maintained an elevated 12.3 million unit annual pace in November, matching the highest sales level since September 2008, with the exception of the cash-for-clunkers program in August 2009. Despite the improvement, vehicle sales remain well below their longer running average of 16 million units per year. Sales are not expected to return to that pace for another year or two.

The Fed's beige book summary of economic conditions in their 12 banking districts during October and early November showed that the economy continued to improve on balance in most all areas of the country. Consumer spending, manufacturing and jobs growth were slightly stronger while inflation and wage pressures remained subdued. The housing market and commercial construction remained the weak spots. The report, compiled in preparation for the December 14 FOMC meeting, indicates the fed funds rate will be maintained close to zero for an extended period.

THURSDAY, December 2nd

Jobless claims jumped by 26k to 436k for the week ending November 27. Even with the gain, initial claims are trending lower and maintaining a range below 450k suggesting the pace of layoffs has slowed again. Other data from the labor market however suggests the pace of hiring has yet to pick up in earnest.

The pending home sales index rose 10.4% in October to 89.3%. The rise in the index over the last few months could result in stronger existing home sales in November and December. However, any improvement in home sales will be from a very low level.

FRIDAY, December 3rd

Payroll employment grew by 39,000 in November much less than an expected job gain of 145,000. The government shed 11k jobs while private sector jobs rose by 50k. Upward revisions in the prior two months resulted in a net gain of 38k additional jobs which provided some offset to weaker-than-expected private sector job growth. So far this year the private sector has created 1.171 million jobs; employment is still 7.412 million below its December 2007 peak level. Separately, the unemployment rate rose to 9.8% last month from 9.6% in October.

Illegible Tea Leaves

With the credit markets reacting frostily to the Fed's QE2 program of buying up gobs of Treasury securities (roughly $75 billions worth each week until the middle of next year, unless economic changes—or intense political pressures—dictate a change to that schedule), interest rates showed an upward trend over the week. The average rate on the Freddie Mac 30-year FRM, in particular, climbed from the prior week's record low of 4.17% to a startling 4.39%. Measured from Wednesday through the following Thursday each week, this average mortgage rate should have our full attention.

Interest rates were buoyed by a few rather positive economic indicators as well.

Keeping in mind that the main thing needed by the real estate market to stimulate sales is that consumer confidence rise because of better job formation in America and by increasing retail sales. Thus, the slight decline in unemployment insurance claims—that is, in the 4-week average of new claims—gains a certain significance. In reality, new claims actually rose by 2,000 in the volatile weekly data. But the 4-week average showed a loss of 4,000, and that took the number total claims to 443,000, which is the lowest level since the first week of September, 2008.

This bears watching, of course. (Keep the corks in the champagne bottles.) But a feeling of greater optimism may be justified.

Earlier in the week, we learned that retail sales last month reached their highest level since August, 2008. This may be a harbinger of better-than-expected holiday sales and may foretell better economic growth.

It's good news, but as the frequent reader of this and other economic updates knows, such good news often translates into slightly higher interest rates. So here we have the source of yet more upward pressure on rates.

This is brings in the credit markets a great many borrowers who want to grab a low rate before rates rise still further.

So what are the inevitable "on-the-other-hands" these days? First, there are tremendous worries about the viability of the QE2 plan. Foreign critics seem worried primarily that America is trying to sneak an advantage for its exports by reducing the exchange-rate value of the dollar (and thus making our products less expensive to foreign importers). Needless to say, Fed officials have been vociferous in denying that they have this intention—though QE2 may possibly produce this result (among others). American critics worry about the level of inflation it may create.

Second, in any case, is the worry produced by Ireland's obvious fiscal problems. If you think the problem of getting Republicans and Democrats to agree on the same solutions to our debt woes is nearly impossible to overcome, consider what it's like when the challenge includes agreement among more than a dozen different nations. So, as The Economist notes this past week, the countries are making a mess of it. What we sense in the larger economic world is a huge sigh of relief whenever—as happened last week—it seems that a bail-out is being achieved…followed by fear and gnashing of teeth as it later becomes apparent that more needs to be done or, in the case of Greece, genuine economic recovery is much further away than most are willing to say.

Then there's the matter of China's rising inflation rate, and the possibility of price controls to keep it under control. More on that later.

With such counterforces, it's difficult to assume rates will continue to rise in a steady pattern. Nonetheless, the downward slide—and the Fed's ability to keep it in place—seem to have been at least temporarily broken.

by: Bill Fisher

Al Gore admits ethanol is stupid

"First generation ethanol I think was a mistake. The energy conversion ratios are, at best, very small."

This quote doesn't come from a Stansberry analyst... It's from the godfather of clean energy, Al Gore. Speaking at a green energy business conference in Athens, Greece, Gore admitted how stupid ethanol is.

The U.S. ethanol industry will consume around 41% of the U.S. corn crop this year and 15% of the world's crop, according to Goldman Sachs. And it takes far more energy to produce ethanol than the fuel provides... It's a net negative energy product.

If you believe consuming fossil fuels is bad for the planet, you must believe ethanol is terrible for the planet. In addition to whatever damage it does to the environment, ethanol consumes massive amounts of corn that should be used for food (corn is the single-most important commodity for the world's food supply). Gore even admitted ethanol has "an impact on food prices."And why did Gore support this absurd mission in the first place? Because he was running for president:
One of the reasons I made that mistake is I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for president. So Al Gore jeopardized the environment and caused people to starve all because he wanted to become president.

China's central bank raises reserve-ratio requirement by 50 basis points

List of Fed's enemies grows longer as bond market carnage spreads

It's always gratifying when the mainstream media picks up on a theme you've been banging away at for weeks. And boy is that happening now. Just get a load of the headlines we've seen in recent days:

"Fresh Attack on Fed Move; GOP Economists, Lawmakers Call for Abandoning $600 Billion Bond Purchase" —

Wall Street Journal, November 15

"Under Attack, Fed Officials Defend Buying of Bonds" —

New York Times, November 16

"Fed officials defend $600bn stimulus" —

Financial Times, November 16

"Bond Market Defies Fed; Interest Rates Rise Despite Launch of Treasury Buying as Investors Take Profits" —

Wall Street Journal, November 16

The gist of these articles? That the Fed is scrambling to defend its quantitative easing policy.

Key policymakers are giving rare, on-the-record interviews about QE2's benefits, while simultaneously trying desperately to blunt the criticism coming from foreign central bankers, domestic lawmakers, prominent economists, and more.

Fed Fighting a Losing BattleDefending the Undefendable!

My take? The Fed is right to worry. I say that because its QE2 program isn't just

not helping. It's actually

hurting the markets.

Take long-term Treasury yields ...

As I've been pointing out recently, they've been rising rather than falling, and that move only gathered steam earlier this week. In fact, the yield on the 30-year Treasury bond hit 4.38 percent on Monday — the highest in six months! And ten-year yields hit a three-and-a-half-month high.

Then there's the mortgage market ...

Yields on mortgage-backed securities surged almost half a percentage point in just a handful of recent days, presaging a rise in retail mortgage rates. So much for the Fed's policy helping homeowners.

And then there's the municipal bond market ...

It has completely imploded in the past several days. Take a look at this chart of the

iShares S&P National AMT-Free Municipal Bond Fund (MUB). It's one of the most actively traded benchmark ETFs for the municipal bond market, with more than 1,100 securities in its portfolio.

You can see it's in freefall, with one of the sharpest declines since the credit crisis days of late 2008. MUB has now lost every penny of gains it's made in the past 15 months ... in just a few days! Long-term muni yields, which move in the opposite direction of prices, surged by the most in 18 months!

The move doesn't stem entirely from concern about the long-term inflationary impact of Fed money-printing, or the back up in Treasury yields ...

Muni investors are worried that federal support for state and local governments could wane now that the political winds are shifting in Washington. They're also concerned that we could see a fresh upswing in issuance given deteriorating municipal finances.

But clearly, the cost of borrowing is now not only going up for Uncle Sam. It's also rising for governments all over the country, and mortgage borrowers. And it's starting to inch higher for corporate debtholders.

Opposition Rising in Washington —and Everywhere Else

As interest rates surge, the opposition to Bernanke's policy intensifies.
Is it any wonder then that a large group of prominent economists just published an open letter to Ben Bernanke, begging him to stop the madness before it's too late?

The group, which includes Michael Boskin, a former chairman of the President's Council of Economic Advisors ... Douglas Holtz-Eakin, a former director of the Congressional Budget Office ... and Kevin Hassett, a former senior economist at the Fed itself, said:

"We subscribe to your statement in

The Washington Post on November 4 that 'the Federal Reserve cannot solve all the economy's problems on its own.' In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

"We disagree with the view that inflation needs to be pushed higher, and worry that another round of asset purchases, with interest rates still near zero over a year into the recovery, will distort financial markets and greatly complicate future Fed efforts to normalize monetary policy.

"The Fed's purchase program has also met broad opposition from other central banks and we share their concerns that quantitative easing by the Fed is neither warranted nor helpful in addressing either U.S. or global economic problems."

The rising opposition to the Fed is further evidence that the global money war I've been worried about is intensifying. It's proof positive that my previous advice to stay away from both long-term Treasuries and long-term debt of any kind, including municipals, was on target.

We'll likely see a bounce in bond prices soon, given the massive sell off. But I think this market action is a signal to take some profits off the table after the recent major run in risk assets.

By Mike Larson

U.S. benchmark 30-year mortgage rate at highest point since August

Meeting Highlights: Short-Sale and FHA Fraud Are Top Focuses

In order to prevent fraudsters from flipping properties quickly at high appreciation, lenders will be focused in the coming months and year on putting a stop to "flipping" by putting processes in place to eliminate short-sale fraud.

Going forward, there may be some sort of "seasoning requirement" implemented, such as a policy where the property can't be flipped within 90 days, according to Frank McKenna, vice president of fraud strategy for analytics provider CoreLogic.

"Lenders will be focused on trying to get the FHA to increase their seasoning to 90 days as well, because the FHA lifted the 90-day retail requirement of the property where you couldn't resell a property within 90 days," McKenna said in a phone interview following the CoreLogic Mortgage Fraud Consortium Members' Meeting in Chicago.

"They will be focused on closing fraud—fraud that occurs after the transaction funds by closing agents. They've done a lot of good work on the origination side, but they don't have any visibility into what happens after the loan closes. There's a lot of embezzlement by closing agent fraud."

While fraud risk had trended down dramatically through 2008 and even into early 2009, in mid-2009 and 2010 it started to creep back up again, McKenna told National Mortgage News.

The increase is a result of high-risk government lending programs like FHA and the Home Affordable Refinance Program.

"A lot of those programs are bringing risk back into the market," he said.

"Lenders said their biggest concern this year is 'flipping' again. They are concerned with all of the distressed properties out there like short sales and foreclosed properties. There are a lot of investors that are taking advantage and flipping the properties the same day for sometimes 50% to 100% more than the property sold for. They are seeing that as a very big problem right now."

Government experts from the Federal Bureau of Investigation, Financial Crimes Enforcement Network, Internal Revenue Service and Financial Fraud Enforcement Task Force were on hand to discuss policies and trends.

Lenders indicated that in 2010 FHA fraud is "the area that they are focusing in on," McKenna said.

While there is strong underwriting, it doesn't stop the fraud from happening. FHA is "still very attractive" to the fraudsters and fraud rings because they like to recruit straw borrowers.

"FHA guidelines, in terms of who qualifies and how much they have to put down, are a lot more lenient than the typical type of conforming programs. They can recruit young college graduates who don't have a lot of credit history or people who don't have great credit history and they only have to put 3% down."

In order to help lenders prevent fraud, CoreLogic has launched a short sale monitoring solution, which it will most likely extend to foreclosure monitoring in the future. Through the technology platform, lenders can share their information on what properties they are short-selling.

"If there are any subsequent loans that are made on those properties, we will notify the lender so they can stop them," McKenna said.

"It's less about the technology and more about the sharing of data. The big piece of it is that lenders agree to share their information with each other to stop fraud. Most of the big lenders are involved. Just last week, five of them sent in their data to pilot the solution. We are getting a lot of traction in the sharing concept."

The rate of fraud or suspicious sales is about five to 10 times higher on REO properties than for short sales.

Foreclosure moratoriums could impact fraud by "not putting these types of properties on the market" for a period of time, McKenna told NMN.

"Everything gets backlogged. There may be more of a flood of foreclosures in a flip. This might create more opportunity for fraudsters. Fraud rings love to operate in an environment of a lot of volume because there's more of an opportunity to flip things very quickly."

CoreLogic started data sharing a couple of years ago for shot-gunning fraud through a multiclosing alert program. Lenders shared their data to be notified in home equity lines of credit when there were other loans being made on the same property concurrently with their own.

"To date, known dollars saved is something over $300 million in loans that were stopped because of the fraud ring activity. It basically eliminated the problem."

Among other highlights from the meeting, HVCC requirements are something lenders want to know if the fraud rate is lower when the appraiser is independent from the broker. There are certain loan programs that are not requiring that independence, McKenna said, and brokers are allowed to pick appraisers.

"They want to know the difference in the fraud rate. They believe that independence creates a much lower rate of fraud. They want us to investigate that for them," McKenna added.

"They are noticing a lot more appraisal fraud in today's market because of the distressed real estate market"

By Jennifer Harmon

Economic Highlights for the Week Ending October 15, 2010

MONDAY, October 11th.

COLUMBUS DAY

Equities and Futures Markets Open
TUESDAY, October 12th

The minutes from the September 21 FOMC meeting showed that policy makers, concerned about the sluggish pace of the recovery, considered initiating quantitative easing measures at this meeting but decided to wait. The data since that time has most definitely confirmed still weak labor market conditions with the release of the September employment report and very weak inflation readings. The Fed will probably act November 2, announcing plans to purchase more securities and using the policy statement language perhaps, to raise inflation expectations.

WEDNESDAY, October 13th

The MBA mortgage applications index jumped 14.6% to 897.2% for the week ending October 8. This was the first increase in six weeks, its largest gain since mid-June and its highest level since mid-May 2009. Mortgage activity is now 20.8% above its year ago level. The purchase index sank 8.5% last week and remains down 37.5% over the last year. The refinance index surged 21.0% on the week and is up 50.0% from a year ago. Refinancing activity now accounts for more than 80% of total new mortgage activity. Contract mortgage rates fell again this week with the 30-year fixed down 4 basis points to 4.21%.

THURSDAY, October 14th

Jobless claims increased 13k to 462k for the week ending October 9. The disturbance in the recent downward trend in claims suggests an elevated pace of layoffs. A declining number of continuing claims last week suggests that many people collecting unemployment have exhausted their benefits rather than finding a job. For the most part hiring remains anemic.
The producer price index rose 0.4% in September as food prices jumped 1.2% and energy costs increased 0.5%. Excluding food and energy from the index, the core PPI gained 0.1% on the month and was up a mild 1.5% on the year. Core producer inflation remains subdued although it has been slowly climbing over the last six months. Core prices at the crude and intermediate stages of production are elevated although they are not being passed through to the finished stage at this time because of limited pricing power related to weak demand and slow economic conditions.

The international trade deficit on goods and services widened to $46.3 billion in August from a shortfall of $42.6 billion in July. The larger trade gap was a result of a much stronger gain in imports during the month compared to exports. Both imports and exports hit bottom in April/May 2009 and have bounced back significantly since then. This has led to a widening of the trade deficit and much weaker net exports. Net exports will once again subtract from Q3 GDP but at a slower pace than in Q2.

FRIDAY, October 15th

Retail sales rose 0.6% in September better than an expected gain of 0.4%. Moreover, retail sales in the previous two months were revised higher. Over the past year retail sales have increased a strong 7.3%. Some of the sales strength last month was based on an increase in unit vehicle sales. Excluding motor vehicles, core retail sales rose 0.4%, in line with expectations. Based on these data, consumers continue to shop despite high unemployment, sluggish income growth and relatively tight credit. Real consumption will be a positive contributor to Q3 GDP.

The consumer price index rose 0.1% in September less than an expected increase of 0.2%. Food prices rose 0.3% while energy prices jumped 0.7%. Excluding food and energy prices from the index, core consumer inflation was unchanged on the month and up a very mild 0.9% on the year, its lowest yearly gain in nearly 50 years. Soft final demands, slack in the economy combined with financial deleveraging contribute to disinflationary tendencies, the point at which inflation is too low. The quantitative policy moves the Fed is contemplating for their meeting will likely result in higher inflation expectations.

Week in Review

The whole financial world here and abroad is positioning itself for the second round of  "quantitative easing" by the Fed to begin on November 3.

Last week, bond markets overshot hopes for the impact of Fed purchases of Treasurys with invented money, and this week yields have bounced back up. However, everything is on hold until we learn the duration, magnitude, and actual effect of QE2.

Adding to expectant tension: China's August exports to the US rose to $35.3 billion, and its imports from us fell to $7.3 billion. One effect of QE2 may be a currency war; despite the vulnerability to China feared by so many, these trade figures beg the question: Who exactly, needs whom?

The media, politicians, consumer advocates, ambitious state Attorneys General, and hungry lawyers everywhere have seized on RoBoForeclo, the nation's newest self-destructive mania.

Substance. Foreclosure resembles pregnancy in that one either has a mortgage in public record against real property collateral, or not; and one is either current on that obligation, or not. Every state and many counties have different statutes and procedures, but all have extensive time periods for the mortgagor to bring current a default, or to deny the existence of the obligation.

Substance. Despite frantic media digging, I have not heard a single documented case in which an owner lost a home who did not owe the money and was not in default.

We are a nation of laws, and hence procedures that must be followed; there should be embarrassment and penalties for bad-faith actors. However, when courts consider damage awards, separating actionable from incidental, culpable from sloppy, they ask who was harmed and to what degree. No one has been harmed in RoboForeclo.

Facts aside, this wounded and confused America, goaded to lash out may do terrible harm to what's left of housing and credit. A nation of scorpions in a bottle.

Mortgage servicers are a pain and have no friends. They don't deserve any. They send to us bales of mail and solicitations for things that we do not want. They make mistakes, and then threaten. They are organized to compress costs, which means -- as so much of the modern world -- they do not answer their phones. These are data-processing people, not underwriters, decision-makers, or "deal" people.

Mortgage bill-collecting ("servicing" void of service) began to separate from lenders and owners of loans with the creation of Ginnie Mae in 1968. Of today's $10.6 trillion mortgage stock, perhaps 75% is serviced by an entity that is merely a contractor to the owner of the promissory note. Servicers have no more to do with stupid and predatory lending than your car mechanic controls GM's design of your Chevy.

The natural rate of mortgage default in the 40 years before this disaster was less than 1% per year. In the 30-million-loan portfolio of Fannie and Freddie alone (no matter what shills and idiots say, the highest quality pool in the US), about half of the nation's total, 4.6% of loans today are 90 days or more past due or in foreclosure, and another 7.5% are delinquent. Perhaps ten times normal, and conditions are vastly worse for sub-prime, Alt-A, and Option Arm servicers. The Fannie-Freddie data resides at

http://www.fhfa.gov/webfiles/16687/2q10fprfinal.pdf

together with their servicers' immense burden to mitigate loans.

No big business can scale up ten-fold in 18 months. Imagine Toyota trying it, or Alcoa, or Exxon, or Microsoft. This RoBoForeclo lynch mob might recall the Fannie-Freddie regulator's demand last summer that servicers move faster to foreclose. Total filings, all loan types in September alone: 347,420 (RealtyTrac).

When I consider all of the real damage done in the Great Recession -- ruined hopes and dreams, honest and hardworking families simply run over, and the cheering at home-price declines by the hard-money liquidationists -- this national rush to pick nits by hangman's noose reflects an angry and pathetic helplessness.

Rate Hits Low Unmatched Since 1951

Freddie Mac found the latest drop in the 30-year rate brought it to a level that the Federal Housing Administration suggests may have last been seen in 1951 and recent Fed statements suggest more possible downward pressure could be seen.

Although Freddie Mac’s survey for 30-year loans started only in 1971, it has FHA data going back to 1948 showing long-term rates have been not only been at survey record lows, but lows that pre-date Freddie Mac’s formation in 1970 by decades.

Rates could fall even further. Freddie Mac deputy chief economist Amy Crews Cutts told this publication Fed officials’ recent indication that they’re open to the idea of purchasing more securities-likely Treasuries-has likely contributed to downward pressure on rates and may continue to.

But she warned that there also is the possibility that Fed officials may not take further action. “Sometimes they can simply say something and then they don’t have to do anything because they’ve gotten the market to move,” she said.

If the Fed does buy more securities, it could put downward pressure on rates determined by the extent and speed of the purchases—factors that had not been discussed or signaled at press time. If the recent history of Fed securities purchases is any guide, the move will be well-signaled and do little to disrupt the market, and could be followed by a period of moderation and perhaps a slight increase in rates if the Fed were to withdraw from the purchases.

During the week ending Oct. 14, the average 30-year rate fell to 4.19% from 4.27% the previous week and 4.92% a year ago. The 30-year rate has been below 5% for 23 weeks in a row. Average points on 30-year loans, however, are higher than for any other loan product tracked by Freddie Mac except for one-year ARMs-which match it—at 0.8.

The average 15-year rate during the week ending Oct. 14 was 3.62% with average points at 0.7, down from 3.72% the previous week and 4.37% a year ago.

The average five-year Treasury-indexed hybrid rate during the week ending Oct. 14 was 3.47%, the same as the previous week and down from 4.38% a year ago. These loans’ points averaged 0.6 in the latest week.

The average rate for a one-year Treasury adjustable-rate mortgage was 3.43% in the latest week, up from 3.40% the previous week but down from 4.60% a year ago.

U.S. benchmark 30-year mortgage rate falls to record low

The Fed is dead, maybe by 2012

Commentary: A magic metric that predicts America's future

OK, so Nassim Nicholas Taleb, the "Black Swan" author, actually said: "The Fed won't exist in 25 years." Warning: It'll happen much sooner, fallout of the coming Second American Revolution.

It's inevitable: Wall Street banks control the Federal Reserve system , it's their personal piggy bank. They've already done so much damage, yet have more control than ever.

Warning: That's a set-up. They will eventually destroy capitalism, democracy, and the dollar's global reserve-currency status. They will self-destruct before 2035 … maybe as early as 2012 … most likely by 2020.

Last week we cheered the Tea Party for starting the countdown to the Second American Revolution. Our timeline is crucial to understanding the historic implications of Taleb's prediction that the Fed is dying, that it's only a matter of time before a revolution triggers class warfare forcing America to dump capitalism, eliminate our corrupt system of lobbying, come up with a new workable form of government, and create a new economy without a banking system ruled by Wall Street.

Let's reexamine the timeline closely:

Stage 1: The Democrats just put the nail in their coffin confirming they're wimps when they refused to force the GOP to filibuster Bush tax cuts for billionaires.

Stage 2: In the elections the GOP takes over the House, expanding its strategic war to destroy Obama with its policy of "complete gridlock" and "shutting down government."

Stage 3: Post-election Obama goes lame-duck, buried in subpoenas and vetoes.

Stage 4: In 2012, the GOP wins back the White House and Senate. Health care returns to insurers. Free-market financial deregulation returns. Lobbyists intensify their anarchy.

Stage 5: Before the end of the second term of the new GOP president, Washington is totally corrupted by unlimited, anonymous donations from billionaires and lobbyists. Wall Street's Happy Conspiracy triggers the third catastrophic meltdown of the 21st century that Robert Shiller of "Irrational Exuberance" fame predicts, resulting in defaults of dollar-denominated debt and the dollar's demise as the world's reserve currency.

Stage 6: The Second American Revolution explodes into a brutal full-scale class war with the middle class leading a widespread rebellion against the out-of-touch, out-of-control Happy Conspiracy sabotaging America from within.

Stage 7: The domestic class warfare is exaggerated as the Pentagon's global warnings play out: That by 2020 "an ancient pattern of desperate, all-out wars over food, water, and energy supplies would emerge" worldwide and "warfare is defining human life."

In this rapidly unfolding scenario, the Fed cannot survive. Why? Not because the Fed is at the center of America's economic problems, beyond repair, a dying institution. But because the Fed is a pawn of Wall Street's Happy Conspiracy, which is incapable of seeing the train wreck that it set up.

This out-of-control, conspiracy of greedy Wall Street bankers, corporate CEOs, corrupt politicians and Forbes 400 billionaires will, in the near future, trigger the third catastrophic meltdown of the 21st century, a collapse that paradoxically can transform America into a new, stronger post-capitalist economy … but only after a revolution and brutal class warfare. But few will talk about what's coming.

Warning: Never trust the American Treasury Secretary

So who can you trust to tell us the truth? Taleb says it's very simple. His "simple metric" was made clear at a recent "Washington Ideas Forum" in a piece by Atlantic editor Nicole Allan: Unfortunately most fail Taleb's test. Most get it wrong. Many lie, exaggerate, speak half-truths or, worse, say nothing.

Here's Taleb's "simple metric for judging whose economic opinions are worth his time: 'Did someone predict the crisis before it happened" in the past? "If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming then I want to hear what they have to say" about future crises.

Taleb target No. 1: Treasury Secretary Tim Geithner, who spoke just before Taleb at the forum. Of course, experience tells us you really can't trust anyone in government. All politicians fudge the numbers, cherry-pick data to suit their personal goals, biases and political rhetoric.

Remember Hank Paulson, Wall Street's Trojan Horse inside Washington? Earlier he had made over half a billion as Goldman's CEO. Back in July 2007 before the meltdown he bragged to Fortune that this is "the strongest global economy I've seen in my business lifetime." Never trust anything "leaders" like him say. Never.

Worse, he and our clueless Fed Chairman Ben Bernanke later lied to the public that the subprime crisis was "contained." No, my friends, you cannot trust politicians and government insiders. Never.

Warning: Never trust economists and bestselling authors

Allan continues: "Other unlucky economic figures who failed Taleb's test included writers Paul Krugman and Thomas Friedman. 'You have a million people on this planet who call themselves economists,' Taleb said. 'How many people understood the risks of the system" before the crisis? Paul Krugman was not one of them.'"

Taleb warns: Nobel economist Krugman not only supports Keynesian deficit spending, he favors the "transformation of private debt, with all the moral hazard it entails, into public debt" that's toxic from a "risk standpoint." Worse, it's "immoral." Our "grandchildren should not bear the debts of the grandparents." OK, add Nobel economists to the list of people Taleb says you can't trust to speak "the truth.

Actually, using Taleb's "metric," you can't trust any economists. Why? Because all economists, even the best, are capable of making catastrophic errors: Remember Greenspan's sad apologies during congressional hearings after undermining America for 18 years. And remember Michael Boskin's classic $12 trillion error? Bush Sr's chairman of the Council of Economic Advisers, a respected Stanford economist, attempted to justify some cockamamie logic that his newfound Social Security savings would lower America's debt, giving a political boost for his party. He was $12 trillion wrong.

No, folks, you can't trust any economists, they're just average humans. Most have strong political biases. They're hired mercenaries who say whatever their employers ask them to say, pawns working for some Wall Street bank, corporation or politicians.

Yes, Allan reveals another character Taleb can't trust for economic advice. Prize winning authors like NY Times columnist Tom Friedman who's book, The World is Flat is "very bad for society," misleading, having failed to "assess risk." So scratch celebrity authors from the list you can trust to tell you the truth about the future of America.

Warning: Never trust Congress, the Fed chairman or the president

Taleb is merciless when it comes to politicians like President Obama, Congress and The Fed chairman: You can't trust any of them. Earlier Bernanke's reappointment "stunned" Taleb: He "doesn't even know he doesn't understand how things work or that the tools he uses are not empirical," wrote Taleb in HuffPost. But it's "the Senators appointing him who are totally irresponsible ... The world has never, never been as fragile," and we're stuck with an economist running The Fed whose methods make "homeopath and alternative healers look empirical and scientific."

Obama's reappointment of Bernanke left Taleb so distraught he "withdrawing into the Platonic tranquility of my library, to work on my next book, find solace in science and philosophy, and … structure trades betting on the next mistake by Bernanke, Summers and Geithner."

Taleb's "metric" essentially warns Americans to trust no one, certainly not Washington and Wall Street insiders. The vast majority fail his simple metric, "Did someone predict the last crisis before it happened? ... If the answer is no, I don't want to hear what the person says. If the person saw the crisis coming, then I want to hear what they have to say'."

In fact, back in 2008 as the subprime credit meltdown accelerated and it was obvious to virtually everyone worldwide, we reported on the cascading bogus predictions made by well-known gurus flooding prime-time news, highlighted in BusinessWeek, Kiplinger's and USAToday, comments made even as the 2008 crash was spreading worldwide:

Bernanke: "I don't anticipate any serious failures among large internationally active banks." Wow, was he ever wrong.

Billionaire Ken Fisher: "This year will end in the plus column ... so keep buying." Main Street lost trillions on advice like this.

'Mad Money' Jim Cramer: "Bye-bye bear market, say hello to the bull."

Goldman Sachs' Abby Joseph Cohen: "The fear priced into stocks is likely to abate as recession fears fade." Soon after, Goldman was essentially bankrupt.

Congressman Barney Frank: "Freddie Mac and Fannie Mae are fundamentally sound."

Barron's: "Home prices about to bottom." Three years later they still haven't

Worth: "Emerging markets are the global investors' safe haven."

Kiplinger's: "Stock investors should beat the rush to the banks." Costly advice.

Bernie Madoff: "It's virtually impossible to violate the rules." But it'll happen again.

Bad calls? Yes, very bad. Back in mid 2008 we reviewed 20 who would meet Taleb's "metric" and earned our trust for the future. These twenty did warn America between 2000 and 2008. Although few listened: We reported on warnings from economists Gary Shilling, Marc Faber and Nouril Roubini, the St. Louis Fed president (Greenspan ignored him, just as Bernanke is ignoring the Kansas City Fed president today), former Nixon Commerce Secretary and SEC chairman, billionaires Warren Buffett and oilman Richard Rainwater, institutional portfolio managers Jeremy Grantham, Bill Gross and Robert Rodriguez, and major cover stories in Fortune, Harper's, Vanity Fair, The Economist and The Wall Street Journal.

But for every one warning back then, there were hundreds of happy-talkers inside the Happy Conspiracy's propaganda machine, conning the public, either unconsciously denying reality or consciously lying about it.

Remember: Bloomberg Markets magazine reported that even Paulson predicted a meltdown was coming. But all he did was privately warn Bush two years earlier, in 2006, then he and the Fed chairman failed to tell the truth to the public for two years. That's immoral, dishonest, a lie.

So who can you trust? Nobody, not me, not even Taleb. Why? In the final analysis the Buddha said it best: "Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense."

Unfortunately, America is losing its capacity to reason, its common sense, its values, its vision of the future. More of us need to trust Taleb's "simple metric."

By Paul B. Farrell, MarketWatch

Bond prices are going crazy... Buffett doesn't like bonds... Paulson back in black

"That doesn't make any sense..."I called Porter earlier today to discuss the massive bubble forming in the bond market. We've been warning our readers about this event for years, but it's now coming to a head.

I checked a few blue-chip issuers on Bloomberg, and bond prices are officially losing touch with reality. Investors are paying a premium to hold corporate bonds with paltry yields. Microsoft paper yielding 4.5% and maturing in 2039 trades for more than $110. ExxonMobil paper yielding 3.6% due in 2021 trades for more than $144. Johnson & Johnson paper yielding 4.35% and due in 2029 trades for $133.

As Leon Cooperman said yesterday... When investors are scrambling to lock in low yields for long periods of time, you don't want to be buying bonds. Would you loan money to anyone right now for 20 years at 4%? And would you pay a premium for the opportunity? Remember, your principal is returned at par (or $100). You eat the rest.

Today's trading is just bizarre in general... Treasury's are up, the market is flat, and gold and oil are up. Nothing makes sense. You would at least expect bonds to fall after Warren Buffett's announcement yesterday, putting him firmly in the "bond bubble" camp... At Fortune's Most Powerful Women Summit, Buffett said it's "quite clear stocks are cheaper than bonds." He added he "can't imagine" why anyone would buy bonds at current prices.

While other investors have been piling into bonds, John Paulson has loaded up on stocks. After two correct bets that made him billions (shorting housing followed by long financials), Paulson's hedge fund had a bad 2010, down around 10%. The recent stock rally has pushed his largest fund back into the black... Paulson's flagship Advantage Plus fund jumped 12% in September. He's received a lot of flak for buying gold and stocks, but we think he's playing this market right.

Real-estate slump could last eight years: IMF

Australia central bank keeps policy rate steady; Aussie dollar drops

Bank of Japan lowers policy-rate range, says recovery pace weakening

America on the brink of a Second Revolution

Commentary: 2010 elections guarantee gridlock, anti-capitalist class war

"What's distinctive about the Tea Party is its anarchist streak -- its antagonism toward any authority, its belligerent self-expression, and its lack of any coherent program or alternative to the policies it condemns," warns Jacob Weisberg in Newsweek. But why not three cheers for the Tea Party Express?

Admit it, something historic is brewing. And yes, it's good for America, even the anarchy. Revolution is renewal. Tea-baggers want to take on both parties, "restore honor" and "take back the country." Bring it on, the feeling's mutual.

OK, maybe most Americans just silently mimic the words, "we're mad as hell, won't take it any more." But watch out: After November the campaign's shrill rhetoric explodes into action.

Tea-baggers are kicking the revolution into high gear. Debt is sinking America. Both parties are to blame. So vote out incumbents. Spare no one. We need new leadership, another Reagan or Truman. Congress better get the message: Cut that budget, or they'll dump the rest of you in the coming Great Purge of 2012.

Unfortunately they're tone deaf. Congress cannot see past the election. All that changes in November.

So thanks Tea Party, Vegas odds must favor a Second American Revolution. Actually, the revolution is already roaring, hot, it's about time. The GOP and the Dems had more than a decade. But America's worse off. We need a real revolution to restore sanity … or we can kiss democracy and capitalism good-bye, permanently.

Warning: Another revolution will cost investors 20% more losses

Yes, big warning, the Second American Revolution will extract painful austerity, not the "happy days are here again" future touted by tea-baggers. For years it'll be impossible for most of America's 95 million investors to develop a successful investment or logical retirement strategy.

Why? Political chaos will translate into extreme volatility and a highly unpredictable stock market. Result: Wall Street will lose another 20% of the value of your retirement portfolio in the next decade, just as Wall Street did the last decade. So if you think you're "mad as hell" now, "you ain't seen nuthin' yet!"

Here's the timeline:

Stage 1: The Dems just put the nail in their coffin by confirming they are wimps, refusing to force the GOP to filibuster the Bush tax cuts for America's richest.

Stage 2: The GOP takes over the House, expanding its war to destroy Obama with its new policy of "complete gridlock," even "shutting down government."

Stage 3: Obama goes lame-duck.

Stage 4: The GOP wins back the White House and Senate in 2012. Health care returns to insurers. Free market financial deregulation returns.

Stage 5: Under the new president, Wall Street's insatiable greed triggers the catastrophic third meltdown of the 21st century Shiller predicted, with defaults on dollar-denominated debt.

Stage 6: The Second American Revolution explodes into a brutal full-scale class war rebelling against the out-of-touch, out-of-control greedy conspiracy-of-the-rich now running America.

Stage 7: Domestic class warfare is compounded by Pentagon's prediction that by 2020 "an ancient pattern of desperate, all-out wars over food, water, and energy supplies would emerge" worldwide and "warfare is defining human life."

What's behind our 2010-2020 countdown? It became obvious after reading the brilliant but bleak "Decadence of Election 2010" report by Prof. Peter Morici, former chief economist at the International Trade Commission. He sees no hope from America's political parties, just a dark scenario ahead.

Here are the 10 points we see in his message:

1. Expect nothing positive from Dems, the GOP or Tea Party

Yes, we're all "justifiably ticked off." But "Democrats, Republicans, and yes the Tea Party offer little that is encouraging." Earlier Morici warned: "Democratic capitalism is in eclipse. … Politicians have deceived voters," and are "suffering from delusions of grandeur, self deception and good old-fashioned abuse."

2. Democracy has become too-big-to-govern … by anyone

"The current economic quagmire is a bipartisan creation." Bush failures led to a "Great Recession … reckless Wall Street pay and fraud, a breakdown in sound lending standards by Fannie Mae, Freddie Mac … Countrywide, and a huge trade deficit with China and on oil" leaving "Beijing and Middle East royals with trillions of U.S. dollars that they invested foolishly" in bonds "financing the housing and commercial real estate bubbles."

3. Clinton, Bush, Obama policies all feeding revolutionary flames

Even before Bush, "all was set in motion by bank deregulation engineered by Clinton … Secretaries Robert Rubin and Lawrence Summers … Clinton's deal to admit China into the World Trade Organization" handed "China free access to U.S. markets" while blocking exports. Earlier Dems blocked "domestic oil and gas development" and froze "auto mileage standards." Obama "finally imposed higher mileage requirements," but after pushing offshore drilling, he "punished the entire petroleum industry" for the BP disaster.

4. Bush's biggest mistake: Goldman CEO Hank Paulson

Morici admits: If Bush is "culpable for anything, it was to not see the gathering storm on Wall Street." Worse, his Treasury picks were disasters: [John] Snow was clueless, Paulson devious. He conned a clueless Congress into bailout trillions, "believing banks could borrow at 3% and lend at 5 and pay MBAs three years out of school five-million-dollar bonuses to create mortgage backed securities." Greed drove the Bush Treasury.

5. All partisan political leaders are destined to sabotage America

One thing is clear to Morici: Not only were America's leaders a "bunch of second-rate incompetents" on both the Clinton and Bush teams, "Obama's ratcheting up government spending and taxes won't fix what's broke, and neither will the GOP prescription of tax cuts and deregulation." Get it? Democracy is in a classic double-bind, no-win scenario.

6. America's democratic capitalism trapped in systemic failure

Morici simply dismisses "Obama's two signature initiatives -- health-care reform and financial services reregulation." They "simply don't work." Why? Politicians "failed to address the root problem, Americans pay 50% more for doctors, hospitals and drugs, than subscribers to national health plans in Germany, France and other decadent socialist European countries." Yet, insurers hate reform, will self-destruct America first.

7. Wall Street's insatiable greed is a virus that never sleeps

Wall Street banks are "back to their old tricks," warns Morici, "hustling municipal governments into the kind of quick-fix budget schemes, like selling parking meters and airport fees." Why? Wall Street's "hustling shoddy corporate bonds that lack adequate collateral and may never be repaid" to justify their absurd mega-bonuses. And they'll keep doing it till the revolution creates a new non-capitalist banking system.

8. New political leaders offer no hope -- Wall Street rules America

GOP's next leaders will fail: "Cutting taxes and mindless deregulation are not the answer." We need the revenue. They have no real plan to trim "$1 trillion from federal spending … few believe deregulation will fix health care or Wall Street." The GOP has no "effective government solutions to health care, Wall Street, fixing trade with China, and dependence on foreign oil." And the Tea Party "only offers a purer form of failed Republicanism. Tax and spend less, and turn the country over to the robber barons."

9. Praying for a messiah, we're sleepwalking till the revolution

Morici's solution: America "needs a prophet, another Harry Truman or Ronald Reagan." But we'll never get one, until a catastrophe hits. Wall Street's so greedy, so corrupt, so untouchable, so much in control, they will bankroll and control all future "prophets."

10. The Second American Revolution coming

Yes, extreme austerity: "Americans must accept fewer government-paid benefits -- for the rich, the poor and those in between -- and must acknowledge the market works best most of the time, but it is not working in health care, banking, China, and oil." Huh? Sounds like classic economist's double-speak: "The market works most of the time" … except the market doesn't work at all in the four biggest economic sectors? Fuzzy thinking?

Morici warns, we need "new approaches to regulating, yes regulating, what the medical industry charges, bankers pay themselves, what Americans tolerate and buy" and "guiding big oil and car companies to sustainable solutions."

Holy cow, he suddenly sounds more like a liberal politician than conservative economist. Yes, he's reflecting the total chaos coming on the short road to the Second American Revolution.

In the end, however, you have to admit the good professor does make a lot of sense: "Sounds radical but running the world has never been a choice between statism and anarchy," says Morici.

Choice? Unfortunately, he offers a false choice: Running America effectively means accepting "that the private sector is not the enemy and government is not evil, but neither can serve the other, and us, if value is not seen in each."

Laudable, but impossible because once the GOP Tea Party of No-No is back in power, compromising is not on their agenda, "gridlock" is. So anarchy is the only choice -- they will never, never work with Democrats … until forced by the Second America Revolution when the middle class finally rises up and overthrows the greedy wealth conspiracy of Wall Street, Washington, CEOs and the Forbes 400.

Till then, anarchy rules as the conspiracy keeps looting Treasury, stealing from taxpayers, conning us all.

By Paul B. Farrell, MarketWatch

Dow industrials have worst day since Sept. 7; AmEx, off 6.5%, is worst performer

Market News

Major U.S. indexes end day lower, but Dow and S&P have their best September in 71 years.

J.P. Morgan Chase is latest to halt some foreclosures to look into 'robo-signer' flap

Gold extends its record run, ending above $1,310 an ounce

The Laws of Attraction at Work

“Nothing can prevent your picture from coming into concrete form except the power which gave it birth—yourself.” —Genevieve Behrend

In the quantum universe, there are no accidents. There are no coincidences. Every particle and every action is accounted for. We live in a universe of absolute precision.

The world of thoughts and ideas, of human ingenuity, creativity and enterprise, is not separate from the world of chemistry and gravity and fields and forests. There are no separate rules—they all come from the same rulebook. The laws that govern the movement of subatomic particles and solar systems, also govern our thoughts and feelings, families and careers.

This fundamental truth is all too easy to forget as we go about out daily routines, because we seem to live in two worlds—the seen and the unseen—the world we can touch, taste and see, and the intangible world that lies hidden away behind the curtain of our senses.

The events and circumstances of your business take place in the seen world. It is the immense, hidden portion of the iceberg that most of us are unaware of 99 percent of the time, while the tangible, material world we think of as “real” is only the miniscule tip that juts above the surface of our conscious awareness.

What sunk the Titanic was the hidden part of the iceberg that nobody saw coming, the part beneath the surface. And that is the part that sinks every business that ends up closing its doors.

The creative process through which the unseen world gives birth to the circumstances and events of our lives is the Law of Attraction. There are actually a number of distinct principles at work within the Law of Attraction. Here are six ways to put the laws to work for you:

1.Everything starts as an idea. Everything in nature, every phenomenon starts in the universe, starts as an idea. Everything you manifest in your life follows the precise same pathway, from idea to physical form. We create from the nonphysical level, turning that which we can’t see, into that which we can.

2.Realize you are at cause in your life. Science has shown us that the principle of cause and effect applies to the mechanics of everything, including our thoughts. Things don’t randomly happen to you. Realize you are making things happen or not happen. Commit to being at cause and don’t blame external factors.

3.Understand how resonance is at work. Resonance, from the Latin meaning “to sound again” is simply the transfer of vibration from one medium to another. Thoughts held clearly and strongly enough can cause events in the physical world to happen.
4.Your dream is within the seed. The seed of your business is your vision. This is the groundwork for every successful business. Your vision needs to be clear and strong.

5.Be purposeful, patient and active. These three concepts enable the Laws of Attraction, Gestation and Action to work together. You will save yourself years of trial and error, and manifest what you want in your life and business much faster than you’ve ever created anything before.

6.Get clarity. The more clarity you create around your business in every aspect, from its largest objectives to the particulars in everyday actions, the more you harness the mind-boggling power of the quantum field to do your bidding and bring that idea into reality.

The universe is ready and willing to give you what you want, once you are clear on what it is.

Weekly Rate Advisory

This week brings us the release of five relevant economic reports for the bond market to digest in addition to two relevant Treasury auctions. There is nothing of importance scheduled for release tomorrow, so look for the stock markets to influence bond trading and possibly mortgage rates. Generally speaking, stock market strength makes bonds less appealing to investors and leads to higher mortgage pricing. But I would not be surprised to see a relatively calm day tomorrow as traders prepare for this week's data.

The first release of the week is September's Consumer Confidence Index (CCI) late Tuesday morning. This Conference Board index will be posted at 10:00 AM ET and gives us a measurement of consumer willingness to spend. It is expected to show a small decline from last month's reading, indicating that consumers were less optimistic about their own financial situations than last month, therefore, less likely to make large purchases in the near future. This is good news for the bond market and mortgage rates because consumer spending fuels economic growth. Analysts are calling for a reading of approximately 52.9, down from August 53.5. The smaller the reading, the better the news for the bond market and mortgage rates.

The Treasury will sell 5-year Notes Tuesday and 7-year Notes Wednesday, which will tell us if there is still an appetite for longer-term securities. If investor demand in these sales is strong, particularly from international buyers, the broader bond market should move higher, pushing mortgage rates lower. But a lackluster interest from investors could lead to bond selling and higher mortgage pricing. The results of each sale will be announced at 1:00 PM ET each day, so any reaction to the results will come during afternoon trading Tuesday and Wednesday.

Thursday's sole monthly or quarterly data is the final revision to the 2nd Quarter Gross Domestic Product (GDP). Since this data is aged now and the preliminary reading of the 3rd Quarter GDP will be released next month, I don't see this revision having much of an impact on the financial markets or mortgage pricing. The GDP is important because it is the total sum of all goods and services produced within the U.S. and is considered the best measurement of economic activity. It is expected to show no change from the previous estimate of a 1.6% increase in the GDP. It will take a fairly large revision for this data to move mortgage rates Thursday.

Friday has three reports scheduled that may influence mortgage rates. The first is August Personal Income and Outlays early Friday morning. It gives us an indication of consumer ability to spend and current spending habits. This is important to the markets because consumer spending makes up two-thirds of the U.S. economy. Rising income generally indicates that consumers have more money to spend, making economic growth more of a possibility. This is negative news for the bond market and mortgage rates because it raises inflation concerns, making long-term securities such as mortgage related bonds less attractive to investors. It is expected to show a 0.3% rise in income and a 0.3% increase in spending. If we see smaller than expected increases, the bond market should react positively, leading to lower rates Friday.


The second report is the University of Michigan's revised Index of Consumer Sentiment for September. The preliminary reading that was released earlier this month showed a 66.6 reading. Analysts are expecting to see a small upward revision, meaning consumer confidence was slightly higher than previously thought. As with Tuesday's CCI release, a lower than expected reading would be good news for bonds and should help improve mortgage rates.

The Institute for Supply Management (ISM) will post their manufacturing index for September late Friday morning. This index measures manufacturer sentiment. Analysts are expecting a decline from last month's 56.3 reading. The 50.0 benchmark is extremely important because a reading above that level means more surveyed executives felt business improved than those who said it had worsened. This data is important not only because it measures manufacturer sentiment, but it is also very recent data. Some economic releases track data that are 30-60 days old, but the ISM index is only a few weeks old. If it reveals a reading below 54.5, meaning sentiment fell short of expectations, we should see the bond market rally and mortgage rates fall Friday. This is one of the more important reports of the week.


Overall, it is likely going to be a fairly active week in the markets and mortgage rates. The most important day will likely be Friday due to three reports being scheduled, but Tuesday's events can also heavily influence mortgage rates. This is one of those weeks that I recommend maintaining contact with your mortgage professional if still floating an interest rate.

 

 

The Home Mortgage Interest Deduction

How did the home interest deduction come about?

The First Income Tax - In 1894 Congress passed the first income tax, which was challenged and later struck down by the Supreme Court. So, government got into gear and in 1913 the Sixteenth Amendment was ratified granting Congress the power "to lay and collect taxes on incomes, from whatever source derived."

The Second Income Tax - Congress quickly imposed an income tax starting at 1% and rising to 7% on incomes over $500,000. This resulted with less than 1% of the US population paying any income taxes. This was the beginning of the modern graduated income tax.

Enter The Tax Deduction - The tax was offset with a deduction of any interest paid. Rental income was offset by the interest paid to finance the rental property and interest became a tax deduction.

Prior to WWI, home owners typically owned their homes outright. With the exception of financed or leased farm land, homes were purchased with cash. So at first, the mortgage interest deduction did not benefit home ownership.

Soon, local Thrift & Loans (Savings & Loans) were created to provide access to home financing. Subsequently, programs through the FHA, VA, and latter Fannie May and Freddie Mac facilitated broader home ownership.

Finally, the creation of the conventional loan and the mortgage back security market brought financing to the masses. Along with home ownership came the mortgage interest deduction.

Bottom Line: The home mortgage interest deduction is a carry-over from the original income tax and business interest rate deduction of a century ago. It was not intended to encourage home ownership or considered a public policy. Today, the Washington is eyeing the home mortgage interest deduction (the removal of the exemption) as a possible source of revenue. "The government giveth and the government taketh away."

This Week and Rates

This week brings us the release of five relevant economic reports in addition to another FOMC meeting. Only one of the factual reports is considered to be of high importance. In fact, most of the economic news is considered to be low or moderately important. This should help limit the possibility of significant changes to mortgage rates most days this week.

August's Housing Starts will kick-off the week's data early Tuesday morning. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a slight increase in new home starts between July and August. I believe we need to see a significant surprise in this data for it to have an impact on mortgage rates.

The FOMC meeting is Tuesday and is a one-day meeting. Mr. Bernanke and friends will adjourn at 2:15 PM ET. There is little possibility of seeing any type of change to key short-term interest rates. However, the post-meeting statement could very well lead to volatility during afternoon trading as investors dissect it in an effort to find when the Fed's next move may come. The wild card is how the markets react to the statement because the lack of a change to key short-term interest rates shouldn't affect afternoon trading. If we see significant weakness in stocks, the bond market may benefit as a safe-haven from the volatility. This could lead to lower mortgage rates Tuesday afternoon and Wednesday morning.

Thursday has two reports scheduled for release late morning. The Conference Board will post its Leading Economic Indicators (LEI) for August, while the National Association of Realtors gives us home resale figures. The LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.1% rise, meaning that it is predicting a slight increase in economic activity over the next several months. A larger than expected increase would be considered negative news for bonds and could lead to a minor increase in mortgage rates Thursday.

August's Existing Home Sales report will also be released late Thursday morning. The National Association of Realtors posts this data, giving us an indication of housing sector strength by tracking home resales in the U.S. It is expected to show an increase from July's sales, however, this data probably will be neutral towards mortgage pricing unless its results vary greatly from forecasts.

The remaining two reports will be released Friday morning. August's Durable Goods Orders is the week's single most important data and will be posted early morning. This report gives us an indication of manufacturing sector strength by tracking orders for big-ticket items at U.S. factories. Big-ticket products are items that are expected to last three or more years. Analysts are expecting to see a decline in new orders of 1.3%. A larger than expected drop in orders could help boost bond prices and cause mortgage rates to drop Friday. However, a smaller decline would indicate a stronger than expected manufacturing sector and would likely help push mortgage rates higher. It is worth noting that this data is known to be quite volatile from month-to-month, so a slight or moderate difference may not affect mortgage pricing.

The final report of the week is August's New Home Sales, which is the sister release to Thursday's Existing Home Sales. It is expected to show that sales of newly constructed homes rose last month, indicating some housing sector strength. As with most of this week's data, this report will likely not have a significant impact on mortgage rates unless its readings differ greatly from for ecasts. This is the week's least important report in terms of potential impact on mortgage rates.

Overall, the most important report of the week is Friday's Durable Goods Orders and the most important day will probably be Tuesday due to the FOMC meeting. I don't believe any of this week's data has the potential to move the markets or mortgage rates heavily. However, we still may see some changes in rates day-to-day, especially if the stock markets move significantly higher or lower. If still floating an interest rate, continued contact with your mortgage professional is recommended, but this will likely be a calmer week if comparing to recent weeks.

The Week in Review

In this last week of summer, the financial-political world is still in the suspended animation in which it began summer.
    
Recovery aborted by June, the US economy is flying just above stall speed; options for European sovereign debt and currency, and China trade are narrowing, but not yet closed. We'll have an election in six weeks but are short of leaders.
    
August retail sales rose a thin .4%, and industrial production .3%, but July was revised down by .4%. Capacity in use was supposed to crawl up to 75% from 74.8% (80% is the border of health) but fell to 74.6%. The spike in unemployment-insurance claims has fallen from near 500,000 weekly, but settled at 450,000 where it's been since last year. Today's University of Michigan confidence index was expected to rise from 68.9 to 70, and instead dumped to 66.6, the lowest in 13 months.
    
Kids in the '50s raised Out West practiced the eye-squint necessary for proper delivery of this picture-show cowboy line: "It's quiet out there... too quiet." So, time out for history.
    
This odd election is a mask for the public mind, which silently asks, What has happened to us, what should we do and expect, and who are we, anyway? The Democrats answer with more government, the Republicans with less government, and the Tea Party with an angry hammer-smash at the reset button.
    
All three appeal to the American myth: adopt our ideas, squash the others, and we will unleash America the Anointed, back to its predestined dominance and wealth!
    
The American economic miracle was underway before the time-out for the Civil War, and had eclipsed all other powers long before 1900, a triumph of fantastic natural resources, social mobility, rule of law, and protection by oceans. We rose from there to a pinnacle beyond Rome in largest part because our economic competitors -- ALL of them -- blew themselves to pieces twice in the first half of the Bloody Twentieth.
    
After WWI America held in its vaults 75% of the gold in the world, and IOUs from all European competitors for billions more, in gold. Even suppressed by Depression, America's wealth was so great in 1941 that we could self-finance WWII, printing no money, and maintain stable prices -- unmatched by any victor of any big war before or since. After WWII, there were no competitors standing: Europe, Russia, China, and Japan in smoking ruin, and the rest of the world more in barter than economy.
    
The great good that America had done, with an unselfishness never found in prior empires, and the good she would do to help the world rebuild -- those things fully justified a sense of triumph, and it was real, no myth at all.
    
That was a long time ago. From 1945 on, we poured out gold and almighty dollars in trade deficits that allowed the world to recover. We began ceaselessly to borrow from ourselves and the world way back in 1963, and in 1971 had to stop the gold flow.
    
There is no way to identify an instant, or even a decade, in which an empire flips from borrowing as good business to borrowing to support a standard of living no longer justified by its productive effort. In retrospect we crossed the threshold sometime between 1970 and 1990. The markers: "jobless recovery" after the 1991 recession; the jobless escape from 2001 recession only by engineered housing bubble (yes, it was partly on purpose); and escape from this one uncertain on any terms.
    
Somewhere in there we forgot the need to compete, and to live within our means. We still have the great advantages of enforceable contract, transparency, and mobility-opportunity, but natural resources overcome by consumption and oceans carrying imports will not support high lifestyle in global commerce by electron.
    
I think the people are way ahead of the three parties, fully aware that the thirty-year era of free lunch is done. Thus I hope that this uniquely American, chaotic election will have greater result than it looks right now. The risk, of course: the decadent refusal of all prior empires to pull up their suspenders, face reality, and adapt.

by: Lou Barnes

Poverty Rate Highest Since 1994

The poverty rate rose to 14.3% in 2009, the highest since 1994, up from 13.2% in 2008, the Census Bureau reported Thursday. Last year there were a record 43.6 million people in poverty. Meanwhile, real median household income in 2009 was $49,777, not statistically different from the prior year. Real median income fell 1.8% for family households, and rose 1.6% for non-family households. Also, the number of people with health insurance fell to 253.6 million in 2009 from 255.1 million in 2008, the first year that the number of people with health insurance has decreased since 1987, when the government started collecting comparable data. The number of uninsured rose to 50.7 million from 46.3 million.

Sweeping Changes Coming for HECM Lenders

 

Mortgage bankers are bracing for sweeping changes that are coming to the FHA's reverse mortgage program, which could lead to reduced loan volumes, but also a safer product.

Later this month, the Department of Housing and Urban Development plans to introduce a new "low cost" FHA-insured home equity conversion mortgage product. This new option will make HECMs more attractive to senior citizens who need to tap home equity to cover daily living and health care costs.

The FHA also is moving ahead addressing technical defaults on HECMs which occur when seniors get behind in paying their property taxes and homeowners insurance.

Late payments are a lingering problem and a recent HUD inspector general audit found that four major HECM servicers have paid out $35 million to cover taxes and insurance payments while waiting for the FHA to issue new guidance.

"If HUD does not take action, additional payments will occur in the next 12 months," according to the IG audit report.

HUD is preparing to issue a mortgagee letter in the next 30 days that will provide "formal and clear" guidance on curing these defaults, according to HUD deputy assistant secretary Vicki Bott.

"We certainly have to evaluate the delinquencies and capabilities of seniors to get on valid prepayment plans," Bott said in an interview with National Mortgage News. In some cases, servicers and counselors will have to seek the support of local government officials and family members to help them get back on track.

The FHA also wants to adopt policies that prevent seniors from getting into new HECM loans if they do not have the long-term resources to make T&I payments. These policies will be issued as part of a proposed rule for public comment.

The standard HECM with a 2% upfront is generally designed to help borrowers pay off their existing mortgage or in some cases purchase a new home.

The new "HECM Saver" is expected to have a de minimus upfront premium, but the typical borrower will receive 10% to 18% less in available funds than the standard HECM, according to the National Reverse Mortgage Lenders Association.

"The upfront insurance premium has been a deterrent to some prospective borrowers, particularly those needing less than the full amount available under the traditional HECM Standard program," said NRMLA president Peter Bell. "This new variation—the HECM Saver—presents a sensitive response to their needs," he added.

The HUD deputy assistant secretary told this newspaper that the FHA wants to issue a mortgagee letter soon (possibly in mid-September) that spells out the specifics of the "low cost" reverse mortgage product.

The FHA has been meeting with lenders, preparing them for the changes that come when offering a new federally guaranteed loan product. But the director of the FHA single-family program said she did not want to discuss specifics about the product until the mortgagee letter is issued.

Meanwhile, HUD IG auditors estimate that 20,000 seniors—affecting 4% of the FHA's HECM portfolio—are behind on insurance and taxes payments.

In some states, such as Florida that are prone to natural disasters, it is difficult to obtain homeowners insurance. HUD officials note that some borrowers are behind on taxes or insurance, not always both.

Nevertheless, the office of inspector general estimates these defaults could result in a loss of $1.47 billion to the FHA insurance fund if the defaulted HECMs end up in foreclosure and the properties are sold.

The FHA's analysis of the defaults indicates it is "financially manageable" provided loss mitigation efforts are employed and preventative steps are taken.

So the agency it taking a "two pronged" approach to this issue.

First, the FHA is issuing the mortgagee letter to servicers that will lay out a clear process for loss mitigation and repayment plans.

"We are ensuring that they can take the necessary steps without invoking any kind of requirement to foreclose too early in a process," Bott said in the interview.

Second, HUD will be issuing a proposed rule on preventive policies that ensure seniors understand their obligation to pay taxes and insurance and mitigate the risk of seniors becoming delinquent on taxes and insurance.

The FHA's goal is to prevent seniors from getting a HECM loan if they don't have the long-term capacity to pay taxes and insurance.

Bott expects the proposed rule will be issued in the next 60 to 90 days so the industry and other interested parties can comment on this new strategy.

 

By Brian Collins