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

 

The fate of proprietary trading

This is a big story that deserves a lot more attention from the financial press: J.P. Morgan Chase & Co. announced that it is shutting down its proprietary trading operations. Goldman Sachs Group and the rest of Wall Street have or are in the in the process of following suit.

Proprietary trading accounts for as much as 15% of bank revenue. Considering that annual revenue at J.P. Morgan Chase (JPM) alone is more than $100 billion, we are talking about nixing tens of billions of dollars from Wall Street firms' bottom lines.

Proprietary trading is when a bank trades with its own money (as opposed to its customers' money) to make a profit for itself.

The Volcker Rule empowered by the Dodd-Frank financial-overhaul law effectively bans proprietary trading and principal transactions along with private equity deal-making and other investing techniques that are used to benefit "the house" -- read Wall Street banks. (The Volcker Rule is named after former Federal Reserve Chairman Paul Volcker who was called in during the economic downturn to review and report on Wall Street's failures.)

No one is particularly crying for Wall Street and banks these days. But shutting down operations that will hurt shareholders (bankers themselves, no doubt, will prevail and profit in some other manner) isn't proper regulation. In fact, it isn't really regulation at all; it's lazy oversight.

Transparency and better financial reporting are far better options when it comes to regulating the banking and securities industries. Yet the government still doesn't seem to get it. People aren't upset because corporations, banks or others, are profiting. We are upset because of the ways in which corporations, banks and others, profit. We are upset at practices that obfuscate and exploit. Shutting down proprietary trading operations will only serve to send financial institutions further down the rabbit hole.

Goldman Sachs (GS) , for example, is looking to transfer its proprietary trading business to its asset-management unit, winding down the portfolio entirely, or seeding a hedge fund that would take over the operations, according to various reports.

Good luck trying to figure out whether the bank front-runs client trades, uses inside information to profit, or exploits some loophole in the law. These are the real issues. The government believes nixing proprietary trading will accomplish. Wall Street insiders know better; the business will just go somewhere else. Indeed, look for some shrewd traders to make billions trading these orders on the behalf of Wall Street firms and banks. Easy money.

In any event, it's the issues that regulators should be focused on. The practices themselves are incidental to this.

I've long lobbied for a financial system based on principles as opposed to rules. Volcker, curiously, is with me on this.

Empowering regulators to go after people based on the intent of their behavior as opposed to their actions would give more teeth to the financial police. It would thwart or give pause to wrongdoing and wrongdoers as they would be held to a different standard of accountability. They would be judged in context.

Proprietary trading shouldn't be shuttered, it should just be reported better. Shareholders may like the fact that banks are profiting. And others may learn a thing or two about what banks are investing in and how. They might even learn profit from that type of information for themselves.

By Thomas Kostigen, MarketWatch