In This Issue…

Last Week in Review: The potential government shutdown dominated the headlines. How did home loan rates react?
Forecast for the Week: Important inflation news will end the week, plus retail sales and consumer sentiment will give us some hints on the mood in the country.
View: What’s in your inbox? That’s an especially important question after a recent security breach. See this week’s View for details about safeguarding your information.
Last Week in Review

There’s a Chinese proverb, which is sometimes referred to as a curse, that says, “May you live in interesting times.” And last week was certainly an interesting one, as much of the week was spent wondering whether there would be a government shutdown. Read on to learn what happened… and what the impact was on home loan rates.
A partial shutdown of the federal government was avoided late Friday night, when Democrats and Republicans agreed on a budget deal and a short-term funding extension little more than an hour before the deadline. The extension cuts spending by $2 billion and will last through next Friday, April 15.
But all the uncertainty leading up to this decision was just one factor that caused Bonds and home loan rates to worsen through the week. On Thursday, as expected the European Central Bank (ECB) raised their benchmark rate in an effort to curtail rising inflation, meaning the Euro now trades at its highest level against the US Dollar since January 2010.
Despite the weakness in the Dollar, the disparity between the two is somewhat surprising, given the economic headwinds and problems that Europe has been facing. But as the saying goes, “Markets can remain irrational longer than we can remain solvent.” At some point, we should expect weakness in the Euro and a rebound in the US Dollar. The passing of the US Budget agreement should help.
So the question remains: Why does this matter when it comes to home loan rates?
A weak US Dollar typically helps Stocks, as it makes our goods and services relatively cheaper for foreigners, thus helping our export business and GDP. And when Stocks are boosted, investors typically move their money from safe-haven investments like Bonds into Stocks to take advantage of gains there. And since home loan rates are tied to Mortgage Backed Securities (MBS), which are a type of Bond, when these Bonds worsen, home loan rates worsen, too.
That said, home loan rates are still relatively incredible, but keep in mind that before long, the Fed and the Treasury will both be selling off their MBS holdings accumulated through their first round of Quantitative Easing (QE1), and it will be tough to see Bonds and home loan rates make meaningful ground once that selling starts.
If you have been thinking about purchasing or refinancing a home, call or email me to learn more about how you can benefit from today’s historically low rates. Or forward this newsletter on to someone you know who may benefit.
Forecast for the Week

The second half of the week is chock full of important economic reports. Be sure to look for:
• Wednesday’s Retail Sales Report, which is a timely indicator of broad consumer spending patterns. Will this report, along with Friday’s Consumer Sentiment Index, show that consumers are feeling positive about our recovery, or will things like high gas prices and worries about inflation dampen these numbers?
• Thursday’s weekly Initial and Continuing Jobless Claims Report. Both Initial and Continuing Claims were inline with expectations last week, and show the job market continues to slowly improve.
• A double dose of news on the all-important subject of inflation, with Thursday’s Producer Price Index (which measures inflation at the wholesale level), and Friday’s Consumer Price Index. Inflation is the arch enemy of Bonds and home loan rates, and signs of inflation in these reports could cause them to worsen.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.
As you can see in the chart below, Bonds and home loan rates worsened through the week due to a variety of factors. I’ll be watching closely this week to see if they are able to change direction.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Apr 08, 2011)

The Mortgage Market Guide View…

Watch Your Inbox!
You may have heard some vague reports about a security breach at a company called Epsilon. But, if you’re like many Americans, the news didn’t strike you as fairly relevant to your life. After all, you probably didn’t recognize the company’s name or didn’t think you had any affiliations with it.
Or do you?
The reality is, the news wasn’t just about the company Epsilon, but instead was about the more than 40 companies – from Walgreens and TiVo to J.P. Morgan Chase and Ameriprise Financial – who have said their customers were among the email addresses stolen. In other words, even if you don’t know the name Epsilon or have anything to do with that company, your email address may be part of this important news story.
The good news… It appears only names and email addresses were stolen as part of the breach. Most of that information is fairly public – and isn’t as sensitive as, say, a social security number.
The bad news… Clever criminals can put together very convincing email scams to steal the rest of your personal information… right from you, rather than the company.
What should you do?
Whether you were informed that your email address was stolen or not, here are some important tips to ALWAYS KEEP IN MIND when dealing with unsolicited emails… even from companies that you do business with regularly.
1. Never email personal information… even if the company or email looks legitimate! Cyber criminals today can create very sophisticated and convincing emails that ask you to reply with your password or social security number. In fact, some criminals may be creating emails that look as if they’re informational emails about the Epsilon breach as a way to seem even more legitimate. So, if you receive an email asking for any personal information – including your password, account number, date of birth, social security number, and so on – do NOT respond. Instead, look up the company’s phone number on a recent bill, receipt, or other paperwork, and call the company about the email. If it’s a scam, they’ll want to know that it’s going on.
2. Be careful which links you click. Today’s cyber criminals often don’t ask you to reply with personal information, but instead build and link you to fake company websites – in the hopes that you’ll let your guard down and enter your information for them there. Don’t be foolish. Legitimate businesses will not ask for your information – they already have it. Moreover, they won’t collect personal data outside of a secure website. So if it’s not the normal website URL that you use, be extremely skeptical and contact the company by phone if you even suspect it may be fake.
3. Don’t download. If an email looks suspicious be very careful about attachments. Email scams can include malicious programs that look harmless, but once downloaded can either infect your computer or steal your personal data without you even really knowing. The best word of advice is simply: Don’t download anything that seems even the slightest bit out of the ordinary.
Those tips are good advice any time of the year, but they are especially pertinent after widespread breaches. So be extra vigilant when it comes to reading, responding, and clicking on your emails in the weeks ahead.

Economic Calendar for the Week of April 11-15, 2011
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Economic Calendar for the Week of April 11 – April 15
Date ET Economic Report For Estimate Actual Prior Impact
Tue. April 12 08:30 Balance of Trade Feb -$45.7B -$46.3B Moderate
Wed. April 13 08:30 Retail Sales Mar 0.5% 1.0% HIGH
Wed. April 13 08:30 Retail Sales ex-auto Mar 0.8% 0.7% HIGH
Wed. April 13 02:00 Beige Book Apr Moderate
Thu. April 14 08:30 Core Producer Price Index (PPI) Mar 0.2% 0.2% Moderate
Thu. April 14 08:30 Producer Price Index (PPI) Mar 1.0% 1.6% Moderate
Thu. April 14 08:30 Jobless Claims (Initial) 4/09 385K 382K Moderate
Fri. April 15 08:30 Consumer Price Index (CPI) Mar 0.5% 0.5% HIGH
Fri. April 15 08:30 Core Consumer Price Index (CPI) Mar 0.2% 0.2% HIGH
Fri. April 15 08:30 Empire State Index Apr 15.0 17.5 Moderate
Fri. April 15 09:15 Capacity Utilization Mar 77.4% 77.0% Moderate
Fri. April 15 09:15 Industrial Production Mar 0.6% 0.0% Moderate
Fri. April 15 10:00 Consumer Sentiment Index (UoM) Apr 66.0 67.5 Moderate

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You hear it on the radio and TV commercials all the time “No Closing Costs out of your Pocket.” It’s is the last part that most people don’t hear in these deceptive advertisements. The truth is there are certainly closing costs involved. Every loan has costs associated with it. The important part is how it is packaged. There are many loan officers and companies out there that will try and deceive you. They will say no points, but then turn around and have outrageous underwriting or processing fees. They may also try and put the fees in a different section of the Good Faith Estimate in order to conceal the true amount of what they are charging. Of course, they tell you not to worry because none of the fees are out of pocket fees and they will be rolled into the loan. In addition they may charge additionally higher fees in order to get you a lower rate. 

What most people don’t realize or never calculate is what the break even point will be after they spend all of the money refinancing. They are just excited to have a lower rate then everyone else.

If you are working with a true professional and an expert in the mortgage industry they will likely show you several different options of how to structure your loan. That way you will be an educated consumer and therefore make an educated decision as to what Mortgage Plan will be best suited for your financial needs and goals.

Many times I will end up structuring a “True No Cost Refinance” for my clients. A true no cost refinance is structured completely different then what you may expect to see when you meet with your Certified Mortgage Planner. Your interest rate is a little higher then what it would be if you were to pay your own closing costs. By charging a little higher interest rate we are able to cover part or all of the closing costs. That way they are not rolled into the loan and it did not cost you anything to refinance your house. You start saving money right away. Instead of having a break even point of 5 years or more down the line when you pay your own costs, or even worse pay points to buy down your rate. This scenario is especially effective if you don’t plan on being in your house longer then 5 years, or if there is a chance that rates could go lower within the near future. 

Using a true no cost refinance also enables you to be able to maximize your interest savings by allowing you to refinance with every incremental rate drop of .25% – .5%, depending on your loan amount. Most often refinancing for that small increment would never payoff if you had to pay closing costs every time that you did it. 

I hope this information proves beneficial to you and keeps you from spending thousands of unnecessary dollars. 

Please contact me or blog here with any questions. I would be happy to put together a personalized mortgage plan just for you and help you manage your mortgage going forward. 

Curtis Schartz

Certified Mortgage Planning Specialist

Pulaski Bank Home Loans