Fed Open Markets Committee will reinvest in treasuries.  Good news for mortgage rates..

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Today’s FOMC meeting has adjourned with no change to key short-term interest rates. However, the post-meeting statement did give us a bit of a surprise that was quite favorable to the bond market and mortgage rates. In the statement the Fed indicated that they expect the economy to grow at a slower pace than estimated at the last FOMC meeting in late June. They renewed their “subdued” outlook for inflation, which is the key point for the bond market and the indication that they expect to keep key interest rates at their current level for an “extended period.” That leads market participants to believe that the Fed is still concerned about the economy’s ability to expand and maintain momentum.
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The surprise came from an announcement that the Fed will use funds from its holdings in mortgage bonds to buy more government debt. What this means is that the Fed is taking its interest payments and reinvesting them int o the economic recovery. This will be a much smaller campaign than we saw from them last year and early this year, but it is still considered good news. The goal is to help keep long-term interest rates low, such as home mortgage rates and corporate bond rates, in an effort to spur more spending and economic activity. The general consensus is that the impact this will have on the economy is minimal, but it does show that the Fed is attentive to current conditions and is ready to take more measures if needed..
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The financial markets have rallied after the announcement was made, particularly bonds. The stock markets erased a good part of their earlier losses, while the bond market extended its morning gains.

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Read: More  Economy needs more help, Fed says MarketWatch First Take – MarketWatch.

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www.PaulCantor.info

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HUD has been asking for this, and congress has finally delivered.  HUD now has the authority to increase the monthly MIP (Mortgage Insurance Premium) on FHA loans and plans to begin doing this next month.  FHA loans with case numbers issued on or after September 7, 2010 will have lower up front (typically financed) mortgage insurance premiums but higher monthly premiums.   This will translate into higher monthly payments and less people qualifying for loans.

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The bill that passed congress is expected to be singed b President Obama shortly allows FHA to almost triple the monthly premium, which could mean the equivalent a rate increase of 1.125%.   Initial plans by HUD are to increase the monthly MIP to the equivalent payment increase of 0.33% to the mortgage rate.

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If anyone is considering buying a home or refinancing talk to your loan officer now to avoid this hidden cost

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www.PaulCantor.info

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Treasuries and mortgage rallied Friday on yet another weaker than expected employment report for July; job gains were less than expected and lower revisions in June non-farm jobs pushed the bellwether 10 yr note to new lows at 2.82%, previous to Friday’s decline the 10 yr had built strong resistance at 2.88%. This morning the stock indexes are better thus pressuring the rate markets. At 9:00 the 10 yr note -3/32 at 2.83% and mortgage prices off 1/32 (.03 bp). There are no economic releases today to think about. At 9:30 the DJIA opened +30, 10 yr note -4/32 2.83% +1 BP and mortgage prices -1/32 (.03 bp).

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Tomorrow Treasury begins its quarterly refunding with $34B of 3 yr notes auctioned at 1:00. Of more interest tomorrow, the FOMC meeting will conclude with its so-called policy statement at 2:15 pm. The statement is always very short and usually has nothing new; the statement will likely re-iterate for the umpteenth time that the Fed will keep rates low for an extended period, that the economy is slowly recovering, that consumers are still consolidating, and that unemployment and the housing sector are keeping consumer spending from increasing much.

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The key economic data this week doesn’t hit until Thursday and Friday with weekly claims, July retail sales, July CPI and the mid-month U. of Michigan consumer sentiment index. Treasury will conduct auctions on Tuesday, Wednesday and Thursday, borrowing another $74B from taxpayers to fund the expanding federal budget deficits brought on by failed stimulus, bailing out the big banks and falling tax revenues. Meanwhile in Washington politicians from both sides of the aisle are giving themselves raises and while no tax increases are likely until after the Nov elections, the tax increase talks are picking up momentum.

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This Week’s Economic Calendar;

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Tuesday;

8:30 am Q2 productivity (+0.1%)

Q2 unit labor costs (+1.4%)

10:00 June wholesale inventories (+0.4%)

1:00 pm $34B 3 yr note auction

2:15 pm  FOMC policy statement

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Wednesday;

7:00 am MBA mortgage applications

8:30 am June trade deficit (-$42.5B)

1:00 pm $24B 10 yr note auction

2:00 pm July Treasury budget deficit (-$169B)

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Thursday;

8:30 am weekly jobless claims (-14K to 465K)

1:00 pm $16B 30 yr bond auction

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Friday;

8:30 am July retail sales (+0.5%; ex auto sales +0.2%)

July CPI (+0.2%; ex food and energy +0.1%)

9:55 am U. of Michigan consumer sentiment index (70.0 frm 67.8)

10:00 am June business inventories (+0.2%)

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So far this morning the rate markets are managing to hold Friday’s gains with the stock market hanging around unchanged.  The coming Treasury auctions will likely keep rates in a narrow and relatively unchanged area as long as equity markets keep focused on the weak economic outlook. That however is where the rubber meets the road; the equity markets remain convinced all is right and consumers don’t matter as much in this recovery. Amazing how the spinsters can paint a picture any way convenient.

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20 Year Fixed Rate Mortgages are becoming the popular choice for many home owners.  Most home buyers and home owners only think fix rate mortgages come in two varieties:  30 year fixed and 15 year fixed.  Actually fixed rate home loan notes are written in many other terms including 4o year fixed, 25 year fixed, 20 year fixed and 10 year fixed rate mortgages.

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Many want a fifteen year loan as the rate is lower that that of a thirty year loan but do not like the payment.  The solution is often the unknown twenty year mortgage.  20 year fixed rate mortgages split the difference between the 30 year and 15 year options for those who can afford to spend more money on their monthly housing payment.

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www.PaulCantor.info

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3 cheap ways to make your old kitchen feel new.

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According to a an article at the Drudge Report the Obama administration is about to make an executive order, that will direct Fannie Mae and Freddie Mac to forgive debt on loans that have balances over the value of the homes securing the mortgages.  They are also reportedly going to ask the GSE’s to ease underwriting guidelines.  This may open the floodgates for refinances.  According to experts this would be a last ditch effort to influence elections as it would be hard for the administration to get anything passed though both houses of congress before the November congressional elections.

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www.PaulCantor.info

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Fed Buying Mortgages

Only a few months after the Fed stopped its $1.25 trillion program of purchasing mortgage backed securities, the Wall Street Journal reports Bernanke and Co. may start buying mortgaged backed securities again.  This is not adding any additional capital to the program but re-investing proceeds from mortaring mortgage backs it currently owns.  Previously it was thought that the funds from maturing bonds would not be re-invested in more mortgage backed securities.

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With rates as low as they are many are refinancing loans at higher rates and the fed is re-cooping some if its investment sooner than expected.  This is taken by many as a sign that the Fed is concerned about the lackluster recovery and possibly a double dip recession.  However this may mean we could enjoy these super low rates a little longer, hopefully fuelling the housing market.  Advice is not to wait for rates to drop further but to take advantage of historic low rates through refinancing or buying a new home.

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www.Paulcantor.info

(804) 433-1510

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US GDP @ 2.4%

Jul 31, 2010

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Cash-In Refinance

Jul 31, 2010

Most of us have heard about a cash-out refinance.  That is using some of the equity on a home to pay down high cost debt or to fund college or home improvements.  Today their is a new trend of Cash In Refinancing.  Home owners are bringing money to the refinance closing  to:

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– Elimiate  PMI.

– Reduce mortgage payments with the combination of lower rate & lower loan balance.

– Reducing term of loan and keeping payments the same.

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Since CDs and money market accounts aren’t paying high rates, many homeowners have decided to exchange liquidity for equity.  Beware getting this equity back into a liquis asset is more difficult that it was a few years back.  Always get advise from a financila planner and / mortgage professional.

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www.paulcantor.info  (804) 433-1510

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4.54%, that is the average 30 year fixed rate mortgage for the week ending July 22, 2010, according to Freddie Mac.  This rate is down slightly (down 0.2%) from the previous week,   the average 15 Year rate for the week ending July 22 was 4.03%.  This makes it the sixth consecutive week of historic low fixed mortgage rates.

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The millions dollar question is how long week will keep seeing these record low rates.

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