FOMC leaves rates unchanged, economic news sends mixed signals
April 29, 2009 by admin
The FOMC announced on Wednesday that they would be leaving key rates unchanged. The Fed funds and fed discount rates would remain at 0% and .25% respectively. This is good news for consumers that have loans that are directly tied into the prime rate, as these rates should remain unchanged and near historic low levels. The FOMC believes that the overall economy is making some improvements, but certainly there are a number of variables that still are in play and they will need more time to review key future economic reports such as (jobs, cpi, consumer confidence, housing, and gdp).
The FOMC has leveraged almost all of its monetary ammunition over the past year working to lower rates to near zero, and commiting billions of dollars to mortgage backed loan securities. This move was instrumental in helping to bring mortgage rates to historic low levels and spur a mortgage refinance surge that has helped homeowners (who qualify) lock into lower fixed rate mortgage loants. The FOMC has indicated they will take all necessary measures to help keep the economy moving forward, but their options are more limited because of their previous moves. The current state of the economy has many economists believing that there will be a recovery towards 2010, but we are several quarters of news and economic data to confirm this belief.
The GDP report released today showed significant contraction in the economy. The contraction of GDP by over six percent, was greatly influenced by the fallout of investment income and the stock market decline. The dramatic drop in GDP follows a fourth quarter decline of six percent and the twelve percent decline marks the steepest fall in GDP since the 1950′s. Negative GDP is the major economic report that economists turn to when they indicate and economy is officially in a recession.
Most economists who digested todays economic reports believe that the negative headline report of the contraction rate, actually overshadowed a number of positive parts of the GDP report including (spending on durable goods & consumer spending). The return of growth in GDP may not occur until 2010, but many economists believe that the worst is behind the economy for contraction.
The FOMC will likely begin to examine the housing sales and jobs reports as the two major economic reports before making their next FOMC decision in June. The emphasis by the FOMC and the government to stabalize housing prices and encourage home buying will be critical in moving the economy out of its downward spiral and any improvement with housing will be a signifant jolt to consumer confidence.
April 28, 2009
April 28, 2009 by admin
The stock market remains under pressure from concerns over the swine flu outbreak. Investors pulled back on Monday as growing concerns that the flu outbreak and the possible spead outside of the U.S. and Mexico. The market still has a chance to end the month of April on a positive note and stay above the 8,000 point level, however their are a number of experts who are predicting there will be a stock market pullback at some point in the next thirty days as investors look to lock into the profits they have gained over the past two months.
Financial stocks have led the charge over the past two months with companies such as Bank of America, Wells Fargo, Citigroup and JP Morgan all posting better than expected quarters for the first part of 2009. The stock market was also very kind to the banking stocks, but the feel good story may soon be coming to an abrupt end. Rumors were circulating on Tuesday that the government believes that both Citigroup and Bank of America will need to raise more capital. The companies balance sheets, which have come under fire time and time again over the past six months, as their requirement to raise loan loss reserves to offset growing loan delinquincies continues to increase, could again serve as the companies achiles heal. The companies have struggled with placing values on their assets and loan portfolios and are working within the mark to market accounting rules that have been heavily criticized. The mark to market rules attempt to quantify an assets current value versus a future value and must take into consideration assumptions based on future losses and market conditions. The banking regulators will look closely at the tarp recepients methodology for calculating the value of their portfolios, assumptions for future loan losses and the banks off balance sheet positions. The off balance sheet position for bank and financial companies will be of critical importance as this will be the first time that at third party agency will have a chance to examine the off balance sheet items. The off balance sheet items are not generally mortgage loans or mortgage bonds, but are more likely derrivatives and credit default swaps.
The stock market uncertainty has been good for fixed mortgage rates. Long term fixed rates for both thirty and fifteen year loans have edged down slightly over the past week. Despite the slight upward tick of the ten year bond (2.96% on Tuesday) long term fixed mortgage rates have moved down about 1/8 of a percent over the past week and are now available under five percent on both fifteen and thirty year loan terms.
Rate Update – April 26, 2009
April 24, 2009 by admin
The stock market moved higher following a better than expected report for new home sales. The stock market has slowed down from the March rally in April and is more closely digesting both economic reports as well as corporate earnings and guidance. The new home sales report for the month of March was flat, but the months of January and February were revised upward, providing some fuel to the optimism that the housing market may have finally reached it’s bottom and could begin to claw its way upward in 2009. Earlier this week the existing home sales report for the month of March indicated a slight pullback with sales of existing home inventories. The reports, which are both subject to revisions clearly indicate that the market is not going to move up quickly, despite tax rebates from the government and record low mortgage interest rates.
There were a number of key earnings reports released this week, investors gained confidence in equities as Microsoft and Ford Motor company provided some welcome news to investors this week. The stock market will also closely watch news this afternoon from the treasury regarding bank stress tests. The government is scheduled to release information regarding how these tests would be conducted, what assets are included and how they would deal with the banks off balance sheet financials. This could be a major market mover and could influence financial stocks which have seen a rapid share price increase across the board over the past sixty days. Companies such as Citigroup and Bank of America could be the most heavily scrutanized of the big banks following the billions of dollars in Tarp money they have received.
The mortgage industry has benefited sharply from record low mortgage rates, and by all indications there is little reason to believe that interest rates will be moving up sharply in the near future. Fixed rate thirty year loans were available at or below the five percent mark this week. The yield on the ten year bond has moved up to 2.96%, perhaps a leading indicator that fixed mortgage rates could be moving up. A number of reports released this week indicated a strong belief that the government would be closely monitoring mortgage rates and the FOMC will be doing everything within its powers to help keep rates low this year. This move is designed to help jump start the housing market as well as help strugling home owners refinance their home mortgages into fixed rate loans, freeing up disposable income that could find its way back into the economy.
Momentum to grow against credit cards & government lobbying
April 22, 2009 by admin
The momentum continues to grow as consumer outrage finally may be sinking in with the leaders of Congress. Representative Carolyn Maloney out of New York is making another push for the passage of the Credit Card Holders Bill of Rights. This bill contains similar language to the reforms the Federal Reserve put in place for the credit card industry, but pushed backed the implementation until 2010. The major parts of the bill include:
• Implementing a ban on arbitrary interest rate increases that are applied to existing card balances (such as the notice sent to Bank of America customers last week)
• Bans on double-cycle billing and charging subprime card fees to the account
• Requiring the credit card issuer to notify the borrower of rate increases forty five days in advance
• A new proposal that would a Require the card issuer to allow consumers to set their own credit limits
• Strengthen the terms proposed in the Fed rules
• Forbid the practice of applying payments to low-rate balances first
The likelihood of the credit card reform moving forward will be an interesting exploration of politics versus the bank lobbying firms. Today, it was reported that in the first quarter of 2009 alone, companies that have received funds through the TARP and the TALF have spent over ten million dollars lobbying government officials. This money, essentially on loan from American taxpayers is being recycled back into the hands of government officials who are responsible for representing their constituents. Some of the companies outlined in the report include JP Morgan, Bank of America and General Motors. The effect of bank lobbying and their ability to influence the government’s proposed political reforms were in the spotlight earlier this year as many banks and financial firms spent big dollars persuading the government not to move forward with many of the proposed restrictions to executive bonuses and retention bonuses for companies that have received federal aid. Despite, the outrage caused by AIG executives receiving bonuses well over one hundred million dollars, there was more political posturing than actual reform, thanks to the efforts of the bank lobbyist. The credit card industry is one of the most hotly debated topics by consumer groups and large banks, which will have to provisions hundreds of millions of dollars for losses in these portfolios over the next two years with the downturn in the economy. There will be a lot of discussion in Washington over reforms, whether these get passed into law will be a matter for Congress to decide.
April 20, 2009
April 20, 2009 by admin
The stock market has sold off sharply on Monday following news from Bank of America and a number of mergers and acquisitions in the technology sector. The stock market was selling off by over 200 points in mid day trading as investors grew nervous from comments that credit conditions continue to be a major concern from Bank of America, despite showing a larger than anticipated quarterly profit. The report from Bank of America has been long anticipated by the market as the company is one of the largest banks and mortgage lenders in the country, and will be a key indicator for a return to the U.S. economy and housing markets.
Bank of America has seen it stock priced jump up by over 200% over the past month as investors saw opportunity when the company was trading for under $3 per share. The companies stock price has dropped sharply, along with other major bank and financial stocks over the past twelve months due to large losses brought on by the fallout in the credit markets. In a seperate report released today, lending for the month of February by banks was lower than expected, despite record low mortgage interest rates, loans for cars, student loans, commercial lending and credit cards are all way below previous levels. If mortgage rates were not trading at historic lows, a number of large banks (Wells Fargo, JP Morgan) would certainly have reported much worse financial quarters for the first quarter of 2009.
The mortgage industry is still benefitting from the challenges in the stock market. The ten year bond was trading at 2.85% on Monday. Fixed rate mortgage loans are well under five percent for fifteen year loan terms and can be structured under five percent for loan terms of thirty years or longer if the borrower is willing to pay discount points. Mortgage rates have trended in their current range for the past 30+ days, and their is little reason to expect any significant changes in the next month as their remains more questions than answers with todays economic climate.
Banks draw criticism for raising credit card rates
April 17, 2009 by admin
The 15th of April brought hundreds of thousands of Americans to the streets to protest the countries current tax codes. There could be a similar rally in the streets as consumer groups line up to demonstrate against banks raising consumer credit card rates sharply. The banking and finance industry have been the blunt of criticism for reluctance to lend and helping to create one of the worlds worst recessions through toxic lending and off balance sheet transactions.
This week Bank of America sent notices to millions of customers that they would be raising their credit card interest rates well above ten percent. The banks believe they are justified in their rate increases, to offset losses in their business from the economic slow down. Credit card holders will be receiving rate increases, even if they have been paying their cards on time and have not exceeded their card limits. This decision is certainly going to be an issue that gains more political attention moving forward. Consumer groups will be quick to point out that the banks that are raising credit card rates, are the same companies that were in the forefront of the toxic lending. Bank of America was one of the nations largest mortgage lenders, and combined with Countrywide they are one of the top three lenders who created and offered negative amortization loans, one of the key ingredients in the housing crisis.
Consumers who are struggling with their finances, certainly will be challenged if other banks follow in the same path as Bank of America. Earlier this year, American Express sent notices to their customers that they were implementing credit line reductions and offering financial incentives to customers who would pay off their balance and close out their accounts during a specified period of time. Almost all of these companies have increased their loss provisions due to the challenges within the current economy and are likely to see larger losses in these areas of their companies as consumers struggle to pay their bills. Most of these companies have also received money directly from the government throught the TARP or TALF program, in an effort to encourage the banks to continue to lend out money.
The best advice from most conusmer advocates would be to try to pay off your credit card balance or transfer the balance to another credit card company where you can lock into a lower fixed interest rate until the balance is paid in full. Consumers with great credit are finding it more challenging in todays credit environment to obtain financing, so be certain to explore your options and the banks credit requirements prior to applying for a new card or loan.
April 14, 2009
April 14, 2009 by admin
The stock market headed for a lower open on Tuesday as the market began to digest a worse than expected report on retail sales. The stock market has managed to rally back above the 8000 point level and now is trying hard to hold these levels. Investors will begin to digest economic reports and corporate earnings in their analysis of whether to stay in equity positions. Today, the retail sales report for the month of March was down 1.1%, well below most analysts expectations. This report, is a clear indication that consumers are lacking confidence with the immediate direction of the economy and the continued job losses previously reported over the last year will have a lingering effect on the market.
The second major report released today was the PPI report for the month of March. The producer price index report indicated that wholesale level inflation was mild, thanks in large part to a decline with energy prices. The lower energy prices and the reduction in corporate spending have created a large decline in the market for price inflation, their is a large concern that inflationary prices could spike over the next two years with the large influx of government stimulus coming in the market.
The real estate market will continue to benefit from the fall back in equities, mortgage bonds have traded flat over the last week. Fixed rate mortgage loans are still hovering in the low five percent range with most national banks for a thirty year loan term with zero points. Consumers who are shopping for a fifteen year fixed loan or are considering paying points to buy down their interest rate, can take advantage of interest rates in the four percent range. The historically low interest rates have moved up slightly over the past month as investors are beginning to put more money back into the stock market, but remain very attractive in the near term.
Wells Fargo gives bank stocks and the real estate market hope
April 10, 2009 by admin
The real estate industry has long been searching for the light at the end of the tunnel. The rapid slide with home prices and record property foreclosures have greatly diminished the largest asset for almost every consumer. The news out of Wells Fargo on Thursday ignited a bank led stock market rally that is building off of the momentum of the March stock market surge. Wells Fargo, one of the nations largest banks, acquired Wachovia Bank in 2008 amid a controversial acquisition and potential Citigroup lawsuit. The move has positioned the bank as one of the top 3 deposit based banks in the country. Wells Fargo’s optimism was fueled by over $100 billion in mortgage loan production for the first three months of the year.
The mortgage industry has benefitted from record low mortgage rates, thanks in part to the moves by the FOMC to guarantee mortgage backed loan securities in December of 2008. This move, followed by an additional committment to buy more mortgage backed bonds in March of this year has helped to drop fixed rate mortage rates to five percent or less for both thirty and fifteen year loan terms. The record low interest rates have led to a surge of refinance loan applications for banks and mortgage companies. The low rates have inspired millions of homeowners to refinance into fixed rate home loans, a great boost to monthly budgets during the economic downturn and a way to help stabalize the real estate market. The low rates have been a great boost to the production and clearly the bottom lines of banks such as Wells Fargo. The Fed should be pleased to know that their low rates are helping to not only stabalize the real estat market, but provide an additional revenue stream for banks that have been battered by the economic downturn.
The real boost to the real estate market could happen during the balance of 2009 as consumers leverage the low interest rates with the new tax rebates and begin to remove the excess housing inventory in the market and stabalize home prices. Wells Fargo’s great news, could be the signal that the long awaited housing bottom is finally here.
April 7, 2009
April 7, 2009 by admin
The stock market has lost some of the momentum from March as investors appear to be more earnings focussed following a twenty percent increase in the dow over the past thirty days. Oil prices have retreated back under fifty dollars and investors again appear to have concerns over economic growth prospects for the balance of 2009. A key component in the market sell off came from a banking analyst who indicated that banking industry will be challenged with the largest writeoff in loans in history this year as auto loans, commercial loans and credit card loan defaults are expected to surge.
Confidence will be a key component in restoring the economy and the business leaders of some of the worlds largest companies have yet to endorse a full market recovery this year. This negative view is certainly going to impact job growth and also will linger over the equity markets.
Fixed mortgage rates continue to be a great source of financial relief for millions of home owners who have been able to refinance their existing mortgage loans. The yield on the ten year bond has risen over the past two week, but still remains below 3% (2.91 on Tuesday) and thirty year fixed rate mortgage loans are hovering in the low five percent range. There are a few critical pieces of government legislation in the works, one by Representative Frank aimed at mortgage securitization and loan qualification and the other earmarked to help prevent the rising amount of fraud centered around home loan modifications. There has been an enormous amount of confusion with lenders and loan modifications as to what the proper chanel to process a modification is. The general rule of thumb is to start with your lender and avoid third parties if possible.
April 3, 2009
April 3, 2009 by admin
The stock market is digesting another dismal jobs report. The month of March produced another record decline with employment as over 630,000 jobs were lost in the month and the national unemployment rate has been pushed above 8.5%. This marks the 15th month in a row with a net loss of jobs and pushes the total number of jobs lost above four million.
The dismal numbers out of the employment report could serve as the achiles heel of the stock market rally. The market moved above 8000 briefly on Thursday and has been in a bull rally over the past three weeks. There are a number of economists who are now stating that the economy is closer to pulling itself out of its current recession. Good news out of the manufacturing and housing markets this week have provided a boost to sagging consumer and investor confidence. The news follows the global economic meetings in Europe of the G20 summit. The meetings in London have been highly critical of the United States role in bringing down the world economy.
The move up with the stock market is pushing long term fixed rate mortgage loans up. The yield on the ten year bond opened at 2.81% on Friday and fixed rate loans have edged up about .25 over the past week. The stock market rally has also impacted energy prices. Oil is back above $50 per barrel and the average cost of a gallon of gasoline is closing in on $2. The low energy prices have been a major boost in helping to keep the economy from falling off of a cliff over the past six months. With jobs losses and consumer confidence in peril, the boost of low energy prices has been a great buffer to help the average consumer weather the storm of balancing their personal budgets.