Our 2011 Outlook (no 3-D glasses required)

Over the last 90 days I have been keeping a watchful eye on our equity markets, general economic news and perhaps more important, the US consumer sentiment. There have been encouraging signs that the economy may have finally stopped sliding into the abyss and by all accounts moving forward under the new financial paradigm. I’d like to refer to this as the “New Normal”. Unemployment has held steady, the Christmas shopping season appears to have beat expectations, the stock market has had a fantastic run over the last 180 days. GM complete its bankruptcy process and most of the largest banks have repaid the TARP money lent to them. Hey, JP Morgan Chase recorded outstanding record profits for Q4.
All of that said, before we take that collective sigh’ and pat ourselves and our fearless leaders in Washington on their backs for a job well done, I’d like to turn some our attention to a news story which was recorded by 60 Minutes in which the title Day of Reckoning and where wall street brain trust Meredith Whitney whose focus of this story was to paint a fairly bleak picture of the individual State balance sheet(s) and the windfall of potential risks. While the news story (seen here http://www.cbsnews.com/video/watch/?id=7166293n ) did have in my humble opinion a few misleading conversation points, it is true that the bulk of the attention has been paid to the national financial deficit problem, not our individual state issues (see Illinois) where these problems have been getting progressively worse over the last 10 years. The issue I am most concerned with as it directly relates to not only to Efinity’s core businesses, but our countries general way of life; the seemingly non-issue of inflation. There has been a growing undertow of consumer inflation in several areas and while gas prices tend to get the most headline coverage, if you compare just the last 6 months of the everyday costs of meat, bread, milk, corn, you’ll begin to see changes which on the onset don’t appear much (.10c to .30c) however these have been in a fairly stable gas price environment. With the highly anticipated summer gas price increase in the 20-30% range (as found in the futures market), we could see a dramatic change in the ability for many American’s to operate their daily lives as they have been. For our older members of society, it’s even worse as not only did many of them have significant capital stripping take place from 2007-2009 but there is a HUGE gap in anticipated appreciation and available returns of investment in savings and market rates. Add the growing concerns in the municipal bond markets and you’ll find the options are even more limited. So, in short order 2011 will be more of the same. A country with potential but with serious legacy problems it needs to deal with, which will come at a cost to all of us and an impediment to GDP.

Oh No They Didn't....

The US Debt Commission charged by the president on balancing the US’ budget, remitted their fiscal austerity plan. Within the proposal was a key ingredient which will greatly affect American homeownership, specifically the income-tax deduction for mortgage interest. The 18-member commission has been looking for ways to trim the federal deficit. Among the $3.8 trillion in debt-cutting options being considered by the “National Commission on Fiscal Responsibility and Reform” was initially written to include the eliminating for second homes mortgages of more than $500,000, and home-equity loans. The final release is a bit more aggressive. It includes a 12% non-refundable tax credit available to all tax payers with mortgages now caped at $500,000. NO credit from interest from second homes and home equity loans. As one might expect, the reaction from various housing industry leaders was a strident “Not A Good Idea”. With its release, the Congress and the President “must decide which tax expenditures to include in the tax code” of which mortgage interest for primary residences is specifically mentioned. I’ll highlight a few of the comments I have found around the news wires:

• “For a battered housing industry, which is struggling with a 21 percent unemployment rate among construction workers, this is absolutely the worst time to be considering changes,” said National Association of Home Builders President Bob Jones. Adding that diminishing or ending the deduction would exert further downward pressure on home prices, leaving more homeowners with mortgages larger than the value of their property and fueling even more foreclosures.
• Mortgage Bankers Association Chairman Michael D. Berman said that while his group’s members shared in the growing concern about the federal deficit, limiting the use of the mortgage-interest deduction “will have negative repercussions for consumers and home values up and down the housing chain.” Given “the fragile state” of the housing market, Berman said, “now is not the time to be scaling back incentives for homeownership.”
• Not to be left out, the National Association of REALTORS® has decided to take a wait and see approach.

There are some supports of this action, may of which are in the economics field. “The mortgage-interest deduction is to housing policy what Social Security reform has traditionally been to politics: the third rail,” says Kevin Gillen, vice president at Econsult Corp. in Philadelphia. He shares a consensus among economists is that the deduction is regressive and promotes overconsumption.

Out of pure selfish reasons, it’s no surprise that I oppose anything but a very limited change relating to interest and tax deduction on all types of homeownership. My suggestion would be to eliminate the interest deduction on all mortgages over $1.5 million and all Non-Owner properties as they typically have additional deductions taken with home improvement. This affects the super rich (or over extended) and the “investor”. The fact that it’s mentioned creates a slippery slope down the road should more severe additional cuts are required. The primary-residence tax and interest deduction is the one almost every American homeowner looks forward to as a way to be rewarded for the risks and costs of owning and maintaining a home. With almost half of the recent homebuyers consisting of first-timers, this tax and interest deduction is critical to the on-going recovery. Any changes in my opinion, even my own suggestions should not be implemented until the housing market is operating normally.


THE NATIONAL COMMISSION ON FISCAL RESPONSIBILITY AND REFORM
http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf

Does Your Mortgage Start with 4?

The better part of the last 5 months have seen us shift our attention away from Efinity Mortgage towards our Efinity Insurance platform. This was perhaps none more evident than the lack of Efinity Reports during this period. In many ways it should not have been a surprise to us when we were inundated on Friday and yesterday with phone calls from existing clients wanting to confirm their mortgage rates were secure (locked).

First off, major props to our clients who have been paying very close attention to mortgage rates both posted daily on Efinity Mortgage's website and in general new outlets. Rates have started rising by and large because of stronger than anticipated economic reports. The surprise has been that just over the last week rates have risen 0.25%. For some perspective, that's almost $50 a month on a $250,000 mortgage. That's $50 every single month you have that mortgage note and for most of us... that's a while! So if $600 might not be a big deal to you, think about $6,000 over a 10yr period. Since we're not thinking about the ramifications of these savings, might we siggest placing that money with Efinity Financial and allowing them to leverage a secondary set of college savings funds or well placed life insurance or some other proper savings plan. Hopefully we have your attention now.

A friend of mine in the business emailed me and mentioned that some people say good things come to those who wait and others suggest to strike while the iron is hot. In this case, the "iron is still hot" with rates at exceptionally low levels, but it's starting to turn, and quickly. He is correct in his announcement. We are in a new economic paradigm. It may be several decades before we see home loan rates this low again. Don't let apathy get the better of good sense. And hey think of it as a gift to give yourself...and just in time for the holidays!

Todays Thought: Does your mortgage rate start with 4?

It’s often said that home is where the heart is. Yet we find that many of our clients fail to realize that a mortgage is at the heart of every good financial plan. Making sure you've got the right one can save you from unnecessary interest payments, which allow for further wealth creation and financial health for your family. Today, October 7th, we reached all historic lows for home loan rates (see http://www.msnbc.msn.com/id/38770102/ns/business-real_estate/) NOW is THE TIME to; refinance your current home loan, consolidate your existing home loan(s), access your equity and pay down higher credit rate loans or put home buying on the front burner!

When it comes to determining if your mortgage is still the right one for you, there are some important factors to consider; include the type of loan (or loans) you may need, your timeline for purchase, if you have an existing mortgage the your current loan balance, your existing interest rate, and any recent or upcoming changes to your financial situation (i.e. job change, marriage, divorce, kids going to college, etc). While considering the home loan process may seem like a daunting task, have no fear. Pick up the phone or email now to discuss your options with one of our licensed financial professionals. The time to ask is NOW. Just as rates arrived at historic levels, they very likely won't stay this way forever. On a side note, the importance of these historic rates can be summarized in the following way:

A $200,000 mortgage with a 30yr term at a rate 5.00% has a monthly principal and interest payment of $1,073.64.

At today’s rate, the same payment ($1,074.18) can be had with a $225,000 mortgage.

OR

A $400,000 mortgage, at 5.000%, has a monthly payment of $2,147.28 (P&I).

Today, that same payment ($2,148.37) gets you a $450,000 mortgage. That’s $50,000 more!!

With the disappearance of the capital markets in the residential mortgage space, the majority of all mortgage loans are now being purchased by our federal government. Yes, the same federal government who might seriously consider raising taxes! In closing, allow me to encourage you to spend a little time reviewing your situation today. After all, no one wants to look back and realize that a great opportunity to improve their financial situation has passed them by.

Fannie Mae toughens Underwriting Guidelines

Fact: Fannie Mae is the the largest provider of U.S. residential mortgage funding. Fact: Without Fannie Mae or Freddie Mac, mortgage rates would be significantly higher.
Fact: On Monday, Fannie Mae moved to further tighten underwriting guidelines involving income requirements of borrowers to "better assess borrowers' ability to pay".

These changes will now require lenders (Like Efinity Mortgage) to include ALL revolving debts in a borrower's debt-to-income ratio. In times gone by, if there were less than 10 payments remaining on a debt, these items typlically were excluded. What does this mean to you?

The continued shift by Fannie Mae (and Freddie Mac) comes as tighter lending standards have been cited behind a sluggish response by borrowers to record low interest rates. We continue to see many borrowers whom still have mortgage rates ABOVE 5.375!!

Fact: Home loan rates have never been lower.
Fact: Long-term interest rates have never been lower.

With rates as low as they are today, many options exist. Depending on your needs, opportunity exists to either save a lot of money in your monthly payment, over the life of your loan, or both. Many people have recently chosen to refinance into shorter terms – 10, 15, or 20 years – in some cases bringing a large principal reduction payment to closing to get the loan they want.

Whatever your personal situation is, the best thing you can do is to investigate your options. It has been reported that the average rate in effect for all mortgages today exceeds 5.375%. If you or someone you know is currently in this situation, you owe it to yourself to see how you can save today.

Financial Reform Bill Update

Congress moved on multiple fronts last week, bringing the financial regulatory reform bill to the edge of enactment and sending to the President's desk a pair of bills extending the flood insurance program and the settlement deadline for the home buyer tax credit. President Obama signed both bills on Friday.

The House approved the Dodd-Frank bill Wednesday by a 237-192 vote, though the week did not go by without some unexpected drama. While the legislation was expected to be approved by both the House and Senate in time to meet President Obama’s July 4 deadline, last-minute objections over a $19 billion bank tax added in the dead of night led to the bill being reopened in order to remove the provision. The passing early in the week of Sen. Robert Byrd, D-W.Va., also changed the vote count for passage.

The Senate is still expected to pass the financial reform package, but not until Congress returns the week of July 12.

House Passes Regulatory Reform Conference Report; Senate Passage Delayed
A week after passing what was thought to be the final Dodd-Frank regulatory reform bill out of the conference committee, prospects for final passage in Congress were complicated by two major events.

First, the death of Sen. Robert Byrd, D-W.Va., June 28 cost Senate Democrats a crucial vote for the legislation, and necessitated the Senate adjourning early for memorial services. Byrd’s passing, coupled with an announcement by Sen. Scott Brown, R-Mass., that he would oppose the legislation after a bank tax was added to the bill at the end of the conference process, left congressional leaders scrambling to wrap up the legislation before the July 4 deadline set by President Obama.

In an attempt to win back Brown’s vote, as well as several other moderate Republicans, the conference committee reconvened on June 29 and removed the bank tax, replacing it with an increase in Federal Deposit Insurance Corp. fees and an earlier sunset of the Troubled Asset Relief Program. With these changes, the House passed the conference report Wednesday evening by a 237-192 vote.

The Senate, however, delayed a final vote on the legislation until after the Independence Day break. That period will be critical to determining if the most recent legislative changes will sway enough Republicans to break the expected filibuster, and it will also provide time for the governor of West Virginia to fill that state’s vacant Senate seat.

MBA sent a letter to the conferees stating that while changes to the conference report modestly improved the legislation, it still believes that additional improvements can be made to limit the negative impact the bill will have on businesses and consumers. MBA will continue to monitor this issue as it develops over the next 10 days.

Most Americans Say Now Is Time to Buy a House

The Efinity Report rarely posts news articles, however; we thought we would the following report from Reuters is a good indication of the mired direction of the housing market.

"Nearly two-thirds of Americans think the time is right to buy a house, with a majority believing prices will be the same or higher over the next year, according to a Fannie Mae survey released Tuesday.

The 64 percent that said it is a good time to buy is just shy of the 66 percent that said the same thing in 2003 as the U.S. housing market was racing higher, said the survey.

However, most of the 3,451 polled said that it would be tougher for them to get a loan than it was for their parents.

The survey comes amid signs that the U.S. housing market is recovering after suffering the worst downturn since the 1930s.

But, while home prices in some regions are rising, soaring delinquency rates across the nation mean foreclosures will keep persistent pressure on the market, according to analysts.

Fannie Mae, the largest U.S. mortgage finance company, said that the public still "strongly believes" in upholding their financial commitments, though that weakens once people know someone who is defaulting.

Those who know someone in default are more than twice as likely to have seriously considered stopping payments on their own mortgage, Fannie Mae said.