This morning, stocks jumped higher and bonds sunk 41bps – partially a reaction to the weak jobless claims report, which showed 456,000 initial claims and 4.5M continuing claims (down 255,000 from last month).  The big question is this – how many of those non-continuing jobless claims are just people who have given up on finding work?  One other thing that you aren’t going to see mentioned in the news?  This number doesn’t include people on Emergency Unemployment; a number estimated at around 5 million additional Americans.

One other reason stocks rebounded today?  The Euro has stabilized (for now) and even the Euro Central Bank is raising its forecast of Euro growth for the year.  Spain, Italy and Ireland are all successfully raising money through bond auctions.  China continues to broadcast the expectation that their growth will beat estimates; this almost a week after they announced that wages for Chinese workers were going up.  It seems to me that China is working hard to improve its image.

The 15-year fixed rate mortgage is at a record low – an average of 4.17% according to Freddie Mac, which has tracked the data since 1991.  Other Mortgages posted near-record rates as well; the 30 year fixed mortgage came in at an average of 4.72% (that’s almost .9% lower than 1 year ago!) and a 5-year ARM is 3.92%, down .02% from last week.

This is the sweet spot for homebuyers, a perfect storm of conditions that is unfortunately wasted because most Americans in a home right now cannot afford to move up and precious few non-home-owners have the resources to buy.  If you have the opportunity to lock, it seems to be the perfect time for it; if rates do go lower, they will not drop far, and there is a HIGH LIKELIHOOD that we are going to only go up from here.

Fed Chairman Ben Bernanke spoke yesterday and warned about the unsustainability of the federal budget.  Side note: I keep waiting for him to say something that isn’t an obvious guess, or a truth that anyone could look out their window and see.  The fact remains that our economy is hurting, and experts predict that in a few short years, our national debt could grow larger than our GDP – a tipping point that could spell absolute disaster for the economy.

If or when this happens, it is likely that our credit will be downgraded; meaning that the government will have to do one of two things; print more money (a LOT more money) which will increase inflation, or continue to borrow at a higher rate.  Either way, the real loser is the American who cannot afford what little money he has to be devalued.

Happy Monday everyone! Coming out of a chaotic Friday which ended a 4-day trading week, we are looking at a surprisingly calm market. We saw investors react strongly on Friday to a discouraging employment report for May. The reaction by Wall Street now seems a bit over-dramatic, looking back on last week’s economic reports, there was good mixed with the bad. We saw pending home sales numbers rising month-over-month, the unemployment rate beat market expectations, and for all the excitement over the European economic crisis; US banks have very little exposure to European debt; and the most hard-hit parts of Europe are, at this point, non-significant trading partners. One other interesting bit of news? The average change in hours worked per employee ticked up from 34.1 to 34.2 hours, a change that equates to the creation of 315,000 jobs; it appears that, for now, employers are looking to satisfy increased demand for labor with their current workforce instead of adding new employees.

Anyways, we have relatively little economic data coming out this week. The major reports to watch are the New/Existing Unemployment Claims report on Thursday and the Retail Sales and Consumer Sentiment Index reports on Friday. Expectations are that the unemployment data will show a small contraction in new claims and about 60,000 fewer ongoing claims than the last report of 4.66 million. Fun Fact – If you got ONE PENNY from every person on continuing unemployment, you could buy a lovely home in Detroit. MI.

Other Things to watch for this week?

Federal Reserve rate change buzz. Note: I used the word buzz, meaning chatter, excitement or gossip. Our best guess is that by September, we only have a 12% risk of change.

More news out of Europe. This morning, Hungary started in on damage control; stating that the numbers showing impending default were speculative at best. More bad news out of Europe could make investors even more risk-adverse, and positive news may give us a needed boost in confidence.

The market has been unpredictable recently, but rates are extremely low.  These rates are being driven lower by poor housing demand, bond preference and government intervention.  If any of these factors let up or change, we could see an immediate rebound in rates.

Borrowers have a large pool of options for mortgage lending, but these choices boil down to a few different categories. Every mortgage has to be funded, and that takes place in a bank or through a government program (e.g. USDA Mortgages).  That money gets to the borrower through the Loan Originator, and there are 4 main types of originator; the Broker, the Correspondent Lender, the Commercial Bank and the Mortgage Bank.  Here is a food analogy to help you remember the difference.

Mortgage Brokers are like Pizza Delivery Guys – they are the middlemen of the mortgage world.  When a broker puts a mortgage loan together, he then takes it to a wholesale lender and, because there are fewer wholesalers than there used to be, he hangs out for 45 days making excuses until the loan closes and then he collects his fee.  He is, like the pizza delivery guy, at times uninformed about changes in his product (is this a new crust? I didn’t used to pay for extra cheese!) and is generally just in it for his cut.

Correspondent Lenders are like Vending Machines.  They are somewhere in between Brokers and Bankers – these lenders will have money on hand to fund loans, but that money comes through a credit line from a bank.  Since most changes in rules, regulations and programs come directly through the bank issuing the credit, Correspondent Lenders will often have less-than current information, which can mean that they can make promises based on old or inaccurate information.  Have you ever had a candy bar or bag of chips get stuck in the machine?  Vending machines aren’t known for their follow-through either.

Commercial Banks are, you guessed it, a bit like a Fast Food restaurant.  These are the really well-known “banks” – they have credit cards, checking accounts, car loans, home loans, ATM’s and investment options – and if you try to buy a burger, they will want to sell you a soda, fries and a apple turnover as well.  These guys really do it all – but their products are shoddy, and 10 people have the opportunity to touch and/or mess up your food before it goes on your plate.  In a commercial bank, the “loan officer” will get your personal information, send it through their yes/no filter to see if it matches their funding parameters, then send it off to some corporate office for underwriting and funding.  You may not see that loan officer again, and if you do, they probably wont know the answer to your questions anyways – they are an order taker, not an expert.  There is one big difference between Commercial Banks and Fast Food – commercial banks aren’t fast at all.  They have several departments for your paperwork to go through, each one more clogged with applications than the last.

Mortgage banks are, well, you know that restaurant where the chef comes to your table to ask how your meal is?  That’s a Mortgage Bank.  We know whats going on with our various programs, how rates are going to react to x.y.z. impending financial event, and most of the paperwork and processing is done in our office.  You are our customer, and you receive the best service.  We don’t give you the phone-tree voicemail runaround that you get with commercial banks, and we don’t have to wait in line to get your loan funded like the brokers.  One more thing that you will love about mortgage bankers – we refer to realtors; and we love to refer to realtors who refer to us.  Why will you love to refer to us? Because we treat your customer like the prize that they are; we have the best resources to make sure that they get in their home quickly and without being over-promised and under-delivered.

Questions? Send us an email at blogger@mortgageproblog.com  Comments? Leave them below!

- Mortgage Pro Blog; Geoffrey Boyd; PrimeLending, Clackamas OR