If you were reading our blog about two months ago, you may remember an article about Upcoming FHA Changes. Well, these changes are going into effect on Monday, October 4^th.  Here’s what you need to know.

Will these changes affect me? Why are they changing the FHA program?

First of all, it’s important to note that these changes are not retroactive. If you have an existing FHA loan, or your FHA case number was requested before October 4th, your mortgage insurance will be calculated using the current rules, with a larger up-front premium and a smaller monthly premium. If you apply for a mortgage through the FHA program on or after October 4th, 2010, these changes apply to you.

These changes were implemented to increase HUD’s Capitalization ratio, or the amount of funds that it has in reserve to cover the number of mortgages that it takes on. This is a good thing, because if HUD were to stay undercapitalized, FHA loans could be harder to come by.

FHA Insurance Changes – Effective Oct. 4th, 2010

Currently, FHA Mortgages require an up-front mortgage premium of 2.25%, or $4,500 for a $200,000 house. This is a cost that you pay (usually financed into the loan) “up-front” in order to get the FHA mortgage. You then pay an ongoing annual mortgage premium of somewhere between 0.5% and 0.55%, depending on your down payment and loan to value ratio. You pay this premium monthly, so we figure out the annual premium and divide by 12. On a $200,000 mortgage, your monthly mortgage insurance would be between $83 and $92. If you apply for a 15 year FHA mortgage, these premiums will actually be lower.

These changes, effective on Monday, will decrease the up-front mortgage premium to 1% (or $2,000 on a $200k home) while increasing the annual premium to 0.85% to 0.9%. Again, your annual premium rate depends on the size of your down payment and loan to value ratio. On a $200,000 mortgage, this increases your monthly mortgage insurance to between $142 and $150, an increase of about $58 monthly.  Again, a 15 year FHA mortgage will have reduced mortgage insurance costs.

The FHA Reform Bill that passed two months ago allows FHA to increase its annual premium to a new cap of 1.55%, so a year from now we may only have fond memories of 0.9% annual premiums.

Seller Concession changes?

A “Seller Concession” takes place when a seller pays (through their proceeds of sale) some or all of the closing costs & prepaid expenses for the buyer of their property. In the current market, it has become common for a seller to pay some or all of the third party fees for a buyer, to help them reduce the total cost of purchasing.

Using a $200,000 purchase on a 30 year fixed FHA loan, the minimum downpayment is 3.5%, or $7000.  Closing costs & prepaids could easily amount to another $6000-8000 depending on the taxes, insurance costs, time of year, etc.  Being able to cover these additional cost for a buyer can help the seller find more qualified borrowers or lower the total purchasing costs for a buyer of their home. Currently seller concessions are capped at 6% (of the sale price of the home) for FHA Mortgages.

There has been speculation, but no official statement, that this percentage could be lowered. This could make things much tougher for consumers, because in smaller markets where real estate is much cheaper, the 6% concession is needed cover all of the buyer’s costs.

If HUD decides to lower the amount that a seller is allowed to contribute towards a buyer’s closing costs & prepaids, it could slow down some already-troubled markets.

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Geoff Boyd – PrimeLending – Clackamas, OR

Friday, September 24th 2010 – The official stance is that this will not cost taxpayers any money, but this aggressive move by the National Credit Union Administration will make US Credit Unions eat the 9.2 Billion Dollar bill. This move is being characterized as a stablizing action, not unlike the similar takovers of troubled banks at the height of the financial meltdown. These three wholesale credit unions, and two that were previously seized, have about $50 billion in Mortgage Backed Securities on their books, securities that are now worth about half that. There are 27 such wholesale credit unions in the US.

These Wholesale Credit Unions, which do not deal directly with the public but instead provide services to the credit unions that do, will be seperated by the strength of their assets. The federal regulators will manage the “bad” assets and securities and the banks will continue their “good” operations for ~2 years while they close down.

The US will temporarily cover the 9 billion mortgage-related losses while waiting for the credit unions to pay the bill assessed to them. They have 10 years to do so.

Source: Wall Street Journal

Hi everyone, this is part 2 of our series on using SEO tactics to be more successful online. In Part 1: SEO For Real Estate Agents, we showed you what SEO is and how it works. In Part 2, we will give you the tools that you need to make SEO work for you as you go about marketing yourself, your properties and your company online.

SEO For Real Estate Agents Part 2: Taming The Beast

By now we hope that you have a good grasp on the basics of SEO; what it is, why it’s important. The next step: how can you use it to build up your online business?

Note: These are deep waters, and if you want to really dig in, I would suggest that you purchase one of the many beginner/intermediate SEO books. My first book was “SEO For Dummies”, but I’m sure that Amazon can suggest a better one for you.

Keyword Research

Every project begins with a bit of research. Luckily for you, researching keywords is a pretty easy and streamlined process. There are two ways to go about it.

1) Find keywords based on existing material

Have a home page, blog or other public website? Great! Go to Google’s Keyword Search Tool and plug in your website address (skip the http:// part, that breaks it) – you will get a list of keywords that Google thinks are relevant to that website. Here is what I get when I plug in our VA Loans website address:oregonveteransmortgage.com.

2) Find keywords based on a list of possibilities.

Have an idea of what you want your website to rank highly for? Make a list of pertinent words and phrases, including any “alternative” words that people use to say the same thing (example: Military, VA, Veteran, Vet, Mortgage, Loan, Home Loan, Mortgage Loan) common misspellings (Veteren, Morgage) and geographic words (Clackamas, Clackamas County, Portland, Happy Valley, Oregon, 97015, SE Portland, West Linn) and plug that list into Google’s Keyword Search Tool. It helps to write this out in Word or a similar application before you plug it in, trust me. Separate your keywords by line, as shown below. For now, just do one-word keywords. Later you can go back, once you have a better idea of what you will “specialize in” and go wild with multiple word phrases.

So, for example, my list would look like this.

Either option will give you good information, or for best results you can combine them.

Take a deep breath - the next part looks complicated and overwhelming, I’m going to walk you through it step by step.

Recommended Tools

2+ colors of Highlighter Pens

Printer

Either keyword option you chose above, you will wind up with a screen like this. You want to go to “columns”, like shown, and add the column called “Estimated Avg. CPC” – This stands for Estimated Average Cost-Per-Click” this is information that shows what people who use Google’s advertising service pay, on average, for a “click” on sponsored results. Why do you need this information if you are looking for free clicks? Keywords that have bring in money have more advertiser competition.

You want to sort by Monthly Searches. This can be global or local, for this example we are using global. You will get similar results either way. Go ahead and print the first page out. You can print the second as well if you have the time. Get your highlighters and do the following.

1) Look at the “keyword” column and cross out any keywords that don’t apply to your goals. For example, if I have Portland, Maine results or Car Loan results, I would mark those out because they have nothing to do with me. I also cross out keywords that don’t imply an intent to “buy” – try to put yourself in the shoes of the searcher. If you are looking for “Interest Calculator” or “Zillow Prices”, are you likely to be looking to buy a home soon? Maybe, but these keywords do not imply that the person is ready to act. Highlight “Very Relevant” Keywords with one color, Highlight “Not Relevant” Keywords with another. Try to highlight at least half the keywords one way or another.

2) Look at the “Average CPC” column; this will give you a good idea of how fierce your competition is. At some point, you may decide to advertise on Google, so this will give you an idea of how much you may end up paying if you go that route. Highlight “High” prices with one color, “Low” prices with another. If you look at the price range, you will probably see that some prices are much higher than average, while some are much lower. Try to highlight about half of the prices as “high” or “low”

3) Compare: As you can see above, I have Not Relevant Keywords, Very Relevant Keywords, High Prices & Low Prices color-coded for you. Start with your Very Relevant Keywords and look for ones with Low Prices, these are probably GREAT finds – if you use these keywords consistently, you can carve out a profitable niche for yourself. You also want Low Prices with Medium Relevance Keywords & Very Relevant Keywords with Medium Prices. Confused? Here is a cheat-sheet.

In my example, we end up with the following keywords.

Mortgage Broker
Mortgage Calculator
Get A Loan
VA Homes

You might say, “Hey! None of those keywords implies that the customer is in the market for a Veterans Loan”, and you would be correct. If you look at the words together though, we are making progress on all the keywords that use some combination of Mortgage, Broker, Loan, VA and Home. So if someone types in “VA Home Loan Broker” – we have them covered too.

You can move a little outside of these rules, if you see a keyword that is just perfect for you, or if you think that you can beat the competition for a high-priced keyword, but I highly recommend this plan for putting together a targeted keyword list.

Okay, Now What?

Great news, we are almost done.

You now want to use these keywords on your website, in your blog, in your public profiles (think Zillow, Activerain, Trulia) and any other place that a search engine might see it.

1) Write for your Customer

In other words, I wouldn’t put Mortgage Broker Loan Homes Calculator in the middle of your web page; instead, I could write “I am a Mortgage Loan Officer (like a Broker, only better!) and I specialize in VA Home Loans; Here is my favorite Mortgage Calculator, Call me with any questions you may have”. That way, we still use all of our targeted keywords, but in a manner that won’t scare away business.

2) Use your Tools

Have a blog? Work your keywords into the titles of your posts. Website? Use the keywords in your navigation bar, and write pages that specialize in a few of the words (e.g. a page entitled “Get A Loan” where I use the words VA Mortgage Loan several times). If you own the website, you can probably add your keywords in to the Meta Tags that we talked about in Part 1: SEO For Real Estate Agents; you also want to use the words in your title and meta description. Again, get a web-nerd to do this for you if you don’t want to do it yourself. Offer them a 2-Liter of Mountain Dew and an hour or 2 of pay and you should be solid.

WordPress Users: Download this plugin, and use it on your posts.

3) Specialize

I think it may be hard to make a sales-driven website around the keyword “Mortgage Calculator”, especially one that ranked high on Google naturally (every existing mortgage website has a calculator, so you are facing stiff competition).  You also will want to narrow your web presence down by using geographic terms, like Portland, Clackamas County, Happy Valley, etcetera. Google will rank that article, website or profile higher as time goes on, so you want to winnow out the competition as much as is possible – make sure that if someone knows what they are looking for in your area, that they can find you through Google.

I highly recommend accomplishing this with multiple websites. The website address that you use is a very powerful SEO tool – oregonveteransmortgage.com will always score higher for mortgage / veteran / oregon than my “main site” geoffboyd.com, simply because it is specialized for that. So if I own Oregonmilitarymortgages.com, OregonVeteransMortgages.com, Military-Mortgages.com and Vet-Mortgages.com, I can specialize to a whole bunch of different keywords without losing effectiveness through diminishing returns.

“Aha!” you might say “Websites are expensive, and I don’t have time to figure out all of that!” – The website host that we use, Startlogic, gave us a coupon for Unlimited $3.95/mo hosting to share with you – including one free domain name, super-easy wordpress setup and $125 in free online advertising credits ($50 for Google Adwords, $25 for Yahoo, $50 for Facebook).  Its a great deal, even if you just use the $125 advertising credits (for which you paid $48) to promote your existing website. Want to do multiple websites? Extra domain names are just $10 and you can use the same hosting account, so you can get 6 websites for less than $100 (I wouldn’t recommend starting 6 websites at once).

Now that you have your keywords figured out, go to whois.domaintools.com and find a good available website name!  If you are hopeless with computers, pay your local nerd to do the integrated startlogic wordpress setup, and then just post some pictures, write up a few listings, talk about your experiences, in no time you will be getting traffic and (hopefully) some new customers!  Use these tricks on your current website to capture more traffic and, if you wind up getting a new web hosting account, set up a google adwords account and spend that free advertising money!

All the best,

The Mortgage Pro Blog Team!

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Geoff Boyd – PrimeLending – Clackamas, OR

Hi everyone, this article comes straight from our resident expert in online marketing, Aaron Jones. He’s good at what he does, so listen up and give it a shot; you won’t be sorry!

In this market, it helps to have an edge. Our ‘Internet Marketing for Real Estate Agents’ series is here to help you succeed in this fast-paced information driven business environment. It’s Easier than you Expect & more Important than you Realize.

Search engine optimization (SEO): The process of improving the visibility of a web site in unpaid search results.

Hold on there, get your finger away from the ‘close’ button – don’t let the technical terms spook you – this is a very valuable tool and you will have a grasp on the basics if you give this article a chance.

Ready? Here we go.

First of all, if you have an online presence and want people to be able to find you, your website or your listings, SEO is a valuable tool for you. You do not need to have a website to implement this type of internet marketing, but it certainly helps.

Let’s define what I meant when I said “Online Presence“. If you have ever commented on a news article, set up a Facebook account or posted a listing online, you have an online presence. Most people consider their company or personal website to be their ‘online presence’, but that is only a part of it. Internet marketing and SEO is all about promoting yourself, your listings and your business online, making every online interaction and website as effective as it can be for driving search results and getting found.

So the first real step in search engine optimization is to know what your online presence looks like. How do you do that? Google Yourself. It may sound silly, but if a referral customer is looking for a way to contact you, they will probably be typing your name into a search engine. Look for content that casts you in a less than professional light; you may be surprised at what you find! There are ways to get content removed from search engines, but the best way to clean up your online reputation is to create and promote the content that you want customers to see.

Your personal brand is important, but business comes first. SEO is one of the keys to selling real estate online – this is the #1 way to get more eyes on your listings, and with a little patience, you can do it yourself. Now, SEO stands for Search Engine Optimization, but since Google has over 70% of the market share for online search, we will stop saying “search engine” and start saying “Google”. Don’t worry, most search engines work in a similar way, so if you work towards good scores in Google, you will get results in the rest as well.

I should also mention that, while I do Online Marketing for a living, there are a lot of people out there who will charge an arm and a leg for what I’m about to explain to you, so be very careful if you decide to hire someone to do this for you, you might get taken for a ride.

Without further ado, here is part one on how to use SEO to build your business online. Stay tuned for part 2 next week.

The Three Ways that Google Ranks your Online Presence

1) The Content

This is the first and perhaps most valuable piece of the puzzle. Google can only read text that you can copy and paste, so if you upload a picture of your amazing listing flier, you shouldn’t be surprised if no-one can find it; Google needs the text to correctly categorize and rank it. There are ways to do SEO for images, but it is always better if there is text accompanying or explaining the image. The best thing about this is that since your website is already mostly text, you are halfway there, the next step is optimizing that text.

Google categorizes and ranks your content based on what words you use and how often you use them. If you were using Google several years ago, you may have run into websites that were just huge blocks of nonsensical text. People used to use this technique, called “keyword stuffing” to promote their website on Google. Now it will just get you banned from search results.

Think along these terms. If you were a customer, what would you search for to find this piece of content (house, agent website, blog, etc)? What specific words would you use? If you use those words in your website or online listing, you are helping your customers to find you, and that is great news for everyone! Well, except for your competition.

2) The Context

Context is very important for SEO and Google is really starting to use context to drive search results. For example, if you search for VA Loan or VA Mortgage, your results will be targeted towards Veterans, but if you search for VA Housing or VA Property, your results will be about Real Estate in Virginia – computers are getting smarter, so you need to make sure that your content has the right context.

How do you give context to your content? Part of it is the website that the content is hosted on. A post on Activerain.com or Trulia.com will have the natural context of real estate information, while a article from the Wall Street Journal will automatically score higher on financial topics. If you are putting the information on your website, Google gets that context from your websites “Meta Data”. Long story short, Meta Data is information that is in the code of your website (or isn’t, but should be, depending on who designed it) and it tells search engines what the website is about. If you are brave, look at the source code for your website (usually can be found by right-clicking on your web page) – otherwise simply use this tool to discover what your meta data says about your website. If you want to change your meta data, you have to edit your website – I would ask whoever set it up in the first place to do that for you, or Google it if you are feeling brave.

Quick primer on meta data – there are MANY types of meta data, the three most important for SEO are Keywords, Description and Title.  Keywords should be words that are relevant to your content, separated by a comma.  Description is a short (160 characters or less) chunk of text that describes your content.  Title is the “name” of your page, and should not exceed 60 Characters,

The last way that Google gets context for your information is through outbound and inbound links. If both Activerain and the Wall Street Journal link their readers to your post about the financial aspects of real estate, you will get an added benefit for both Financial Topics and Real Estate Topics, because known experts have linked towards you. If you are linking out to them, it gives added context to what your material is about.

3) Competition

Online marketing has been a big thing for several years now, so your competitors might have beat you to the punch. Don’t get discouraged , just because you are starting behind is no reason to not start – you can and will catch up, but it will take a bit of time. If you are just starting with online marketing, you are not going to stand a chance against Amazon, Ebay, Zillow or other internet powerhouses, so I would encourage you to start small.

Here are the questions you should ask yourself – what piece of the market do I own? What clients do I really connect with? What are specific words used for my area (town, county, city, nicknames).

People tend to “search” like they talk, so remember that you have to put yourself in the customers shoes. A person coming into town to find a house to move into will not necessarily use the same words or phrases as a local. They may use zip codes, landmarks or other non-standard language to try to find what they are looking for. Once you know who your audience is, you can start talking like them. If you have multiple audiences that use different language, it is better to have multiple pages or articles that target each audience rather than trying to talk like 3 groups at once.

In the second part of this article we will give you some examples of how SEO works with social networking and blogging. We will also show you how to track your progress for the best results!

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Follow us on twitter for current news, advice and market status updates.

Have a question or something to add? Leave a comment or send us an email

Geoff Boyd – PrimeLending – Clackamas, OR

What is it about making sequels to bad movies? You have to agree, it’s one thing to remake an old movie, or make a sequel/prequel to a good movie, but there is nothing worse than sequels to movies that were junk to begin with.

So, when I heard a few higher-ups in HUD and the Obama administration floating the idea of a second home-buyer tax credit, I was understandably surprised. Considering that the first credit showed little to no measurable positive effect (especially in retrospect) and may be responsible for the recent record lows in new and existing home sales, you would think that we had learned our lesson about these types of interventions.

Now look, I’m all for stimulating home buying, but I think we are getting into “Honey, I Shrunk the Baby” territory here. This is, at this point, rumor – but if you will bear with a bit of speculation, but I have to agree with our friends over at Calculated Risk – the best thing for housing would be for our administration to definitively say “There will be no more Housing Tax Credits”. In a market with this much volatility, we need our leadership to help this market stabilize before we can grow. The financial doctors on Wall Street and in DC are ignoring the heart attack and treating the arm pain – as any good doctor will tell you, you fix the problem first and deal with the symptoms second, and you never give a junkie a prescription for drugs.

Any other failed government policies that you think need a sequel? Or perhaps some ideas of how the government can be helpful to the market?

Edit: Calculated Risk found this CNBC report from Diana Olick: HUD now says that “there are no discussions underway to revive the credit.”

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Follow us on twitter for current news, advice and market status updates.

Have a question or something to add? Leave a comment or send us an email

Geoff Boyd – PrimeLending – Clackamas, OR

Today, catching almost no-one by surprise, the existing home sales number dropped month over month – what did surprise us was the size of the drop; July’s existing home sales number was 27.2% lower than June. Many people, including some of the major news organizations and financial experts, are pointing fingers at the new homebuyer tax credit for creating what essentially has turned out to be a bubble in housing. Well, in reality, they didn’t create a bubble as much as move a number of home sales forward. For example, people who may have waited until September to buy a home, jumped on the tax credit and made their purchases earlier in the year. The hope, was that this short burst of activity would create some momentum and get the entire sector moving again. No such luck. As I have mentioned wayyyyyy to many times, until the fundamentals improve (employment, consumer confidence, rational lending guidelines), the housing market will not improve.

The thing that concerns me is not the admittedly awful financial news that seems to keep coming, but rather that it seems like we are at a precipice. While we have become somewhat used to weathering the storms of financial doubt and hardship, a large negative event that we aren’t expecting could truly send us into a tailspin. I won’t speculate on what that negative event could be, but a non-financial issue could be the straw that breaks this camel’s back. This is a danger because our financial system has become increasingly reactionary and much less proactive. People calling for the resignation of Summers & Geithner are doing so not because they are incompetent, but because they seem to be aimlessly shooting at targets rather than taking a measured approach to solving this economic mess.

On the mortgage rate side of things, we continue to see yields on MBS dropping, and then climbing back up. We seem to be bouncing back and forth between the usual flight to safety (when bad news hits the wires & stocks dive) and profit taking (once MBS prices hit the ceiling). Long term, this is a sign that rates will remain volatile, but “range bound”. At least for the near term, rates which were once unheard of will remain a huge attraction to potential home buyers. Like we said on Friday, housing is in rough shape, and may take a while to recover. 10 years from now, any first time buyer (that is able to buy now) will have one of those great cocktail party stories to tell “So, I bought this house for wait wait wait…..$155,000!, and oh yeah and my interest rate……4.25% !”

As we start to see employment and wages recover, we can expect that many Americans will begin to save to start rebuilding their wealth and lifestyle. The question is what they will do with their savings. Will they buy homes (there is a lot of chatter in financial sectors that homeownership is overrated)? Will they invest the savings (or will they have lost faith in the equity markets?). Will they spend it randomly on more “stuff”? Honestly, how many I-Pods does one person need? Will they be more comfortable taking on debt again? In order for our economy to move forward, there needs to be a good amount of all of these: savings, spending, investment, and debt. Too much of any of them will push us back into the proverbial ditch.

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Have a question or something to add? Leave a comment or send us an email

Geoff Boyd – PrimeLending – Clackamas, OR

Many of you may have heard about the new Facebook “Places” feature. If you know what Foursquare is, you have a good start on understanding Facebook Places. Essentially, this new feature allows you to tell Facebook where you are in the world via GPS and share that information with your network.

Please note, this function is Turned ON by default.

The Good

• Like Foursquare and other Location-based services, it provides businesses with a way to attract and reward loyal customers.
• It can be used to find or meet up with people that you might otherwise miss
• It adds a layer of functionality that can be built on for some new, exciting technologies.

The Bad

• Turned on by default
• You may not want your friends to know where you are
• Once your location has been published to your network, you lose control over who sees that, they can republish to their network or, in a worst case scenario, their account may be accessed by someone with bad intentions – that person now has access to your location
• If you don’t turn it off, friends can tell facebook that you are at their location, whether you are or not.

It has been speculated that these types of location-based tools can be used to find targets for thieves – but I don’t necessarily buy that. This technology has a LOT of potential for good, but it also by default removes a level of privacy that we take for granted.

If you want to disable this as a whole, go to facebook, click options, go to privacy settings and you can choose who can and cannot see your location, whether friends can check you into places (A while ago, one of my friends wrote my phone number in a public place as a prank – it wound up being a huge headache for me. Would one of your friends check you into a place that may be harmful to your reputation as a prank? Are you sure?) and other privacy settings. For a detailed walk-through, see this website.

There is a strong argument for the benefits that services like this could provide. Check out this video which describes some really cool augmented reality technology that this is a necessarily base to.

Again, this feature is by default set to “on”, so if you do not want to be part of this service, you should go in and change your settings. I cant help feeling like Facebook is tearing down walls and putting in windows, and soon we will all be living in glass houses.

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Follow us on twitter for current news, advice and market status updates.

Have a question or something to add? Leave a comment or send us an email

Geoff Boyd – PrimeLending – Clackamas, OR

If you keep doing what you have always done, you will keep getting what you’ve always gotten…

And yet, it seems like as we try to tackle this recession, we are largely using the same tools that were only fairly successful in the 1900s (yep, some of these tactics were used to “fix” the great depression). Our country, infrastructure and economic system are radically different than they were just 20 years ago, so it seems as if we are fixing a system with outdated tools.  While using leeches has come back into vogue, most of us wouldn’t use 100 year old medical tools to cure a modern disease, and our economic doctors should be doing this either.

This isn’t a political blog, so we won’t go too far down this path, but it seems to me that a good portion of our administration, and specifically some of the financial regulators and policy makers just doesn’t get it. I am not joking when I say that we are still using metrics that were designed when the fastest you could get information person-to-person was via telegraph.  Or, to put it another way, the heads of our financial system: Bernanke, Bair, Congress, others are looking into their bag of tricks and are quickly realizing that they’ve run out of options; stimulus programs, tax cuts and government spending are, after all, effective in some economic climates. Unfortunately, none of these programs make sense for an economy that has somewhere between 10%-20% unemployment. Our current leadership reminds me of the band playing on the deck of the Titanic.

Am I saying that we are heading for complete economic collapse and that our time as a superpower is fading into the past? Of course not.  That scenario isn’t close to playing itself out yet.  We are home to some of the brightest, most forward thinking, creative people on the planet…. and we tend to attract those very same types of people from countries across the globe.  One big problem that I do see is what I like to call “the Greece Complex”.  Our nation has become “used to” certain things and we will need to let go of a few of them in order to survive.  To fix our current mess, we will need to sacrifice and our leaders are afraid to tell us this. Instead they tell us that things will be fine, “keep spending”, but never dealing with the real issues………..because that would be unpopular. They are regulating, legislating, and leading according to polls, focus groups, and rumor.  For example, in our recently passed FinReg bill, derivatives were not dealt with.  ???  This was one of the biggest problems and causes of the mess that we are in, and it wasn’t even addressed!

Okay, enough “opinion” – here’s what you need to know. Things are not good in our economy, especially in any metric related to housing. Rates are at a historic low, and I mean just rock bottom.  The best numbers that we see are that refinance volumes are through the roof, which is a pretty obvious reaction to the market.  This helps a few people reduce their monthly expenses, but doesn’t really stimulate anything new.  New/Existing home purchases are at 10+ year lows, and when you consider that our population is much larger now, those numbers show a much bigger gap.

Here’s some more good news: some markets are improving.  Businesses are beginning to show interest in expanding. They are accomplishing this expansion first and foremost, by making more effective use of their current staff.  Over time, the job losses will taper off, and we will begin to see a true “bottom” in several important metrics, like employment rates and business spending.

OK, some not so good news? Housing is going to be way behind the curve in regards to recovery. The American public as a whole has shown remarkably low demand for new Mortgages (preferring to Rent vs. Buy), even with house prices way down and rates at, like I said, all-time lows.

Stocks, always known to be a volatile investment, have lost their gains from the last 10 days. Bonds have been more favored and, as a result, rates are still trending down. At this point, you should read “lower rates” as “more refinance activity”; we used to have a strong correlation between lower rates and new home purchases, but that link has been broken for about a year now.  Especially as the market begins to price in a “bond bubble”, we could easily see interest rates stall out and not drift lower.  This is because investors are becoming concerned about the value of those bonds, their ratings (as Moody’s, Fitch, and others have suggested that downgrades could be coming), and their relative risk.

So, I’m not trying to be negative, just realistic.  As I have said many times, accepting reality means that you have a good foundation for success in the future.

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Geoff Boyd – PrimeLending – Clackamas, OR

A long time ago, almost 3000 years ago to be precise, Greece was the ruling power in the Mediterranean. Their rich mythology and language are still around, thanks to some scholars who remembered the first rule of any task, Write It Down. Many of you who can still remember middle school will recall the story of Sisyphus; a King who angered the Gods so greatly that he was given a simple but impossible task. Sisyphus was to roll a boulder up a mountain, but every time he got close to his goal, it would roll right back down and he would have to start over. A lot of effort for no net result.

Just like Sisyphus, the Federal Reserve Bank is trying to push our economy out of the recession. Their most recent strategy? Buying more treasuries. By purchasing these securities, they will decrease the supply of treasuries, raising the price and driving down the required return, you know the drill. This is Economy 101 stuff, and interest rates will go down as a result.

There is just one problem; our economy is going to come rolling right back down the hill. What I mean, of course, is that this plan to stimulate the economy doesnt address the problems that the economy is facing. With unemployment through the roof and the savings level rising, a very large portion of our population is changing how they “do” money – if they have extra, they save for when things get worse. You can look at the economic reports and they tell the whole story – new and existing house sales are at all-time lows, building permits and materials have not recovered either, but savings are up and spending is way down.

So, the solution is to make lending more affordable, right? Wrong. In the state of our economy, with a true unemployment rate assuredly over 12% and possibly near 18%, even the least savvy of Americans understands that you don’t rearrange the deckchairs on the Titanic. If the economy is going down the drain (and for some, its reached rock bottom), it doesn’t matter how low an interest rate you can get, you won’t have money in the bank or food in the pantry. Unemployment is an anchor that will continue to pull our economy down until the joblessness problem is solved.

The Fed seems to believe that low rates are the key to recovery. This is where they must have skipped the chapter in the economics 101 book; “the economy doesn’t work if people don’t have jobs”. Unfortunately, the answer is right in front of them. Thomas Hoenig, Kansas City’s Fed President, has repeatedly dissented with the Fed’s continuing decision to keep the Fed Funds rate near 0. His most recent statement is that the Fed is making a “dangerous gamble” by continuing to force rates down.

The Fed refuses to listen, perpetuating the Boom / Bust cycle that reminds me of that ancient boulder rolling up and down the mountain. Unfortunately, the only way to get some footing is find a bottom…..a real bottom, and this would be very painful.  Our country can create and maintain growth, real growth, but the interventions that we have seen in the past 2-5 years have made it hard to get any traction because they create the illusion that we are experiencing a recovery.  The Stimulus Checks, New Homebuyer Tax Credit, Auto Incentives, and all the rest of the government interventions, do not seem to be helping create any lasting growth.  This is because they are not creating foundations upon which the market can stand and build from.  For now, they are simply fluff to make it appear as if the Fed is doing something.   The real truth is that we will come right back to where we started unless the American people are able to start working again.

Interestingly enough, the DOW, S&P and NASDAQ charts all look exactly the same at this point (over halfway through trading for the day) – all 3 started way down, barely hit positive only to slide right back down. As of this point, Nasdaq is the only one of the three major indices that has managed to stave of major day-over-day losses; I would expect a moving average to iron out that wrinkle.

If you follow the market closely, you may have heard the term “Hindenburg Omen” being floated out there. In the grand old tradition of divination, this is a “pattern” that supposedly predicts a upcoming crash in Stocks. This omen occurs when a large number of stocks are hitting new highs while other stocks are hitting new lows. When you break it down, it appears that you might squeeze a 25% link between this omen and the downturn it is supposed to predict. I will let Barry Ritholtz sum it up…

“Wake me up when you find something with an actual correlation — last I checked, 25% isn’t even in coin-flip territory.”

Barry Ritholtz

http://www.thebigpicture.com/

There is one other piece of the puzzle that few are talking about, many of those omen-worthy high’s are on preferred stocks, while most of the lows are coming from common stocks.

Personally, I don’t buy it.But whether these signals predict market direction or not, investors may turn this into a self-fulfilling prophecy.

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Follow us on twitter for current news, advice and market status updates.

Have a question or something to add? Leave a comment or send us an email

Geoff Boyd – PrimeLending – Clackamas, OR