The Weekly Rap! Friday Sept 14, 2012

The Dow is currently trading at 13,227 higher by 323 pts over last week  The S&P 500 is trading higher at 1,469.  Gold is trading at $1,777 an ounce, while oil futures at $98.96 a barrel.  Gas prices, (Regular in El Dorado Hills, Costco, AM/PM), are at $3.91/Gal.

Yields on 10-year notes, which move inversely to prices, are trading at 1.86%.  30-year bond yields are trading at 3.08%.

Mortgages or FNMA 3.5% MBS (Mortgage Backed Security) is currently at 106.28.  On July 25 we reached an all time high (Price) of 106.31, But yesterday, on a gift from the Fed Gods, we broke that record when the price reached 106.63.  We’ve pulled back from there as expected but not much.

In the next month the government is raising the Guarantee fee (the fee charged to protect against credit-related losses in the mortgage portfolio; think of it like MBS insurance) b .125% in rate or .5 in fee.  This will effectively worsen rates by an 1/8.th  Basically each percent change in the price of the security translates to the price (or points paid or credited) of the mortgage rate.

In economic news this week; Wholesale prices in August rose by the largest amount in more than three years after a late-summer resurgence in the price of oil.  The producer-price index rose 1.7% last month.  That’s the biggest increase since June 2009.  The advance in wholesale costs stemmed from a spike in the price of gasoline and natural gas.  The wholesale cost of gasoline rose by 13.6% while natural gas climbed 11.9% both three-year highs. An increase in energy prices makes it more expensive for companies to produce their goods and services and could hurt profits unless businesses pass along the costs to customers.

The consumer price index jumped 0.6% last month to mark the biggest advance since June 2009.  The bulk of the increase stemmed from a 9.0% gain in the gasoline index, which also rose by the fastest amount in more than three years. As a result, energy prices surged 5.6%, marking the first increase in five months The cost of food rose at a much slower 0.2% pace. Despite the big increase in August, consumer prices have only risen 1.7% over the past 12 months.

The big news this week was the Fed’s announcement following their 2 day meeting yesterday.  The Fed Gods, worried that improvement in the unemployment rate has stalled, announced a third round of bond purchases in an effort to bring down long-term interest rates and spur economic growth.  The Fed said it would buy mortgage-backed securities at a pace of $40 billion per month.  On a positive note; this caused mortgage rates to hit a new all-time historical low.

In addition to bond purchases, the Fed said it intends to keep the benchmark short-term interest rate, known as the federal funds rate, at nearly zero until mid-2015. The prior guidance on the first rate increase had been late 2014. Bernanke commented, “Even after the economy starts to recover more quickly, even after the unemployment rate begins to move down more sizably, we are not going to rush to tighten policy. We are going to give it time to make sure the recovery is well established”.

And now for the Rant:  Really?  A federal judge in Boston recently ordered the Massachusetts Department of Corrections to provide sex-change surgery to a transgender inmate, serving a life sentence without the possibility of parole for murdering his wife in 1990, ruling that failure to do so violated the prisoner’s Eighth Amendment right to adequate treatment.  Ok, so I get that the term “adequate” is a vague term, but really?

The judge stated that surgery is the “only adequate treatment” for the inmate’s “serious medical need.”  The inmate who identifies as female, has received hormone treatments and lives as a woman in an all-male prison.  I agree that our prison systems have an obligation to provide medically necessary health care.  But let’s define “medically necessary.”  How about saving life!  What’s next plastic surgery?  This is called by the insurance industry as “elective” surgery.  Question; Who’s going to pay for this?  Taxpayers?  And in just which prison is this prisoner going to be placed?  It’s my opinion and I’m sticking to it!

If you know anyone who can benefit from my services, please call me.  My greatest goal is to see clients and friends happy.  I guess that’s why I love providing mortgage financing.  It’s an immediate gratification when you can help someone purchase a home, or lower their payment on their existing home.

Bill Bartok

Mortgage Advisor

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