In This Issue…
Last Week in Review: The debt ceiling debate raged on – plus a double dose of inflation news.

Forecast for the Week: Earnings season and the debt ceiling debate will continue, plus a busy middle of the week for economic reports.

View: Wondering if the potential government shutdown could impact you…or your home closing? Don’t miss these important details!

Last Week in Review

“What we’ve got here is a failure to communicate.” That famous line from the 1967 movie Cool Hand Luke certainly seems to apply to our leaders on Capitol Hill, as the debt ceiling debate rages on. Read on to learn how this could impact our economy, the mortgage industry, and home loan closings.

Last week, the political gridlock and confusion within Washington DC around the debt ceiling and budget deficit debate prompted credit ratings firm Moody’s to announce that it was reviewing US Debt for a possible downgrade. Even though Moody’s acknowledged that the chances are low for a default, they said the chances are no longer “minimal.” Moody’s announcement was followed by a similar announcement from credit ratings firm Standard and Poor’s, which said that a US debt default is a 50-50 chance, even if the US raises the debt ceiling. Standard and Poor’s is looking for a “credible solution” to the long-term debt problems, and in that absence, the United States’ current “AAA” credit rating could be cut.

Why is this significant? Lowering the deficit and being fiscally sound raises confidence in our debt. This would not only translate into maintaining our AAA rating, but it would reinforce the United States’ role as the reserve currency of the world or a place where investors will place their money as the ultra safe haven. This is a key factor for our continued economic recovery. To learn how a potential government shutdown could impact the mortgage industry and home loan closings, see the View article below for details. Also, call or email me if you have any questions at all. I’ll be monitoring this situation closely in the weeks ahead.

The gridlock on Capitol Hill wasn’t the only thing heating up last week. Both the core Producer Price Index (which measures inflation at the wholesale level) and the core Consumer Price Index were reported hotter than expected. Remember, inflation is the arch enemy of Bonds and home loan rates, like Kryptonite to Superman, because inflation erodes the value of the fixed return provided by a Bond, which causes home loan rates to rise. This is another area I’ll be monitoring closely in the weeks and months ahead.

The bottom line is that home loan rates still remain near some of the best levels we’ve seen this year. If you have been thinking about purchasing or refinancing a home, call or email me to learn more or forward this newsletter on to someone you know who may benefit.

Forecast for the Week

A big week for earnings season is ahead (with reports from IBM, Bank of America, Goldman Sachs, Wells Fargo, Apple, Microsoft, and GE, among others) and the debt ceiling debate will certainly rage on, and both of these could impact the markets. Also, the middle of the week is chock full of economic reports. Look for:

  • A double does of housing news with Tuesday’s Housing Starts and Buildings Permits Report and Wednesday’s Existing Home Sales Report.
  • Thursday brings another weekly Initial and Continuing Jobless Claims Report. Last week’s Initial Jobless claims fell 22,000 to 405,000 and while the decline is good news, better news will be when Jobless Claims consistently fall below the 400,000 level.
  • Thursday also brings the Philadelphia Fed Report, which is considered an important manufacturing indicator.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

As you can see in the chart below, Bonds and home loan rates were unable to improve above a key technical level. I’ll be watching closely to see how the news and events of the week impact rates and the markets.

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Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jul 15, 2011)
Japanese Candlestick Chart
The Mortgage Market Guide View…
Government Shutdown and the Impact on Mortgages

In the wake of news stories that the US will face a government shutdown and default on its outstanding loans if a debt ceiling agreement isn’t reached, many people may be wondering what the impact would be to the mortgage industry and closings.

The last time we went through a government shutdown in 1995, it was a pain, but not a panic. If a shutdown were to occur again, mortgage expert Linda Davidson points out the following top six areas that could be impacted:

1. FHA Case Numbers: For each FHA loan, we are required to order a FHA case number. This number is generated before an appraisal can even be ordered. With a shutdown, we may not be able to order case numbers. Because of this, it is critical to let us know if there is a contract executed on any loan, so that our office can go ahead and order a case number without risking the loan being on hold during a shutdown. Note: with the new FHA guidelines, a contract must be executed before a case number can be ordered.

The ability to close FHA loans is questionable, depending if HUD keeps its website running to obtain FHA case numbers and CAIVRS. During the November 1995 shutdown, case numbers could not be obtained, but this was prior to the internet and was a manual process. The shutdown in 1995 mainly caused a delay rather than a drop in FHA loan origination. But if lenders decide to stop accepting FHA applications, it could be a problem. I think we may see delays but not a complete shutdown of the FHA.

2. 4506 IRS Transcripts: Each loan requires the verification of at least one tax return by the IRS to verify the numbers that each customer presents on their tax returns. During a shutdown, this process would be delayed as the IRS wouldn’t be at work to verify the transcripts.

3. Verifying Employment of a Government Employee: We are required to verify the employment of each customer. If the customer is a federal government employee, we would be unable to verify his or her employment during a shutdown.

4. FEMA: Homes in a Flood Zone: Homes that are determined to be in a flood zone would not be able to close as flood insurance could not be obtained.

5. USDA: During a shutdown, the USDA office would be closed because they have government underwriters that insure behind the lender. With a shutdown, we would see delays with all USDA loans.

6. VA: Like the FHA, the disruption is possible – but not absolute – during a shutdown. This would all depend on if they continued to allow their website to function. A disruption would cause delays in VA appraisals and the issuing of certificates of eligibility. If the website was closed during a shutdown, we would see delays in all VA loans.

Stay tuned for updates if necessary on this very important time period. And if you have any questions, please call or email today.

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Economic Calendar for the Week of July 18-22, 2011

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.

Economic Calendar for the Week of July 18 – July 22

Date ET Economic Report For Estimate Actual Prior Impact
Tue. July 19 08:30 Building Permits Jun 600K 609K Moderate
Tue. July 19 08:30 Housing Starts Jun 570K 560K Moderate
Wed. July 20 10:00 Existing Home Sales Jun 4.93M 4.81M Moderate
Thu. July 21 08:30 Jobless Claims (Initial) 7/16 411K 405K Moderate
Thu. July 21 10:00 Philadelphia Fed Index Jul 0.0% -7.70 HIGH
Thu. July 21 10:00 Index of Leading Econ Ind (LEI) Jun 0.3% 0.8% Low
The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.

Kurt Galitski

Meet Kurt Galitski - The Kurt Real Estate Group, your new best friend. Distinctive Strategies that Deliver Record-Setting Results. When you combine Kurt’s passion and knowledge of the real estate market, you really gain an appreciation for what makes Kurt different. But what truly sets him apart from the crowd are his 5 distinctive strategies and his property management… For Kurt, getting into real estate was not an accident, it was a deliberate and calculated decision to deliver a better experience to home buyers, sellers, and landlords that they have ever received before. Today, you could ask any one of hundreds of clients, read his Yelp reviews, or look at his track record of being featured in Orange Coast Magazine in excess of eight consecu­tive years and you too will say mission accomplished. www.KurtRealEstate.com www.KurtPropertyManagement.com 877-957-6677

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