KEY ITEMS LAST WEEK

·         Mortgage bonds and home loan rates ended the week improved. 

·         The Advanced GDP reading - or first of three readings - for the 4th Quarter of 2011 came in at 2.8%, a bit below expectations of 3.2%. This number will be revised two more times, but if the final GDP remains at 2.8%...then the overall GDP for 2011 would be a scanty 1.57%. That is certainly a "Gross" Domestic Product, when you consider that the government has underwritten more than half of that economic growth with the Payroll Tax benefit. 

·         the Fed's Policy Statement after its regularly scheduled Federal Open Market Committee meeting was pretty much the same story as recent Statements, including stable long-term inflation expectations, a tepid economic recovery, and fragile job market. But there was one big exception to their norm. The Policy Statement said there will be "exceptionally low levels for the Federal Funds Rate at least through late 2014." This is a huge change from the previous statements of "low rates until mid-2013.  On the surface, extending the zero interest policy until 2015 tells us the Fed thinks the economy will just be slogging along, and accommodative monetary policy will be required to keep the economy growing at least at a modest pace. One could argue that recent economic data is better of late and that all this loose monetary policy is unnecessary. But the Fed has spoken, and as the old adage goes: "Don't fight the Fed.. 

·         The bottom line is that Bonds and home loan rates remain at historic best levels, which means now is still a great time to purchase or refinance a home. 

TODAY’S MARKET

·         Currently, the Mortgage Bonds market is UP 12 bp’s. 

·         The European Union (EU) Economic Summit is taking place in Brussels today, and while working on setting forth the “tighter fiscal union” agreement, their attention is being diverted back to the Greece debt swap deal, which was hoped to have been finally handled over the past couple of weeks.  The latest – Germany wants EU officials to weigh in on Greek budget decisions as part of the bailout package and of course, Greek officials want none of that.  This is a new wrinkle to an already complicated Greek situation, and ultimately, it would not surprise us to see Greece exit the Euro.  Lurking right behind Greece for the next round of bailouts, austerity measures and tough decisions is Portugal , whose 10-year Yields hit a Euro-era record of 17.05%.  The Eurozone really has their hands full…and one thing we are not hearing is how this debt-laden Eurozone is going to "grow" it's way out of its enormous debt.  The short-term austerity measures are going to make the debt problems last a lot longer because these countries are not going to be able to pay the tab.  The EU goal is to gradually get budget deficits to 3% annually – and as an example, Spain is staring at a 8% budget deficit, with unemployment at 23% and rising.  Oh, and they just announced a negative GDP this morning, at -0.3%.  So how the heck do they pay their debt down?  You are right – they won’t.  But someone will have to.  And with the lack of alternative financing, the only way to get this done is for the EU to step in, print money and secure this debt. 

·         The Fed's favored gauge of consumer inflation remained relatively tame last month as the Core Personal Consumption Expenditure (PCE) Index rose slightly by 0.2%.  This elevated the Core year-over-year rate to 1.8% from 1.7%, which is still below the 2% target the Fed outlined at their Meeting last week. 

·         The Commerce Department also reported that Personal Incomes rose in December by 0.5%, above the 0.4% expected and well above the 0.1% reported in November…and also marked the largest increase in nine months!  Personal Spending came in unchanged, while the Personal Savings rate rose at its fastest pace since August, rising to 4% from 3.5%.  So while a bit more income is being made, cautious consumers are banking the money rather than spending it.  If this trend continues, look for 1st Quarter GDP to be a bit lower than the 2.8% Fourth Quarter GDP reported last week. 

ECONOMIC NEWS THIS WEEK

·         Economic reports will be plentiful - and important. 

·         Economic Calendar:

·         Monday           Personal Consumption Expenditures (PCE), Personal Income and Spending

·         Tuesday           Employment Cost Index, Chicago PMI, Consumer Confidence

·         Wednesday      ADP National Employment Report, ISM Index

·         Thursday         Productivity, Jobless Claims

·         Friday              Non-Farm Payrolls, Unemployment Rate, Hourly Earnings, Average Work Week, ISM Services Index

If you have any questions or need scenario’s run please call me!

 Warmest regards,  

Matthew A. Frey
Home Mortgage Consultant
NMLSR ID 653914

Bankers Funding Company, LLC | 27451 Los Altos , Ste 100  |  Mission Viejo , CA 92691  | MAC E2285-010
Phone (949) 588-1010| Cell (949) 632-5682| Fax (866) 493-0942
An Affiliate Of Wells Fargo Home Mortgage
matthew.a.frey@bankersfundingcompany.com
www.matthewfrey.com