Monday, May 24, 2010

Chaos in Europe = Low Mortgage Rates for Americans

Stock market turmoil and chaos in Europe are helping Americans get low interest rates on their mortgages. How and why is this happening?

Flight to Quality
Over the past several months, expectations have been for higher interest rates. The end of the Federal Reserve’s $1.25 trillion mortgage-backed security purchase program suggested that rates would have to rise to attract more investors to purchase mortgages. But with all of the chaos in Europe, investors from around the globe are flocking to American bonds, including mortgage-backed securities.

The financial instability is not contained to just Greece. One of Spain’s largest banks, CajaSur, failed and had to be taken over by the Bank of Spain (Spain’s central bank). This news feeds the flight to quality by investors.

U.S. Treasuries and other “safe,” fixed-income investments are the beneficiaries. Mortgage-backed securities are included in the “safe” category because they have real collateral in the form of real estate. Real estate values have already taken major price hits over the past few years, and the worst of the devaluation appears to be over. In addition, underwriting standards are much more stringent than they were a few years ago, so investors understand that owning mortgages today is a sound investment.

Opportunities for Homeowners
The low fixed interest rates today represent opportunities for homeowners to refinance and lock in a low, fixed payment. In general, a 1% reduction in rate represents a 10% reduction in payment. Reducing a payment isn’t the only benefit. Some homeowners are choosing to shorten the term of their mortgage from 30 years to 15 years so that they can own their home “free and clear” sooner, and reduce the amount of interest they pay over the life of their mortgage.

Long Term View on Interest Rates

In the long run there are some factors that do not bode well for interest rates. Most notable is the growing federal deficit. In the first 220 years of recorded financial records of the United States (i.e., 1789-2008), the nation had cumulative deficits of $5.3 trillion (i.e., outlays in excess of receipts). The combined deficits in the 3 years of 2009-10-11 (i.e., the actual deficit of $1.4 trillion in 2009 plus the government's projected deficits in 2010 and 2011) are estimated to reach $4.2 trillion (source: White House, 5/10).

Monday, May 3, 2010

Twitter and Facebook and Linked In, Oh My!

A few weeks ago I was in Lake Tahoe for some meetings. One of our sessions was a presentation about using social media to market business. They were over a hundred mortgage loan originators in the room, but when the speaker asked how many had a Facebook page, or used Twitter specifically for business, less than a dozen people raised their hand. This surprised me. What didn't surprise me was that all of the people that raised their hand were under 45.

Most people have found the benefits of using Facebook to find old classmates or share photos with family and friends. Likewise, scores have discovered that Linked In helps to connect with business associates, clients, or aids in a job search. I have some friends and family members that love Twitter. I have to admit, I have yet to find my love for this medium. I'm still working on it, but so far I find there is too much noise.

If you work, you should have a Linked In page. That includes working for a company, yourself, or even volunteer work. It is a great venue for networking and there are seemingly infinite numbers of "Groups" to join to generate discussions and connect with like-minded folks.

Facebook isn't just for sharing photos of your family or announcing your mood to the entire globe. It is a phenomenon how many millions of people use Facebook. Many of them are your customers, or potential customers. The most annoying thing about Facebook are some of the games like Farmville or Mafia Wars. My news feed will sometimes get clogged up with my "friends" progress on one of these games. I'm sure there is a way to block that stuff, I just need to figure it out. Also here is a bit of advice, do not post anything on Facebook that you don't want EVERYONE to know. Employer background checks often include visits to Facebook to find out more about the candidate.

Twitter is a beautiful idea. Short and sweet announcements that get shot out to all of your "followers." My advice is to be discriminatory in who you follow so that you aren't tweeted with too much nonsense. Likewise, don't tweet a bunch of gobbily-gook like, "Life is a beautiful gift so treasure each day." That may be true, but I will probably stop following you if that is the depth of tweets I receive. I (and your followers) want useful information.

More people are getting on board with social media for business, even the over-50 crowd. Click the links on the right for my Facebook and Twitter pages. I promise not to publish any gobbily-gook.