I am working on some research to do my next post regarding the "Mortgage Rate Bubble" and would like as much input as possible.  I am running a poll on Florida Mortgage Report to see how many and what percentage of real estate professionals think rates will continue to increase and where will mortgage rates be at the end of 2009. 

Unfortunately, I could not get this poll scripted properly for adding to AR, so please send everyone you know over to http://www.flmortgagereport.com and select their answer.

Most of you reading this have already heard me voicing my opinion and analysis on the subject of term I coined over 6 months ago, the "mortgage rate bubble".  Now that we have been seeing mortgage rates spiking higher, I decided it was time to poll the community and see what everyone else is thinking.  I have set up a poll on Florida Mortgage Report in the middle sidebar if you would like to help me.

Please take a moment to visit Florida Mortgage Report and take the poll and if it doesn't allow you to input additional comments, feel free to email anything else you would like to say on the subject.  The poll closes at 5pm (market close) tomorrow and I will have a new post on the subject with some of everyone's comments (and of course links) posted most likely on Wednesday.

If you have wondered why mortgage rates have been climbing, falling, and climbing again, here is a great view into the current mortgage backed securities market…

Mortgage backed securities have done three virtual freefalls in the last week and a half, only 8 trading days.  Since MBS pricing is what drives mortgage rates, those freefalls resulted in spikes higher in mortgage rates and the subsequent climbs in MBS prices have brought rates down a bit and set up the next “dive”. 

While Sheikra, which I think still boasts the largest freefall of a dive coaster (205 feet), only has two freefalls built into it, the rollercoaster ride in the mortgage backed securities market has already had three and the ride is likely far from over.  If you would like to read more of my analyses of the markets and what may lie ahead, check out these posts…

Is the Mortgage Rate Bubble About to Pop?

Is the Air Being Let Out of the “Mortgage Rate Bubble”

To begin with, let’s analyze what has been happening to mortgage rates since my last post on the subject, just below and dated May 22, 2009. Since then, mortgage backed securities have plummeted after breaking below their recent trading range on May 23. While they have made back some ground, their virtual freefall has changed the overall outlook for mortgage rates, and may very well signal the beginning of climbing mortgage rates. The question in my mind these days is how high will they go and just how fast. Taking a look at the charts below will show just how fast they got worse and the potential speed at which they could rise in the coming months, if not years.

To read the remainder of the story, please visit Florida Mortgage Report

PS - I do not like writing excerpts, but I typically do not have time to rewrite the whole post.  In about an hour, I am heading to the airport to fly home from Bolivia, so all I could do is add this excerpt and send you to the real post.

If any of you have been following my work, especially over at Florida Mortgage Daily where I post regular mortgage market commentary, you knew I coined the next bubble the “Mortgage Rate Bubble” a long time ago. Others are now using the “Bond Bubble”, focusing on Treasuries and not mortgage backed securities and mortgage rates, but it is essentially going to happen the same to MBS as it is to Treasuries. So, just what is it and when is it going to happen?

Sorry to do this, but if you want to read more, please visit Florida Mortgage Report

It is hard to believe that I have been talking about these programs for more than two years now,  bringing to light the misleading, even false, information presented by the Money Merge Account sellers.  Don’t get me wrong, these bits of misinformation spread out on occasion to other mortgage acceleration product sellers, but the United First Financial (UFF) agents are the worst offenders from what I have seen thus far.  The company even encouraged the presentation of skewed realities at the beginning, and I suspect they still do in a “non-public” fashion as they allow agents to continue spreading the crap, such as that from the Asher Institute report including claims that a 30-year fixed rate is really an adjustable rate mortgage (ARM).

One of the more subtle and persuasive statements is that paying off your mortgage is the same as investing at the same interest rate.  This comparison is very successful for them as they can show that an investment account with the same interest rate will have accrued the amount needed to pay off one’s mortgage at the same time as if one was paying monthly toward their mortgage.  What’s even more powerful for their persuading clients into buying the Money Merge Account (MMA) is the phrase “where are you going to get that kind of return, especially in a savings account.”  The problem is that they again leave out a lot of facts, facts that could very well change your mind.

Let’s go ahead and assume that your mortgage is 6% and you can get a 6% rate of return on your investments.  That puts the mortgage payoff date at the exact same time, regardless of how much money you add monthly.  However, the truth of the matter is that you are much better off investing than paying off your mortgage.  You see, once you send money to the bank to payoff your mortgage, you will not be able to access it again, at least not without refinancing.  Your investments, on the other hand, can be “tapped” if the situation arises.  This is called liquidity, aka money readily available.  When a financial crisis occurs, many whom have gone the mortgage acceleration route are finding themselves trapped and struggling to make ends meet, with no cash available.  Some have even headed to foreclosure.

Another fact is that when the mortgage payoff time arrives, guess what?  If you have sent all of your money to the bank, congratulations, you now have a free and clear home, but no cash in the bank.  You cannot tap into your home’s equity without refinancing again.  With the investment account, you have financial freedom in essence.  You have options!!!  You can choose to pay off the mortgage in its entirety, pay off part of it as you deem capable, or let the investments keep working for you and reap more rewards.  Also, keeping the money in investments keeps that liquidity that we all need, and most lack.  Remember that $100,000 readily available can pay a lot of bills during a financial crisis, such as job loss.  Try getting a refinance done without a job.

Now, we haven’t even talked about the tax benefits that carrying a mortgage can provide.  Even if you are taking the standard deduction, you may be able to gain tax advantages.  Another point being argued these days is where can you get an interest rate that is greater than your mortgage interest rate?  I do not think I can legally specify any one stock, bond, etc., but I can tell you that it is not hard to do with a little bit of research and education.  One of my investments is yielding over 17% in dividends and that yield does not look to be in jeopardy any time for the foreseeable future.  Since dividends are only taxed at 15% maximum, there is a greater ability to grow your wealth on the “spread”.  Of course, Obama will probably destroy this 15% cap, but remember that he won’t “raise taxes”.  Speaking of higher taxes, when they come, you will want every deduction you can get.

Another point I would like to mention that the “other side” won’t is that you do not need to earn the same interest rate as you pay on your mortgage in order to come out ahead in your investments.  That’s right, you could earn less than your mortgage, even taking out the tax benefits, and still come out ahead in some cases.  I show these type of facts in my presentations, which I may turn into videos to be released across the internet.

So, don’t buy into the simple facts or even listen to just one side of the story when trying to decide which mortgage strategy is best for your situation.  I encourage you to research thoroughly and make sure you have seen genuine side-by-side comparisons of various strategies, as well as working with a mortgage professional whom understands and can teach both sides’ advantages and disadvantages.  Of course, if you have any questions, feel free to contact me.

As strange as that sounds, many moons ago I mentioned that the Fed, led by Ben Bernanke, would love nothing more than to pay people to borrow money and a study released yesterday proves I was right. The fact is that Big Ben wants inflation so bad that he would be willing to pay others to borrow money if he could actually do that.

The study that was released yesterday morning stated that the Federal Open Market Committee (FOMC) was presented with the suggestion that the optimal interest rate would be –5%. That’s right, supposedly the best interest rate would be to pay others 5% to borrow money, despite the fact inflation is near 2%, so the net loss on money lent would be around 7%. That’s OK though, they don’t have to take the loss, they just pass it on to every American with increased taxes down the road. Oh, and don’t be naive, those higher taxes will be coming, it is just a question of when.

Nevertheless, since the Feds know that they cannot go negative and they are already sitting near zero percent, they recommend keeping up, even stepping up, other unconventional policies that have the same effect as negative interest rates, such as the announcement of the stepping up of MBS (mortgage backed securities) purchases to $1.15 trillion. The research the Fed was acting upon actually suggested an even greater amount, but the Feds decided to play it “conservative” as one Fed governor defined it.

Why am I bringing this up right now?

Easy, the FOMC is meeting again as this is posted so be prepared for more of these "unconventional” policies to be released. What worries me is that Big Ben himself already stated that inflation will be an issue after the next FOMC meeting, so we are likely in for a shock as the Fed makes their announcement tomorrow. There is even talk that the Fed may up their MBS purchasing yet again. Remember that the Fed’s Policy Statement has a much greater impact on mortgage rates than their actual decision, so I will give you a rundown once it is released today at 2:15 over at Florida Mortgage Report.

I get tired of reading all the crap about the $8,000 tax credit, as everyone and their mother want to get you to buy from them.  Many times, these so-called professionals are asking you to do what can best be described as tax fraud, so watch out.  Here is a Press Release that the IRS just put out a few minutes ago, IR-2009-14...

WASHINGTON - The Internal Revenue Service announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

"For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman. "This important change gives qualifying homebuyers cash they do not have to pay back."

The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit.

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

If you still have questions, I suggest talking with the IRS, not a "salesperson". Hopefully this information will keep you from paying a lot of extra money in tax penalties and interest, not to mention keep you out of jail.

That is the question our government would be asking you if they were your waiter.  While I was doing this morning's mortgage market update, that thought came to mind as a great way to sarcastically explain the government's actions thus far.

With job losses mounting, the government claims they need to force through another stimulus package which creates more jobs, government jobs that is.  And they did exactly that, well not exactly as the amount of jobs they actually will create versus what they claim will not equal each other, and it will be inversely proportional to how much the cost is.  In simpler terms, they won't create the promised amount of jobs and it will ultimately cost more than what they said.  Also, history shows that growing the government is exactly opposite of what the government should be doing, at least in a capitalistic society.  maybe the dessert selection will be socialism?

I don't think there are many out there that didn't have money in the markets in one form or another, 401(k)s, IRAs, etc.  With real estate prices already tanked, stocks and even bonds crashing (or about to), virtually everyone approaching retirement right now is facing a new reality.  That reality is that they will be forced to work a lot longer than they expected.  Those of us whom have more time on our hands, well, chances are you are freaking out about your losses right now, but you will recover in the long run, again based on history.

Don't think history repeats itself?  Look again. 

Please read the remainder of the post over at Florida Mortgage Report...

On Friday, we saw the release of the CPI (Consumer Price Index) and it showed inflation to be tame overall, actually falling into Bernanke's concerns, deflation.  Even when you look at the Core CPI, removing volatile food and energy from the equation, you still only see a small inflationary rate over the last year, just 1.7%.  But is the inflation rate really that low, or is it that the CPI is not showing reality, at least not yet?

First off, CPI can be manipulated somewhat, so let's just look at what we buy in the supermarkets everyday.  Everywhere you look, if you look closely enough, you can see "hidden inflation."  You can see it in the packaging of the products we buy, as the prices have not changed while the packaging has actually shrunk.  You may not even notice it, but look again and you will see that a half gallon of ice cream is no longer a half gallon.  A jar of peanut butter may have a larger dome in the bottom to hide the fact it is smaller as well.  Just take a look at a lot of the products you buy daily and you may very well see that inflation is being hidden right in front of your eyes.

Now, what is inflation in reality?  In a post I did a while back, When Lethargic Rabbits Start Running, I discussed inflation in detail along with the real problem today, which is the velocity of money.  Please read that post, or even re-read it, before you continue as its key points will be brought up again.

While Bernanke and his buddies keep bringing up deflation, etc. to justify their positions (and desires), reality lurks in the darkness.  Bernanke stated in his 2002 speech that he wants nothing more than to debase the dollar in order to create inflation.  Evidence shows that the broad money supply (M3) is back on the rise, including growth in the required reserves at depository institutions, hinting that the velocity of money is rising again (aka lethargic rabbits start running), with some believing that double digit inflation may be seen later this year.

Adding to the problem is the fact the Federal Reserve may begin monetizing Treasury debt due to the likely drop off of foreign demand in US Treasuries, which we are already seeing.  With the Treasury needing to increase fundings to cover the stimulus package and the additional relief/bailout efforts, the Feds may be buying up Treasuries and will assist in reigniting inflationary pressures.  Wonder the truth of that, just read the Fed's last FOMC statement where they outlined it...

"The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets."

With the government printing presses running full-time around the clock, the debasing of the dollar as commanded by Bernanke is in full swing.  The only saving grace we have right now is that the US dollar is still the best of the worst paper out there and that is keeping the dollar's value alive, which is keeping much of the commodity prices in check as well.  Gold is not taking the bait, though, as it is back over $1,000, so gold traders are signaling inflation is alive and well.

What does this mean for mortgage rates?  Mortgage bond traders, you know those mortgage backed securities that I told you are the driving force of mortgage rates, are already signaling their concerns about inflation by preventing mortgage rates from dropping further.  As chart patterns solidify, all signs are indicating that mortgage rates will be climbing again and may very well do so even if the Feds buy all the MBS.  Of course, that all makes sense since inflation is the arch enemy of bonds, mortgage bonds included, and as their prices drop, yields rise and that translates to higher mortgage rates. 

Now, all of you sitting on your butts waiting for those government promised lower mortgage rates should stop laying your faith in our government and just buy that home or refinance before it costs you too much to do so.  Those promised lower mortgage rates may very well never be seen!!!