Eric's Blog

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Sat, 31 Oct 2009 18:46:41 -0500

October 16, 2009

Happy Halloween! Trick or Treat?

That's one way to look at the US economy during the third quarter where GDP growth beat most analysts expectations with a 3.5% annualized growth rate. Was it a trick, or some kind of economic treat? It sort of depends on how you look at it, but either way, we probably won't know for sure for another quarter or two.

You can already hear one side touting it as a huge treat. The government stepped in when consumers and businesses were reeling most, and spurred some spending. Those in the trick camp will tell you that we just got an injection of government steroids, and once those shots stop, so will the economic growth.

There's no doubt that the government stimulus drove the economic engine in the third quarter. Of the $787 billion stimulus plan, about $207 billion has been spent (www.recovery.gov). And, of the 3.5% GDP number for Q3, most of the boost came from housing (driven by the tax incentive) and autos (due to cash for clunkers). Without that, it's very likely GDP would have been flat, or maybe even negative.

The question is, was it worth it? I tend to think so. Without the intervention, both economic momentum and psychology would have continued their downward trend, making recovery even harder.

As we move into Q4, it'll be interesting to see if the increased consumption fueled by government stimulus can continue. Personally, I'm skeptical, but at least the monetary and fiscal policies have put a floor under our economic slide. But, with unemployment likely rising further, I don't see how we can expect a strong consumer to come back that soon.

That's partially why we saw the stock market give up all of Thursday's gains yesterday. The hot GDP report got everyone fired up on Thursday, only to be dashed on Friday by the weak consumer spending number that posted a -.5%, dip, meeting analysts' expectations, but sliding back about 2% from the month prior's 1.4% mark, which was fueled by cash for clunkers and homebuyer tax credits.

This realization helped fuel a rally in bonds and mortgage backed securities, which is interesting because the waves of unprecedented supply continue to roll in. Yet rates on mortgages and yields on treasuries remain very low because the appetite to soak them up seems to be strong. Is money moving back into safety and income generation? Is it a story of supply creating demand? Or....are bonds, treasuries and mortgage backed securities over bought, meaning we could see a correction in the other direction in those markets?

As always, there are a lot more questions, than answers.

So, what will drive economic growth going forward? I think we'll continue plodding along. I don't put the recent GDP print as either a trick, nor a treat. It was the result of the necessary evil of massive government intervention.

The real trick is going to come as we try to wean off this government crutch, live within our means, and increase revenue without imposing crushing tax increases on businesses and individuals that could risk pushing a fragile economy back into recession.

I'm glad I'm not faced with making those choices. I'll just continue giving you my thoughts on how they may impact you and your finances. As much pain and discomfort this economic cycle has created, there are valuable lessons to learn, and some terrific opportunities to sieze.

As always, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. If you're in the market for a Jumbo ARM, the rates are screaming!! Happy Halloween! E

Conforming	Rates	Points	APR	Loan Amt	Payment
30 yr fixed mortgage	4.875%	1	5.075%	$300,000.00	$ 1,588
15 yr fixed mortgage	4.375%	1	4.575%	$300,000.00	$ 2,276
3/1 ARM	4.000%	1	4.190%	$300,000.00	$ 1,432
5/1 ARM	4.000%	1	4.210%	$300,000.00	$ 1,432
5/1 ARM Int Only	4.125%	1	4.385%	$300,000.00	$ 1,031
Jumbo (ask me about the new limit, per your zip code)
30 yr fixed mortgage	6.625%	1	6.751%	$550,000.00	$ 3,522
15 yr fixed mortgage	5.250%	1	5.505%	$550,000.00	$ 4,421
3/1 ARM	3.875%	1	4.055%	$550,000.00	$ 2,586
5/1 ARM	4.875%	1	5.095%	$550,000.00	$ 2,911
5/1 ARM Int Only	5.000%	1	5.250%	$550,000.00	$ 2,292
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Fri, 16 Oct 2009 22:37:48 -0500

October 16, 2009

Wow. It's amazing what the expiration - or perceived expiration - of a government hand-out (errr...tax incentive) will do to boost sales.

Cash For Clunkers created a spike in car sales in August - which promptly receded upon the program's expiration.

I think the Homebuyer Tax Credits will do the same thing. Looking at home sales for the four-county Sacramento Metro area, we've seen a huge spike in pending sales during September, in both month over month and year over year comparisons. I imagine this trend will continue through October, since the program is currently set to expire for closings after November 30, 2009.

As I write this letter, pending sales and closed sales for October are only about 1/3 of September's levels, across the board, although we're half-way through the month. But, that's not unusual, since most closings are scheduled for the last week of the month. We'll see how it pans out. I expect similar final #'s to September's.

In September, for pending sales in the price range of $150k-$200k we saw a 67% m/m spike and a 58% y/y increase. In the $201k-$300k range pending sales rose 68% m/m and 48% y/y. From $301k-$400k pending sales increased by 53% m/m and 38% y/y. The $401k-$600k range saw increases of 63% m/m, but only 5% y/y. And, even the higher end of $601k-$1mill saw pending sales - which to this point had been mostly down both m/m and y/y - increase by 115% m/m and 21% y/y.

That's pretty interesting to me, particularly since in most cases for our market, although we're seeing some month to month increases in sales, the year over year comparisons are basically flat, or down, across the board since the spring, when interest rates first hit their historic low of 4.625%.

And, ordinarily I'd expect that with low interest rates (a good 1% lower on average than 2008), lower home prices (down roughly 10% from 2008) AND the buyer tax incentives, sponsored by our tax dollars (well, really our borrowed tax dollars) that sales would be UP year over year from 2008. But, that's not been the case. It appears that it takes the expiration of a tax credit to move folks to buy homes.

So, that begs a few questions:

Why were people not buying homes in droves up to this point, given that rates are lower, prices are lower, and Uncle Sam was doling out cash?
Is this spike in sales simply pulling sales forward w/ folks looking to capitalize on the tax credit, who would have bought a home anyway?
Is this tax incentive creating any new demand from home buyers who would otherwise not be buying?
Will the home buyer tax incentive actually expire or will it be extended?
And, what will happen to home sales when that tax credit is finally closed, whether Nov. 30th of 2009, or some future date?

If you listened to the main stream media, you might think that the reason people aren't buying is because guidelines are too strict, and it's hard to get financing.

Although guidelines are definitely tighter, they're basically back to where they were 10 years ago. You have to have a job, be able to verify your income, have some savings and have decent credit to get a loan. But, if those things all line up, financing has never been cheaper.

Rather, I think that in California, and most of the country, people aren't buying in droves because... they're not working too much. In California, unemployment is in the 12% range. If we look at the under-employed, and those who've quit looking for work (which is around 16% on the national level) I'd think we'd see true unemployment pushing 20% here in California. And, the Sacramento area is particularly loaded with government employees, many of whom are furloughed. It's tough to go buy stuff, particularly a home, when you're not working or making less than you're used to making.

As for the impact of the tax incentive, I see that as icing on the cake for buyers. I don't believe it drove a significant amount of fresh demand from buyers who would otherwise not have bought. I think many of them have been diligently shopping for homes, hoping to find one that fits their needs so they can use the tax incentive. I wonder how many of them compromised on the home they wanted, just to get in contract and close within the current deadline? To me, a few grand is nothing, compared to being happy in your home for 10+ years. But, maybe some don't see it that way.

I expect home sales, for the most part, are being pulled forward, that would have occurred anyway. I have no way of knowing hard data on buyer's intent and timing, but I don't think the incentive pushed people who were otherwise planning to keep renting to go buy a home.

I do think the tax credit will be extended, and possibly even expanded. It's not in the news much, but there is a bill currently moving through Congress with growing support that will extend, and possibly expand, the homebuyer tax credit. There's certainly a lot of lobbying force pushing Congress down that path.

So, what will happen when the free money is cut off? Will we see a similar decline in home sales that we saw in car sales upon the expiration of the Cash For Clunkers program? I think it's likely that the pattern will repeat. What will the talking heads say to that, as they point to the recent sales spike as further evidence of a turnaround in real estate?

There are just so many homes (like three million) that still need to move through the system that I don't see a clear, sustainable upswing in sales just yet. You can't make people buy things they can't afford. If I recall, that's part of how we got here in the first place.

But, in the same breath, I do think we're finding a bottom to the home pricing correction. Data points to slight month over month price increases - whether those are sustainable or not, or driven by the spike in sales, is another question. But, things do appear to be firming, however slowly.

Meanwhile, we're seeing pretty much every other asset class rising, too. The Dow Jones Industrial Average just closed above 10,000 the other day for the first time in a year (and the 26th time in history) and the media is celebrating, despite the fact that it first did so 10 years ago. Bonds and Mortgage Backed Securities have also been rallying, pushing down yields and rates. Commodities continue to advance. And, that brings me to another question: When in history do we see all these things moving higher at the same time? Not too often, and typically, Mr. Bond Market tends to be making the correct call vs. Mr. Stock Market about the overall direction of our economy. Whether it is this time, or if we are entering some new paradigm where jobs are lost, people spend less, but corporate profits rise, our economy still grows, and inflation picks up, only time will tell. I'm certainly not betting on that new paradigm coming to pass.

Although I think the worst shocks are behind us - we still have a lot of debt out there to either pay down, or....just write off. That won't be a pretty process, and it will take years, not months. The commercial losses are just now really hitting the fan in full force. Those will dwarf the residential loan losses. It's going to be interesting to watch it all unfold. Retailers have closed 8300+ stores so far in 2009, two thousand more than closed during all of 2008. I could go on. The era of excess is unwinding in the US, as it should. Then, we have to rein in our government spending. As you may have seen, the projected deficits continue to increase from already staggering amounts.

We will return to growth. We will return to full employment (roughly 5% unemployment rate) and, home prices will rise over time, but...again, that will all take years, not months to turn the corner.

In the mean time, we know that home prices are back to where they were in about 2002-2003. Interest rates are at historic lows and...it's a great time to buy, for those who are well positioned to do so. And, there are some very viable ideas out there that are free to us taxpayers that could do a lot to firm up our housing market. Hopefully, they will gain traction in Congress. More on those ideas in another letter.

As always, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. Here are today's rates. If you're in the market for a Jumbo ARM, the rates are screaming!! Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
30 yr fixed mortgage	4.875%	1	5.075%	$300,000.00	$ 1,588
15 yr fixed mortgage	4.375%	1	4.575%	$300,000.00	$ 2,276
3/1 ARM	4.000%	1	4.190%	$300,000.00	$ 1,432
5/1 ARM	4.000%	1	4.210%	$300,000.00	$ 1,432
5/1 ARM Int Only	4.125%	1	4.385%	$300,000.00	$ 1,031
Jumbo (ask me about the new limit, per your zip code)
30 yr fixed mortgage	6.625%	1	6.751%	$550,000.00	$ 3,522
15 yr fixed mortgage	5.250%	1	5.505%	$550,000.00	$ 4,421
3/1 ARM	3.875%	1	4.055%	$550,000.00	$ 2,586
5/1 ARM	4.875%	1	5.095%	$550,000.00	$ 2,911
5/1 ARM Int Only	5.000%	1	5.250%	$550,000.00	$ 2,292
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Thu, 17 Sep 2009 23:06:51 -0500

August 25, 2009

What will happen to fixed mortgage rates when the Federal Reserve stops buying Mortgage Backed Securities later this year?

Here's my prediction: Not a lot.

Some people fear fixed mortgage rates will skyrocket. I'm not one of them. Worst-case, I think we return to the 6% range, where we were before the Fed's intervention a year ago. But, I actually think they'll hover in the current trading range around 5% to 5.5% for some time.

The Fed definitely stepped in and created a market when it was dying on the vine in the Fall of 2008. Last year, prior to the Fed's November 25th announcement that they'd buy up to $500 Billion of Fannie Mae and Freddie Mac's mortgage backed securities (subsequently expanded to $1.25 Trillion in the Spring of '09) 30 year fixed interest rates were hovering around 6%-6.5%.

We'd seen two or three windows of opportunity in 2008 where rates hit 5.5%, but it wasn't until the Fed's November announcement that rates dipped below that mark, and hit as low as 4.5%-4.625% for a short time.

The Fed's expansion of that program in the Spring of 2009 helped mortgage rates dip again, and hover between 4.625% and 5% until May, even as the stock market was rallying off the March lows. That's important, because usually when stocks advance, that's shifting the supply/demand equation, pulling money out of the relative safety of bonds and mortgage backed securities, moving it into higher risk/reward equities. But the Fed's purchase program undoubtedly picked up much of that slack.

Additionally, the stock market rally was (and still is) fairly low volume, which could mean that a lot of money still needs to be placed where it's relatively safe, but earning more than zero. On that note, 3-month Treasuries are paying just 13 basis points above zero (a basis point is 1/100th of 1%, and as the stock rally continues to have legs, the yield on the 10-yr Treasury is coming down, very close to breaking below a key level of 3.4%. Under "normal" circumstances, we'd expect the yield on Treasuries to rise, when the stock market rallies. (As an aside, the 10yr Treasury yield actually closed at 3.398% today).

From May into August, mortgage rates came off their floor and were hovering in the 5% to 5.5% range again. Still terrific fixed interest rates, but...we get spoiled easily, don't we?

Then, as the second quarter came to a close, and economic "green shoots" began turning brown, money found its way back into the MBS market, bringing 30-yr fixed rates back below 5% to 4.875%, just .25% above their historic floor.

Enter 3rd Quarter. We had "cash for clunkers," ongoing incentives for first-time homebuyers, and consumers benefited from a slight tax reprieve via the economic stimulus plan enacted after Obama took office. As a result, Q3 GDP is expected to show about a 3.5% growth rate. Meanwhile Q2 GDP was revised to a better than expected -1%. But, how much of that was due to government intervention, rather than organic growth? Quite a lot. Moreover, will this improvement continue into, and through Q4? We'll see.

I do believe the worst is behind us, economically. But, we're just now beginning to see the first wave of commercial defaults start to rise. That poses significant risks for our banking/financial sector. Unemployment is pegged to rise through much of next year. And companies, for the most part, are still seeing their top line sales decline.

The government stimulus should continue to keep the wheels on the car, for now, but in this tough environment, I think it's likely that the stock market will start to retrace some of its recent gains - as it becomes clear that the recent growth is not fundamentally sustainable without continued government intervention, which of course breeds another set of challenges. The timing of this realization is likely to occur around the tail end of Q4 2009 or Q1 2010, basically coinciding with the Fed's unwinding their MBS purchase program.

And, since many investors have ridden this stock market wave, posting significant gains, it may be time for some profit taking, where they'll cash out and park funds in less risky, yet still substantial returns of MBS, treasuries and corporate bonds.

They can choose US Treasuries - little return, and virtually no risk. Or, they can assume slightly higher risk, and buy up Mortgage Backed Securities, municipal bonds (there was a recent spike in that market, too) corporate bonds, etc.

If you're buying recent vintage MBS, from 2008 and 2009, unless the seller is stuffing their bundle with older vintage loans, you're getting mortgages with at least 20% equity cushions (and much more in many cases) backed by borrowers with stable and verifiable income, assets, and solid credit histories. Even accounting for some incremental job losses, and another down leg in home values, "most" of those newly minted loans should perform within historic ranges, with defaults in the 1% range.

And, if I can get a return of 5.5% on my money - in what I would term a pretty safe environment - that's not a bad deal. Particularly if we do find ourselves in a deflationary environment. Then, my actual returns could be 6.5% to 7.5%. Not bad! 8% annualized returns are what the Stock Market Gurus sold us as standard for years - despite the fact that the major indices (Dow, S&P and NASDAQ) are basically in the same place now, as they were 10 years ago.

On top of those factors, since the Baby Boomers have seen their net worth plummet through declines in asset values (both in stocks and real estate) they may shift much of their portfolios to income generation, rather than equity appreciation. This could further fuel demand for MBS and other income driving investments.

Sure, there were and continue to be some great runs and huge opportunities to make money in stocks - as long as you or your financial planner/broker buy the right stocks and move in and out of the market at the right times, but...as we know, that's easier said than done.

Investors may decide that's not worth the risk - in the near term - when they can park their funds in safer investment vehicles, and still net some handsome returns.

That's why I think mortgage rates will not see much of a jump - if any - as the Fed winds down their purchase program. And, if The Fed believes otherwise, I'm fairly confident they'll extend the program accordingly. They're going to do everything they can to reflate our economy. And higher borrowing costs for consumers would add pressure to what may already be a pretty weak and tenuous recovery.

But, as always, time will tell. Maybe we will indeed see a V-shaped economic recovery. That's certainly what the stock market is anticipating. Just because I don't see it playing out that way doesn't mean it won't happen. We'll see as we continue moving through this cycle, and I'll do my best to keep you posted.

In the mean time, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. Here are today's rates. If you're in the market for a Jumbo ARM, the rates are screaming!! Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
30 yr fixed mortgage	4.875%	1	5.075%	$300,000.00	$ 1,588
15 yr fixed mortgage	4.375%	1	4.575%	$300,000.00	$ 2,276
3/1 ARM	4.000%	1	4.190%	$300,000.00	$ 1,432
5/1 ARM	4.000%	1	4.210%	$300,000.00	$ 1,432
5/1 ARM Int Only	4.125%	1	4.385%	$300,000.00	$ 1,031
Jumbo (ask me about the new limit, per your zip code)
30 yr fixed mortgage	6.625%	1	6.751%	$550,000.00	$ 3,522
15 yr fixed mortgage	5.250%	1	5.505%	$550,000.00	$ 4,421
3/1 ARM	3.875%	1	4.055%	$550,000.00	$ 2,586
5/1 ARM	4.875%	1	5.095%	$550,000.00	$ 2,911
5/1 ARM Int Only	5.000%	1	5.250%	$550,000.00	$ 2,292
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Tue, 25 Aug 2009 23:53:25 -0500

August 25, 2009

What does our economic recovery mean for interest rates?

I wish I knew, exactly. But, all I can really do is make an educated guess. As you can imagine, it's very dependent on what type of recovery we see.

You're probably hearing the same alphabet soup of recovery letters I am - will it be a V shaped recovery, which is how most recoveries over the last 80 years have been? Maybe it'll be a slower slog, shaped like a U (or even a bathtub, with an elongated trough, before slowly curling into the upside of the U)? Could we see a W? That's basically two back to back Vs. What impact would that have on interest rates? And then there's the L - like Japan's "lost decade." How would that play out for our borrowing costs?

As you know, there are two basic factors that drive mortgage rates. First is supply and demand, and second is inflation, or fears of it.

Despite what we hear in the main stream media, mortgage rates are not based on the 10-year Treasury yield. Investors doling out the money to borrowers set mortgage rates they demand for their return on investment. They adjust for the risk/reward they're taking and the opportunity cost of not placing that money elsewhere. There is no direct linkage to Treasury yields. There's a small correlation between the yield on the 10-year Treasury yield and mortgage rates, because both offer similar "safe" long-term investments, with similar rates of return, but it's not a direct link.

For example, right now the 10-yr Treasury yield is around 3.45%, and 30yr fixed mortgages are at 4.875%. Treasuries have very little risk of default, because they're backed by the full faith and credit of the United States, but... investors may choose to accept a little more risk - since guidelines are not so loose anymore - and park their funds in Mortgage Backed Securities, returning about 1.5% more than Treasuries. Or, they can bet on corporate profits driving up share prices and yielding greater returns from the equity markets. Or, there are other bonds, real estate, and a myriad other investment vehicles. Lots of places to make money, and mortgage backed securities are their own animal, priced based on supply/demand, and... Inflationary pressures - or lack thereof.

So, a V-shaped recovery - which I think is the least likely scenario for our recovery - would tend to bring about rising interest rates faster than any of the other possible outcomes.

If we see a V-shaped recovery it would mean that corporations' top and bottom lines are growing, fueling economic growth where personal consumption has lagged. They're selling more stuff, charging more for it, and boosting profit margins. In such an environment, stock market returns would likely be strong relative to the perceived risk. So, investors would pull money out of savings, and safer investment vehicles (bonds, mortgage backed securities, etc.) to deploy that money in stocks for greater returns. This would decrease demand for those bonds and MBS, at the same time that the supply of Treasuries is burgeoning - to finance our increasing deficits. With supply up, and demand down, rates would rise to entice investors to keep money in bonds/treasuries/mortgage backed securities rather than deploying it elsewhere. However, as I've said before, I think the excess capacity in our economic engine, combined with rising unemployment, increased savings, and decreased consumption will likely prevent us from seeing too much of a V shaped recovery, despite the stock market's current rally.

A U shaped recovery would have our economy lazily kicking around the lower end of the recovery spectrum for a period of time - possibly an extended period - if our recovery ends up more like a bathtub, than a U.

In this environment, corporate earnings would likely languish for some time. They've done an amazing job of cutting costs, increasing productivity and protecting margins so far, despite significant drops in sales across most industries. But, cost-cutting can only go so deep. We may be close to that point. Once you've cut to the bone, you have to start healing the flesh to grow again. Where will that growth stem from?

In this U shaped environment, corporate earnings may languish across most industries for a while. There will certainly be winners and losers, and occasional rallies, as well as niches where pricing power remains in tact, or new growth is solid, but for the broader economy, this could be a tough environment.

We may find that the recession ends, but...it won't feel like it to the 1 in 10 people who don't have a job, and another 1 in 10 who are working less than they want/need. In this environment, investors may welcome a steady, relatively safe return for their savings, driving demand for bonds, treasuries and mortgage backed securities, thus keeping rates relatively low.

A W shaped recovery would probably be pretty volatile with wide swings in all markets across asset classes. We're sort of seeing the stock market on this trajectory now, without any real turnaround in the underlying economic fundamentals - at least not yet. This would be an environment where keeping your eyes on the road would be critical. Having a sense of the underlying trends in equities and fixed investment vehicles would be invaluable to making the right decisions about how and when to deploy your money.

Lastly, there's the L-shaped recovery. It's really not a recovery at all. It could be akin to Japan's "lost decade" where, according to The Guardian "From its 1989 peak of 38,916, the Nikkei stock average fell 63% during the 1990s; land prices slumped - a far cry from the days when the grounds of the imperial palace in Tokyo were rumoured to be worth more than all the real estate in California." But, I don't think this scenario is very likely to unfold for the US.

The Bank of Japan was slow to react to their crisis. They waited 17 months to cut their overnight lending rate, and only in the mid-90's, five to six years after their asset bubble burst, did they get down to .5%. Our Fed, on the other hand, went from 5.25% to .25% in about 18 months, from the mid-2006 to their December 2008 meeting, when they hit the range of 0%-.25%, where we still sit today.

Additionally, Bernanke and company pulled out all the economic tools and levers. They pumped massive amounts of liquidity back into our system. Yes, their balance sheet exploded, but it definitely helped a really bad economic event from turning into an economic disaster. More importantly, to very little fanfare, the Fed's balance sheet has actually shrunk this year, and is no larger now than it was just after the Lehman Brothers collapse.

And, just today, for this Bernanke has been rewarded - as I think he should be. I'm sure he'll face some heat as he is questioned by Congress to confirm his reappointment, but... Uncle Ben is the man.

And, it will be interesting to see exactly how Bernanke guides us through this cycle. He'll also have two new Board members, since Obama will likely make appointments for seats that have been vacant since 2006.

Hopefully, they'll be able to engineer us back to a solid foundation for economic growth. I'm confident they will. And I'm sure it'll prove interesting, too since they're walking a tight rope of inflation and deflation as they cross over to renewed economic growth.

Once there, they'll have to impress upon our administration and Congress that as we return to stable economic growth, it must become a priority to reduce our budget deficit. You can already hear this in Bernanke's talking points. The trajectory we're on now with our federal spending is unsustainable over the long haul.

Clearly, as Japan has evidenced, our debt to GDP ratio can climb significantly for an extended period, without driving inflation, but...at some point they - and we if we follow their path - will have to pay the piper. So far, our piper - China and our other creditors - are playing a nice tune. But, at some point, they may start to worry if we don't clearly voice our plan to repay them.

As always, I don't know how this will all play out, but I'll do my best to keep you posted, so you can make the most of your opportunities.

In the mean time, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. Here are today's rates. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
30 yr fixed mortgage	4.875%	1	5.075%	$300,000.00	$ 1,588
15 yr fixed mortgage	4.375%	1	4.575%	$300,000.00	$ 2,276
3/1 ARM	4.125%	1	4.315%	$300,000.00	$ 1,454
5/1 ARM	4.125%	1	4.335%	$300,000.00	$ 1,454
5/1 ARM Int Only	4.250%	1	4.510%	$300,000.00	$ 1,063
Jumbo (ask me about the new limit, per your zip code)
30 yr fixed mortgage	6.750%	1	6.876%	$550,000.00	$ 3,567
15 yr fixed mortgage	5.750%	1	6.005%	$550,000.00	$ 4,567
3/1 ARM	4.000%	1	4.180%	$550,000.00	$ 2,626
5/1 ARM	5.250%	1	5.470%	$550,000.00	$ 3,037
5/1 ARM Int Only	5.625%	1	5.875%	$550,000.00	$ 2,578
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Tue, 04 Aug 2009 00:42:50 -0500

August 3, 2009

Have you ever taken a road trip, knowing your destination, but not knowing exactly how to get there?

I've used that analogy before. It's very fitting for what Fed Chairman Ben Bernanke and his car-load of Federal Reserve Board members are doing as they guide our economy back through recovery to stability.

With a broad brush, there are two major economic debates right now. They are whether we're facing an inflationary mountain, or a deflationary quagmire. And, the road we forge back to economic stability will play a huge role in your financial future. It will dictate the interest rates you pay, and the return on capital you get. It will shape the types of opportunities you can seize and drive the challenges you will face.

The Federal Reserve's job is to navigate their way forward, fulfilling two basic mandates: to maintain price stability, and full employment. That's the destination. How they get there, particularly in times of economic crises, can be the uncharted road trip.

Imagine Bernanke et al in the Federal Reserve System driving our "economic mini-van" with the US Family aboard. The "kids" in the back seat (we consumers, business owners, the politicians in Congress, etc.) keep wondering "are we there yet?" Meanwhile, the back-seat drivers (other economists, primarily, but some Congress members too) alternately scream "we're doomed, we'll never make it" and "wait, hit the brakes, we're there!"

Some recent sign posts we've all seen include:

The S&P 500 index closing above 1000 today, for the first time since November of 2008, when the wheels appeared to be coming off our economy.
Steady declines in the numbers of layed off workers since job losses seem to have peaked around January 2009
Increasing unemployment - now upwards of 9.5% nationally. And, if you count the "underemployed" those working part time who'd prefer full time work, that's more like 16%+. Both are projected to go higher, too.
Sliding consumer sentiment and spending, which peaked at driving 70% of our Gross Domestic Product
The highest personal savings rate we've seen in about 20 years
Q2 corporate earnings reports predominantly beating expectations
Skyrocketing national debt

But, each sign post has a different meaning, depending on the eye of the beholder.

Deflationists worry our economy may languish in an environment of falling prices for years, possibly decades, much like Japan has done since the bursting of their credit and asset bubbles in the 1990's. Japan's overnight lending rate - comparable to our Federal Funds Rate - has hovered around 0.5% for the better part of a decade. Their Nikkei Index - similar to our Dow or S&P indices - has declined from the 16,000 range in the summer of 1999 to just over 10,000 today. You'd find a similar deflationary story looking at Japan's real estate, and most other Japanese asset classes over the same time frame. All that despite loose monetary policy.

Inflationists fear hyper inflation, of the type that grips Zimbabwe today, rendering their currency less valuable than the paper on which it's printed. Or like the inflation that helped bring down Germany's Weimar Republic in the early part of last century, when people were carting wheelbarrows of cash to buy a loaf of bread. The inflationists point to the massive infusion of cash the Fed has pumped into our system. They point to the ongoing government stimulus packages - we've already had two, and a third is being discussed - that continue driving our nation further into debt. And, they claim, that at some point our debt will be unbearable, and that China - who currently gives us our allowance - may change the terms under which they want to be repaid. Lastly, these folks worry, that the only way to climb out of the mountain of debt we've built for ourselves would be to devalue the dollar, forcing inflation to effectively reduce our financed deficits.

My take? I don't see either catastrophic inflation, or a prolonged deflationary morass gripping our economy. In Uncle Ben I trust. And no, I don't think he's our crazy Uncle...

But, I do wonder where our economic growth will spring from, and how on earth - just 4 months after our stock market was pricing in Armageddon - it's pushing itself further and further off those lows - when really, we haven't seen any positive economic sign posts of the usual sort, but rather just "less bad" news.

I peg the recent run-up in stocks as a bear market rally - driven by corporate cost-cutting (propping up earnings) psychology/optimism and group think, more than anything. It reminds me of the rebound we saw in stocks after the 2001 tech bubble burst. By 2002 I thought the stock market losses had largely been realized. I invested a bunch of money. Shortly thereafter, the market dumped again to the 2003 lows. I lost. And, the economy as a whole was MUCH stronger then, than we are now, when you compare employment/unemployment, production, average earnings, etc. The tech bubble bursting was "relatively" contained. The credit, housing and asset bubbles were much more pervasive and far reaching. Their bursting has touched every sector of our economy (and the world's) as everyone - but our government - is deleveraging. It seems that as this year continues, we may see another pull back in stocks as revenues continue to languish, and they can no longer cut costs to protect their margins.

As for the lost decade the deflationists fear? Our Fed was much more creative, speedy, and forceful than the Bank of Japan was during the bursting of their asset bubble. Bernanke and Co. aggressively cut the overnight Federal Funds rate. They created an alphabet soup of programs to pump liquidity (credit and cash) back into our economy. They implemented an extensive asset purchase program, buying both US Treasuries and Asset Backed Securities. And, from a fiscal standpoint, both this year and last Congress approved temporary tax cuts which put a little extra money in people's pockets. From my perspective, although economic sign posts aren't yet getting better, just less bad, they are no longer showing shorter milestones to Armageddon. I think the worst is most likely behind us.

Inflation, on the other hand, should be manageable because most of the Fed's programs expire as their demand wanes. In fact, their balance sheet is shrinking even now. Some of the programs are also generating decent returns, which can be used to pay down our debt. In terms of the increased cash supply, which right now is basically sitting in reserve and not being deployed in the economy, the Fed can increase the interest paid on those reserves. According to Janet Yellen, San Francisco Federal Reserve Bank President, "An increase in the interest rate on reserves will induce banks to lend money to us rather than to other banks, thereby pushing up rates in the interbank market and, by extension, other interest rates throughout the economy. This is an important tool because, even if the economy rebounds nicely, the credit crunch might not be fully behind us and some financial markets might still need Fed support. This tool will enable us to tighten credit conditions even if we maintain a large balance sheet for a time."

Additionally, how can we have inflation when the labor force is contracting, hourly earnings are declining, and nobody - well, all but a select few - have any pricing power to raise prices on either the wholesale or retail level? Yes, if China's middle class burgeoned overnight (consumer spending only drives about 40% of their Gross Domestic Product) and began an era of consumption like we just went through, that could drive inflation. But, we're probably a decade or two away from that happening. Their culture is still vastly driven by frugality, rather than consumption. So, I don't see an epic bout of inflation, either.

But, there is at least one other concern on our horizon. It's trumped right now by the immediate challenge of repairing our "economic mini-van" but.... Our national deficit is a looming problem. The interest expense of financing our deficit could become crushing if we don't curb it. Add to that, the bloated entitlement programs we've promised (social security, medicare, etc.), not to mention new programs on the table, and.... some economists project that our tax revenues would need to climb to 68% of earnings (and if tax revenues are 68%, then tax rates would have to be even higher) to cover our debt service and entitlement programs. THAT's scary.

Fortunately, we can kick that can down the road. At least until we're certain that our "economic mini-van" is cruising ahead, back on its road trip, avoiding speed bumps and pot holes, along the way.

I'm counting on American creativity, ingenuity and resilience to pull us through this cycle and on to the next one. We do have a bitchin' set of tools...In our nation's history we've overcome challenges time and again.

In terms of impact on near-term mortgage rates, I think we'll continue on our slow trend up for 30yr fixed mortgages. If we see a significant economic relapse, look for those rates to dip again, as money makes it's "flight to safety." But, on the other hand, I won't be surprised to see rates touch 6% in the next 12 months or so, either. Meanwhile short and mid-term ARMs are likely to stay low, in the 4.5% range - steepening the yield curve, but not to excessive levels. We're close to the 1.5% or so spread between short-term and long-term mortgage rates now. And, I don't see those rates going too far below 4%, their recent floor, either. But, as always, time will tell.

In the mean time, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. Here are today's rates. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
30 yr fixed mortgage	5.125%	1	5.365%	$300,000.00	$ 1,633
15 yr fixed mortgage	4.375%	1	4.575%	$300,000.00	$ 2,276
3/1 ARM	4.125%	1	4.315%	$300,000.00	$ 1,454
5/1 ARM	4.125%	1	4.335%	$300,000.00	$ 1,454
5/1 ARM Int Only	4.250%	1	4.510%	$300,000.00	$ 1,063
Jumbo (ask me about the new limit, per your zip code)
30 yr fixed mortgage	7.000%	1	7.126%	$550,000.00	$ 3,659
15 yr fixed mortgage	5.750%	1	6.005%	$550,000.00	$ 4,567
3/1 ARM	4.375%	1	4.555%	$550,000.00	$ 2,746
5/1 ARM	5.375%	1	5.595%	$550,000.00	$ 3,080
5/1 ARM Int Only	5.625%	1	5.875%	$550,000.00	$ 2,578
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Wed, 08 Jul 2009 01:03:11 -0500

July 7, 2009

Since we've put the first half of 2009 behind us, it's time to review the predictions/educated guesses I made for this year, and see how on - or off - the mark I was.

1) Mortgage Interest Rates: I did well on this one. I thought mortgage rates would hover around the 5% range for 30yr fixed conforming loans (those under $417,000) for most of the year because of the Fed's tactic of buying Mortgage Backed Securities and Treasuries. I've been right, so far, even though they held well below 5% for a good while longer than I'd anticipated. At the mid-point of the year, the Fed is about half way through with purchasing their initial allocation. I think their continued purchases, and the languishing stock market might lead to money shifting, back into bonds and Mortgage Backed Securities and open another window of sub 5% rates. In fact, with earnings season about to begin for Q2, I'm looking for that window to open any day. Jumbo rates (true Jumbo, those over $625k) have indeed moderated, as I'd predicted. In January, they were upwards of 8% for 30yr fixed. They're now down below 7% again. I don't see them drifting too much lower for some time, still. But, 6.5% or 6.75% isn't bad! And, Jumbo ARMs are in the mid-4%s to mid-5%s.

2) The Housing Market: Jury's still out on this call. I said we'd bottom in 2009. I believe we'll bottom in California later this year, maybe early next - nice broad window for me to hit... But, if we consider that real estate appreciation could be a mean-reverting trend, we could overshoot the correction to the downside, before reverting to the historic average. Here in the Sacramento area it looks like new listings are down in most price ranges, pending sales are up, and actual closings are down. All of that could illustrate that we're working our way through the excess inventory, and returning to a more normal market. If you're interested, I can email you the stats for the four county Metro Area I've been tracking. Let me know. Of course, there's still a lot of inventory that's already bank owned, but not yet on the open market. Not to mention the folks already in foreclosure, and those who are behind on their mortgages, who may fall into foreclosure. So, this could merely be a plateau before another little dip down, instead of a true bottom. Time will tell.

3) Word of the Year: I had two. Stagdeflation and Quantitative Easing - Well, I was a little off on this one. These terms haven't found their way into the mainstream media yet, and you probably haven't heard them, unless you're a finance and economics dork, like I am.

4) I thought our economic stimulus would be a pork barrel magnet. We'll see. It's too early to tell, since the dollars are barely hitting the street now (unless you're on Wall Street). But, I did hear a report that Barney Frank - after leading the charge to have GM move through bankruptcy (not that that was a bad idea, but...c'mon Barney) to become leaner and meaner - convinced the newly appointed CEO to delay closing of a plant that operated in his district - to save jobs. Never mind that it may not have been an efficient use of their resources. That's likely just the beginning of those shenanigans.

5) Debt forgiveness: Yes, mortgage debt forgiveness. It's happening, but not that widely yet, so I'll give myself half a point. Ocwen has cut principal balances on about 20% of the loans they modify. I'm sure other investors and servicing companies are too. We might start hearing more about it as we move through this cycle. But, as you can imagine, lenders/investors probably want to keep that on the down low.

6) My freebie: Commercial Real Estate collapse. This is taking a little longer to fully materialize than I'd expected, probably partially due to changes in the "mark to market" accounting rules, and all the money banks have been plowing into their balance sheets, so they're delaying the inevitable. But, we continue to hear about more and more commercial property bankruptcies, foreclosures and delinquencies. Names like General Growth (the largest mall owner) and Red Roof Inn are a couple recent casualties. I think we're just at the tip of that iceberg

So, that's 3.5 out of six. Not bad, for educated guesses, I guess...

In my next update, I'll try to address the heavyweight fight between inflationists and deflationists and what it means to you.

In the mean time, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. Here are today's rates. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
30 yr fixed mortgage	4.875%	1	5.115%	$300,000.00	$ 1,588
15 yr fixed mortgage	4.500%	1	4.700%	$300,000.00	$ 2,295
3/1 ARM	4.000%	1	4.190%	$300,000.00	$ 1,432
5/1 ARM	4.250%	1	4.460%	$300,000.00	$ 1,476
5/1 ARM Int Only	4.500%	1	4.760%	$300,000.00	$ 1,125
Jumbo (ask me about the new limit, per your zip code)
30 yr fixed mortgage	6.750%	1	6.876%	$550,000.00	$ 3,567
15 yr fixed mortgage	6.000%	1	6.255%	$550,000.00	$ 4,641
3/1 ARM	4.375%	1	4.555%	$550,000.00	$ 2,746
5/1 ARM	5.375%	1	5.595%	$550,000.00	$ 3,080
5/1 ARM Int Only	5.625%	1	5.875%	$550,000.00	$ 2,578
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Fri, 12 Jun 2009 22:36:06 -0500

June 12, 2009

Who's afraid of a little inflation?

Granted, if you missed the latest window of opportunity with super-low interest rates, where they ranged between 4.625% and 5% for about 6 months - you might be a little bummed about the market's fears, and the recent rate hikes they've spurred.

But, from a home buyer's perspective, I always think it's best to find the home that meets your needs and goals, whether as a primary residence or investment property, rather than trying to time anything. Rushing to buy - simply because rates are low - is a little like buying that suit you don't really need - just because it's on sale. Sure, you saved a few bucks, but...you may have spent money, or bought a suit, you otherwise wouldn't have. And, to keep things in perspective, even if rates head back to the 6%s - and they will at some point - those are still great!

From the refinancing standpoint - absolutely, the last six months represented an unprecedented window of opportunity to lower your interest rate and net some real savings. A lot of people flew right through that window, saving them some real money. Others wanted to wait. Some were hoping for even lower rates. Others were riding the low points of their adjustable rate mortgages. And others may have just figured the savings they'd net weren't that important.

Either way, I do think there's a better than even chance we'll see 30 year fixed mortgage rates dip back down below 5% again. So, if you're at all bummed you missed the last window of opportunity, line up your ducks and be ready to move as soon as the next one opens. If it does, I don't think it'll be as long lived as this round. But, the recent run higher is a little out of place, too.

What's driven mortgage rates and Treasury yields up recently, are fears of inflation stemming from all the stimulus/recovery/bailout efforts, the burgeoning supply of Treasuries issued to fund those efforts, and hopes that those efforts are returning our economy to growth - so money is flowing out of "safe haven" investments back into riskier equity markets, that "could" yield greater returns.

However, here's why I think inflation will likely be kept at bay. Why the supply of Treasury issuance and Federal Reserve's balance sheet growth is manageable (at least in the short and medium term). And why our economy will not return to trend growth (3%+ GDP growth) for some time, which will likely subdue corporate and equity returns, allowing investors to keep money in Treasuries and bonds, without suffering significant lost opportunity costs.

I believe inflation will remain in check because of the massively deflationary impact of the housing and credit bubbles bursting. Our economy, more than two thirds of which is driven by consumer spending, is healing and will heal. However, the base line is likely to be somewhat lower than what we've seen over the last 20+ years.

In order for inflation to really take hold, we need to see upward wage pressures, in addition to an increase in the cost of goods. Currently, both of those metrics are heading backwards. Yes, we're seeing a slow-down of job losses. That's a good thing. But, by looking deeper, we see that average wages, and hours worked are being cut. The average work-week dropped to 33.1 hours for May, and average weekly earnings have dipped by .7%, on an annualized basis, over the last three months. That means that companies are saving money on labor, without hacking quite as many jobs.

So, what happens if you're working fewer hours, and making less per hour? You might stop spending as much. And, since you don't have the ol' housing ATM, and your 401k/retirement account value has probably been hacked, you might be trying to SAVE money, while also spending less.

It follows from there, that if income and hours worked are down, spending is down, and savings are up, companies vying for your business - and believe me, they're vying - "might" lower prices to entice you to buy. Basically, businesses have absolutely no pricing power right now. Anyone shopped for a car lately? There are some amazing deals. But, car sales are still in the tank. So, looking solely at a decrease in headline job losses can be misleading.

Beyond that, during the Consumption Era that peaked in the early 2000s, way too many malls, office buildings and homes were built. Companies ramped up their capacity to feed what they didn't realize could be short-term demand. How often do you ask yourself "Geez, there's a Starbucks (or name your chain store) here? Didn't I just pass one down the street?" In Sacramento, I do it all the time - or used to. There is a pretty large oversupply and overcapacity for almost everything, it seems. As a business, that's now a cost-center, not a profit center. So, they'll continue cutting that overhead, one way or another.

To whom will companies sell their wares to make profits? Without a return to strong consumer demand - and spending driven growth - where will inflationary pressures stem from?

Some say they'll stem from all the new money rolling around that the Fed is flushing into the system, and that because we're financing that influx through debt, our debt servicing costs will rise, driving inflation from that side too. I'm not convinced that will necessarily lead to uncomfortably high inflation, either.

So far, despite unprecedented Treasury issuance and a few scathing remarks from China's Ministers, foreign demand for our Treasuries has actually grown, with foreign participation at yesterday's bond auction coming in at 49%.

Additionally, Japan's Finance Minister, made a strong statement affirming his comfort with US Treasuries, and his belief that current yields are "attractive." Since Japan owns nearly as much of our debt as China, within a 100 billion or so at $687 billion, those words carry some weight. Granted, some of that may be reciprocal stroking, but... it still bears consideration.

The growth of the money supply and the Fed's balance sheet can also be unwound relatively quickly, as most of it was short-term in nature. And, so far, much of that extra money is still sitting on the sidelines in case they need to cover future losses. Moreover, according to the Fed, that money can "simply be allowed to run off as the programs and facilities are scaled back, or shut down" which will soak up much of the liquidity they've injected into the system.

And lastly, I believe - although I might be wrong and maybe missed a golden buying opportunity at March 2009's stock market low's - that the "green shoots" people are seeing are merely fuzz that will be mowed once or twice before our economy really heads back towards trend growth. A review of the Fed's latest Beige Book economic summary highlights: "Reports from the Federal Reserve Banks indicate that overall economic activity contracted further or remained weak. However, five of the twelve Districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level." So, in less than half of their reporting districts, things were "less bad."

Additionally: "Manufacturing activity weakened across a broad range of industries in most Districts, with only a few exceptions." And: "Downward pressure on prices was reported across Districts." Then: "Districts that report on nonfinancial business services said demand continued to fall across most industries."

Plus: "Consumer spending remained generally weak." And: "Housing markets remained depressed overall, but there were some signs that conditions may be stabilizing. New home construction activity fell further, however, as inventories remained elevated. Home prices continued to decline in most Districts, although a few reports noted that prices were unchanged or that the pace of decline had eased." And on the commercial property front: "Nonresidential real estate conditions continued to deteriorate over the past six weeks. Demand for office, industrial and retail space continued to fall, and there were reports of increases in sublease space."

If I'm correct, then we're looking at a period of slowly slogging along a lower plateau of economic performance. In that environment, I think it's likely equities will slide again as the reality sets in that we're going to get a period of "less bad" but not "good" news on corporate earnings, layoffs, and our long climb out of our Consumption Era, as we work to find a new "normal" foundation to foster economic growth.

For all those reasons, plus the fact that the Fed is still buying Mortgage Backed Securities and Treasuries - they're about half-way through what they said they'd buy, which can be extended if needed - I think we could see another dip in mortgage rates. If it's important to you, be ready.

If there's one thing that's certain, these low rates cannot and will not last forever. In fact, the Fed Futures market is betting a 58% chance of a Fed rate hike by November. I think that's ludicrous, based on the economic backdrop, but.... that's just my opinion. I could be wrong. It has happened before...

And, keep in mind - this is a short-to-medium term forecast (or educated guess, really). Our deficits and entitlement programs will need to be dealt with, in the medium-to-long term, which adds another layer of complexity to managing steady economic growth, interest rates, and inflation. Fortunately, I don't have to navigate those decisions. I'll just report my thoughts.

In the mean time, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. Here are today's rates. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
30 yr fixed mortgage	5.125%	1	5.365%	$300,000.00	$ 1,633
15 yr fixed mortgage	4.750%	1	4.950%	$300,000.00	$ 2,333
3/1 ARM	4.250%	1	4.440%	$300,000.00	$ 1,476
5/1 ARM	4.750%	1	4.960%	$300,000.00	$ 1,565
5/1 ARM Int Only	5.000%	1	5.260%	$300,000.00	$ 1,250
Jumbo (ask me about the new limit, per your zip code)
30 yr fixed mortgage	6.750%	1	8.010%	$550,000.00	$ 3,567
15 yr fixed mortgage	6.000%	1	6.255%	$550,000.00	$ 4,641
3/1 ARM	4.875%	1	5.055%	$550,000.00	$ 2,911
5/1 ARM	5.750%	1	5.970%	$550,000.00	$ 3,210
5/1 ARM Int Only	6.000%	1	6.250%	$550,000.00	$ 2,750
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Thu, 28 May 2009 13:16:12 -0500

May 27, 2009

"As we know, there are known knowns. There are things we know we know. We also know there are known unknowns. That is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don't know we don't know." - Donald Rumsfeld, 2002

He might have been on to something. And, after today's market activity, where fixed rates jumped about .375% higher, and ARM and Jumbo rates barely moved, I think it's pretty clear, his point can be well taken in the world of economics, too.

Some of our known knowns include:

We know we've been through the bursting of both the housing and credit market bubbles
We know that economic growth has been dealt a severe blow, both domestically and across the globe
We know that unemployment is around 9% nationally, and if you count the "under employed" that's closer to 15%
We know that the United States has just moved through the largest era of consumption ever, highlighted by a negative savings rate (where consumption drove over 70% of our Gross Domestic Product) to what appears to be a more frugal lifestyle, with savings rates rising back to the 5%+ range.
We know the US and global economies will recover, at some point

Things we know, we don't know, include:

We know we don't know whether this recession will mirror previous recessions and whether milestones we think we've seen before signal specific turning points, similar to those of previous economic cycles, or if they're just markers on a new road
We know we don't know whether US consumption can resume and/or continue as the driver for world economic growth
We know we don't know whether the massive amounts of money the US - and other economies around the globe - are pumping into the system (and financing) will lead to hyper inflation, or whether the deflationary pressures of two popping bubbles will keep that at bay
We know we don't know exactly when, and how the US and global economies will recover, nor do we know what that will look like

Lastly, the unknown unknowns include:

Well, if I could list them, they wouldn't be unknown, would they? But, we can speculate...

So, why did we see such a knee jerk reaction in the Mortgage Backed Securities market today? Was it in fact knee jerk, or prescient moves by investors? Did anything fundamentally change in our economic picture?

If you've been paying attention, you've noticed that Treasury yields have been steadily rising for the last several weeks, while mortgage rates have remained at historic lows. So what happened today?

It really boils down to the same two drivers of mortgage rates, inflation (or fears of inflation) and supply/demand.

Investors (and remember, it's just investors who set mortgage rates) fear that the ongoing economic stimuli and burgeoning defecits will lead to inflationary pressures (some people even think Zimbabwe-like inflation of 1000s of percent). They feel - and there's data to support - that the deflationary impact of the credit and housing implosions have been muted. So, when all the stimuli take hold, we could overly hot inflation, if not outright hyper inflation. Since that erodes the long-term return of a fixed investment, they want to charge more up front.

These investors are also concerned that as the US continues issuing Treasuries and Government Bonds in unprecedented quantities to finance our spending, buyers' appetite for those bonds will wane, despite very strong participation in recent Treasury auctions, so yields will need to rise further to entice continued investment. That would mean higher mortgage rates, too.

And lastly, there's discussion/rumors that much like the UK is facing possible credit downgrades, the US may lose it's AAA credit rating, which would certainly drive Treasury yields, and mortgage rates higher.

Whether any of that will actually happen, I'd call a known unknown. But, markets like to react that way - as a hedge.

So what will the Fed do? As I've been reporting, their purchases of Mortgage Backed Securities have focused on coupons between 4.5% and 5.5%, which translates into loans with rates in the 5.5% to 6.5% range. Will they now dive into buying MBS in the 3% to 4% range to spur that market along? Will it work? We'll see.

Whether they do or not, will depend on how they read their tea leaves and evaluate their known knowns, known unknowns and unknown unknowns.

Either way, I believe that although our economy may show signs of recovery in the second half of this year, we're in a pretty protracted economic downturn, which is likely to depress stock market gains for some time. That's good for lower interest rates because they can provide a less risky, and more stable return. Meanwhile, since there's such an overhang of supply and capacity in pretty much every economic sector, more companies will continue to go away as their sales will not support their bottom line. And lastly, as the US Consumer continues to retrench, we'll likely retreat from driving over 70% of GDP back down to the mid 60%'s. To me, that all spells long contraction and slow recovery. As such, I really do think mortgage rates are likely to stay pretty low for some time (some time being 6-12 more months).

But, that spike we saw today - whether by gradual progression, or sudden fits and spurts- will eventually happen. And, it's unrealistic to think that there's no horizon to the sub 5% (and even sub 6%) mortgage rates we're growing accustomed to.

So, as I always say, if everything has lined up for you, it's always good to take a bird in the hand. You never know how long it'll be there.

And that's my two cents. As always, if you, your family, or friends have any questions about financing residential or commercial real estate, please call or email me. Here are your rates for the rest of this week. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	8.000%	1	8.240%	$300,000.00	$ 2,086
30 yr fixed mortgage	5.125%	1	5.365%	$300,000.00	$ 1,633
15 yr fixed mortgage	4.375%	1	4.575%	$300,000.00	$ 2,276
3/1 ARM	4.000%	1	4.190%	$300,000.00	$ 1,432
5/1 ARM	4.375%	1	4.585%	$300,000.00	$ 1,498
5/1 ARM Int Only	4.625%	1	4.885%	$300,000.00	$ 1,156
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	7.625%	1.5	8.885%	$550,000.00	$ 3,893
15 yr fixed mortgage	6.500%	1	6.755%	$550,000.00	$ 4,791
3/1 ARM	4.500%	1	4.680%	$550,000.00	$ 2,787
5/1 ARM	5.500%	1	5.720%	$550,000.00	$ 3,123
5/1 ARM Int Only	5.750%	1	6.000%	$550,000.00	$ 2,635
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Tue, 05 May 2009 12:42:09 -0500

May 1, 2009

What does the movie Caddyshack have to do with today's economic outlook?

Be the ball, Danny. Be the ball.

Caddyshack is one of my all-time favorite movies. I often say that everything we need to know in life can be seen and learned in Caddyshack. As Ty tells Danny, so famously "Be the ball, Danny. Be the ball." His message is clear. You have to see your goal, and believe you can achieve that goal, for it to materialize.

Napoleon Hill was one of the first modern writers to capture that philosophy on paper, in his book Think and Grow Rich. Tony Robbins has built a huge business espousing the same core beliefs.

And now, that's exactly what the Obama Administration, Treasury Secretary Geithner, and Fed Chairman Ben Bernanke are doing. They're talking positive about our economic outlook. Or at least they're being less negative.

Now don't get me wrong. You can't just "be the ball" in thought, without following through with actions, and expect great results. But... there's little doubt the actions of the Fed and Treasury are taking hold. Money is flowing freely, and cheaply to strong borrowers. They're pumping trillions of dollars into our economic engine to lube the gears that had nearly ground to a halt. And, they reserve the right to implement additional measures as needed to reflate our economy. Our economy will recover.

However, just like it took years for the housing and credit bubbles to inflate and then burst, resuscitating our economy is a process that will take time, too. Some of the more astute analysts I read think it'll be a few years of slow, below trend growth before our economic engine is humming along again. I can't disagree. If we resume trend growth sooner, that's a bonus.

And, that's the trick. During that slow-growth (or no-growth) period, people may find it hard to believe in our economic recovery until they feel the turn in their own fortunes. It will happen, but it will be a process. And, if people don't believe it's going to happen, that their situation will improve, they'll retrench further, which could work to spiral back the other way, since nearly 70% of our economic growth depends on consumer spending.

So, to prime the pump we're hearing about "green shoots" of economic growth. In the FOMC (Federal Open Market Committee) meeting statement released this week, the Fed stated "The economy continued to contract, though the pace of contraction appears to be somewhat slower." The President's tone has changed too. He's now more focused on the "Can Do" American ethos that got us to the Moon, than highlighting the economic pitfalls we still face.

So, will the positive talk work? It definitely won't hurt. But, we have to look beyond the talking heads.

We can see the rise in the stock market over the past 8 weeks, which pretty much coincides with the turn to more positive talk from the White House, Treasury, Fed, as well as CEOs of financial and other companies. And, I agree in the tactic. Positive thinking breeds positive results. But, as we look for opportunities we need to be wary of some realities too, that can impact our decisions, and personal wealth. We cannot afford to bury our heads in the sand.

The stock market has risen because companies are now exceeding analysts' expectations. But, those expectations have been pretty low. And, we could be in a period of low expectations with chronic bouts of underachieving even those lowered expectations.

As Nouriel Roubini, Economics professor at NYU and Chairman of RGE Monitor points out in a recent writing about our financial sector: "In brief, banks are benefiting from close to zero borrowing costs and fewer competitors; they are benefiting from a massive transfer of wealth from savers to borrowers given a dozen different government bailout and subsidy programs for the financial system; they are not properly provisioning/reserving for massive future loan losses; they are not properly marking down current losses from loans in delinquency; they are using the recent mark-to-market accounting changes by FASB to inflate the value of many assets; they are using a number of accounting tricks to minimize reported losses and maximize reported earnings; the Treasury is using a stress scenario for the stress tests that is not a true stress scenario as actual data are already running worse than the worst case scenario." (RGE Monitor)

That's a pretty sobering assessment. And, since credit is truly the lubricant of our economy, our financial institutions' viability is critical to returning our economy to trend growth. We'll hear the results of the recent Stress Tests next Thursday, May 7. It'll be interesting to hear that assessment of our financial institutions.

Then we have the US Consumer. Personal savings rates are at a recent high, hitting more than 4% last month. That's great for individuals, and should be encouraged, but...a penny saved is a penny not spent. Since our economy is so dependent upon Consumer Spending to drive growth, if we're spending less, our economy will likely grow less. Additionally, the ATM that many people tapped through Mortgage Equity Withdrawals (MEW) has shut down.

It's rare that I'm seeing "cash out" refinances now, although I'm seeing a TON of rate/term refinances. People are seizing these historically low rates and yielding some significant savings. But, it appears most of them are using that mortgage payment savings to either build their retirement, or pay down other debt. Most of it doesn't seem to be trickling back into the economy. That lack of MEW will put a further drain on consumer spending.

Meanwhile unemployment is likely to remain high for some time. Layoffs, and subsequent re-staffing, are typically lagging economic indicators. As companies sell less, they try to cut costs, they lay people off as part of that process. So far, it appears the pace of layoffs is slowing - which is indeed a good sign - but, companies are still handing out pink slips. I have an Uncle and a close friend who both recently lost jobs. As people lose jobs, or fear they may, they too will cut back on their spending. As they spend less, companies sell less, so...they lay off more people to cut more costs. It's a cycle that only turns around when over supply is whittled down, and demand picks up, so companies can staff up to produce more.

The combined bubble bursts of the housing and credit markets have brought to close an era of massive, unprecedented consumption and over capacity. That's probably going to take some time to soak up.

Then, there's the Commercial Mortgage Market. As you've heard me say, I believe this to be another big shoe that's yet to drop. Or, one that's now starting to drop. Two weeks ago, General Growth Properties, America's second largest mall owner, filed for Chapter 11 Bankruptcy. That's likely the tip of the iceberg of commercial defaults.

And, commercial lending accounts for roughly 22% of American bank loans. Foresight Analytics, a research firm, reckons that $594 billion of commercial mortgages will mature in America alone between 2009 and 2011. Not all of those were collateralized, but the majority certainly was. Richard Parkus, a Deutsche Bank analyst, estimates that some 70% of Commercial Mortgage Backed Securities will not be able to be refinanced, unless debtors bring significant additional capital to the table, due to lost equity, and more stringent underwriting guidelines in place now, relative to those loans' origination. (The Economist, 4/23/09).

Now, take that number, and ratchet it up by the same levels of leverage we saw for Residential Mortgage Backed Securities. It's pretty staggering.

I hope that level of defaults was used in the Stress Tests performed on 19 of our largest financial institutions. Unfortunately, I fear the Stress Tests - like our government's growth projections - may have been a little on the rosy side. After all, it's hard to Be The Ball.

So, what does this mean?

Basically, yes, we may have moved through the sharpest period of decline in this recession. But, I say that cautiously. Q3 and Q4 2009 could prove that another down leg was still out there. Even if we don't see another precipitous drop in economic activity like the -6.1% GDP of Q1 2009, I think it'll still be negative growth. That's contrary to what a lot of analysts and certainly our government projects.

But, I do think we're in for an extended malaise. So, tread carefully. There are definitely opportunities out there, whether in real estate, private debt markets, equity markets or other investment vehicles. The trick is to know your horizon, know your risk/reward threshold, and most importantly to make sure that a bad decision doesn't risk costing you everything.

And, for first-time and move-up homebuyers, this is a great time to evaluate your options. I'm sure there will be many people who will sit on the sidelines too long, and be kicking themselves down the road for doing so. But, that's the trick about "finding the bottom." We'll know it 6 months after it's gone.

Be the ball.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your current rates. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	8.000%	1	8.240%	$300,000.00	$ 2,086
30 yr fixed mortgage	4.750%	1	4.990%	$300,000.00	$ 1,565
15 yr fixed mortgage	4.375%	1	4.575%	$300,000.00	$ 2,276
3/1 ARM	4.375%	1	4.565%	$300,000.00	$ 1,498
5/1 ARM	4.625%	1	4.835%	$300,000.00	$ 1,542
5/1 ARM Int Only	4.750%	1	5.010%	$300,000.00	$ 1,188
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	7.625%	1.625	8.885%	$550,000.00	$ 3,893
15 yr fixed mortgage	6.250%	1	6.505%	$550,000.00	$ 4,716
3/1 ARM	4.750%	1	4.930%	$550,000.00	$ 2,869
5/1 ARM	5.500%	1	5.720%	$550,000.00	$ 3,123
5/1 ARM Int Only	5.875%	1	6.125%	$550,000.00	$ 2,693
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Wed, 18 Mar 2009 01:33:40 -0500

March 17, 2009

Well, it's been a month since my last update. Not because there hasn't been any news about the economy, bail outs, etc. but really in spite of that, mortgage rates have clung to this 5% range (4.875%-5.125% for 30yr fixed money).

Despite the stock market finding a new floor, blowing past the previous lows of November 2008 - just days after my last update - mortgage rates didn't really improve much. Likewise, they didn't really worsen as the stock market rallied last week.

The reason rates didn't change much boils primarily back down to the two main drivers of interest rates:

1) Supply/Demand

2) Inflation, or fear of it, eroding the return of that fixed investment

So, yes, although money was pouring out of equities during the market's most recent nose dive, and being parked in bonds and mortgage backed securities, there's just so much volume of new bond issuances (less so, certainly with mortgages) that prices really didn't rise, pushing yields lower. In fact, since the New Year, bond yields have actually risen (meaning prices have fallen) significantly.

What has kept mortgage rates from rising back up to the 6% range has primarily hinged upon the Fed's program of purchasing Mortgage Backed Securities. They're soaking up a lot of the supply, keeping rates from rising. Right now, that plan is set to expire in June.

I'm betting that in tomorrow's FOMC policy statement they'll either extend that program outright, or at least hint that's a possibility.

That's one dynamic, covering the supply/demand side of mortgage rates.

The other dynamic is that investors fear that all the new money flooding the system in an effort to reflate our economy, will lead to inflation down the road. Since our mortgage rates are fixed for 30yr years - primarily - it doesn't matter to an investor when inflation hits. It's a matter of how hard and for how long. Most economists believe we'll return to growth some time in late 2009 or 2010. That growth can lead to inflation. (Other economists think we'll be in a long period of cyclical deflation, but...that's another story). A little inflation will be welcome, but...too much, and there's a problem.

I believe it's those factors that are primarily keeping rates around 5%. And, that's still great!

Now, let's look at what can move those rates higher or lower as we move into Q2 09. It's going to be the same two factors, of course.

On the supply side, the Fed has to keep issuing bonds and growing its balance sheet to pay for the bailouts, budget proposals and ensuing deficits, etc. Who's going to buy them?

Remember that song, Chi-ina Chi-ina? That's who. Primarily, at least.

China is far and away the biggest holder of US debt. They have currency reserves of roughly $2 Trillion, 60% of which is in US assets. China's top banking regulator said recently the country will pay attention to safety, liquidity and profitability when deciding whether to buy more U.S. debt. "How much we will invest in U.S. Treasuries will depend on the three elements," said China Banking Regulatory Commission Chairman Liu Mingkang at a press conference in Beijing. (Bloomberg.com 2/26/09).

As long as China is willing to step up to the plate - and they kind of have to b/c we buy all their goods - that will help finance our bond issuance, and help to keep rates in their current range. However, if they stopped buying so much of our debt, rates would have to rise quickly in order to entice them, or other investors, back to the table. But, unless that happens, despite the Fed having discussed buying its own bonds and treasuries on three occasions since December 1, 2008, I expect they'll continue holding off.

Here's a recent statement to illustrate: "At this point in time, the Fed has judged that buying long-term Treasuries is not the most efficient means of easing financial conditions," Federal Reserve Bank of New York President William Dudley said after a March 6 speech in New York. (3/16/09 Rich Miller, Bloomberg.com)

Here's another perspective from Korea: "The U.S. is borrowing so much that it may have trouble paying the money back," said Jaemin Cheong, a bond trader in Seoul at Industrial Bank of Korea, the nation's largest lender to small- and mid-sized companies. "Yields are headed higher," Cheong said in an interview. "More issuance will be needed to support the economy. The possibility of default is more and more as time passes."

So, it's my contention that the Fed will only step in and directly purchase US bonds, treasuries etc. IF foreign demand wanes. Should that demand hold up, then the Fed will continue keeping its focus on other tactics.

Having said that, Fed Chairman Ben Bernanke's former colleague (they shared an office wall way back when) is implementing a treasury purchase program in Great Britain. How their policy plays out could impact Chairman Bernanke's ideas on the subject. At this point in time, everything is fluid as they use different tools and evaluate each measure's impact.

But, unless and until either the Fed starts buying more bonds, soaking up that supply OR we see another precipitous drop in equities creating a "flight to safety" - which can certainly happen given the economic headwinds we face - I don't see mortgage rates moving much lower than today's levels.

On the housing front, it's really more of the same, too.

Nationally, Moody's Economy.com says that of the nearly 52 million U.S. homeowners with mortgages, about 13.8 million, or nearly 27 percent, owe more than their homes are worth after many months of declining prices.

California had 1.9 million borrowers with negative equity at year-end, more than any other state, followed by Florida's 1.28 million. About three in 10 borrowers in both states were underwater. (Jonathan Stempel, Reuters 3/4).

I read today that some experts are forecasting a full 50% of homes with mortgages will be underwater by year's end.

The administration, launching what it calls the "Making Home Affordable" initiative, said that borrowers seeking loan modifications will have to provide their most recent tax return and two pay stubs, as well as an "affidavit of financial hardship" to qualify for the $75 billion loan modification program, which runs through 2012. Borrowers are only allowed to have their loans modified once, and the program only applies for loans made on Jan. 1 2009 or earlier. Up to 4 million borrowers are expected to qualify. Mortgages for single-family properties that are worth more than $729,750 are excluded.

Separately, up to 5 million borrowers who have mortgages held by government controlled mortgage finance giants Fannie Mae and Freddie Mac should be eligible to refinance through June 2010. (AP 3/4/09)

However, there still is no true remedy for homeowners who are more than 5% upside down. Again, I think by the end of this year we'll be hearing about wholesale debt forgiveness. As hard as that pill may be for some of us to swallow, it may be a necessary step to stem the tide of ongoing foreclosures. Time will tell.

Despite all that, we will get through this. You hear me say it time and time again. For those who are well positioned right now, there are some phenomenal opportunities. I hope you're in a position to seize them.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for this week. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	8.000%	1	8.240%	$300,000.00	$ 2,086
30 yr fixed mortgage	4.875%	1	5.115%	$300,000.00	$ 1,588
15 yr fixed mortgage	4.500%	1	4.700%	$300,000.00	$ 2,295
3/1 ARM	4.500%	1	4.690%	$300,000.00	$ 1,520
5/1 ARM	4.625%	1	4.835%	$300,000.00	$ 1,542
5/1 ARM Int Only	4.750%	1	5.010%	$300,000.00	$ 1,188
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	7.625%	2.25	8.885%	$550,000.00	$ 3,893
15 yr fixed mortgage	6.500%	1	6.755%	$550,000.00	$ 4,791
3/1 ARM	5.625%	1	5.805%	$550,000.00	$ 3,166
5/1 ARM	6.500%	1	6.720%	$550,000.00	$ 3,476
5/1 ARM Int Only	6.750%	1	7.000%	$550,000.00	$ 3,094
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Wed, 04 Feb 2009 14:27:01 -0600

February 4, 2009

As Yogi Berra said, "You've got to be very careful if you don't know where you're going, because you might not get there."

How we got here, is now pretty obvious. Whether by our government, corporations, or individuals, there was a lot of living beyond our means, without any rainy day contingencies.

That's not to say everyone was. But, whether you're well positioned, have lost everything, or somewhere in between, we'll all share in righting the ship. And, for a lot of folks - even those who got hammered purely by bad timing - there are still some great opportunities.

But, we definitely need to have a plan and a goal in mind of where we'd like to be and how we'd like to get there. And although I have a lot of confidence in the heads of our Federal Reserve, Treasury (under both Obama and Bush) and the slew of economic heavyweights advising both administrations, it's our congress that worries me. To hear the drivel (political posturing) that spews from both sides of the isle - from people who should know better, like Barney Frank, chairman of the House Financial Services Committee - is pretty scary. Nevertheless, we will get through this economic turmoil. Again, it's not all doom and gloom.

For anyone buying a home, for example, 30 year fixed rates are finding a ceiling - yes, a ceiling - of 5.5%. That's unbelievable.

It's still mind-boggling that I'm now hearing "What, 5.5%? I want 4.5%." But, that too is relative. If you're considering a refinance, and you're already at 5.5%, then maybe 4.5% is what you need to hope for to have it pencil out, based on your scenario. But if you're considering buying a home, money has never been cheaper.

And, these historically low rates may or may not get any better.

My latest prediction is that much like last year, when mortgage rates hovered around 6% with three distinct, and short-lived, dips down into the 5.25% to 5.5% range, I think this year we're likely to hover around 5%, with occasional dips down to the 4.5% range.

So, if you're considering whether a refinance makes sense, review your math so you know where your value threshold lies, and can move quickly, when that window of opportunity opens. Then, if we do better than that value threshold, that's a bonus. But in the same breath, you won't risk missing the opportunity all together holding out for the "Holy Grail" of whatever super low rate you're hoping materializes.

On the other hand, if you're considering buying, the most important criteria is always buying a home, second home, or investment property that meets your needs/goals and fits your budget. Since we can't control the housing and interest rate markets, we can't worry about them. Hopefully your timing of finding a home coincides with low rates, but remember, even at 6% or 6.5%, that's great, and very cheap 30yr fixed money.

But, what about that 4.5%? Or... even 4% you might be hearing about now?

It's true, there's talk about trying to get mortgage rates down to 4% now. I didn't really think they'd be driven down to 4.5%, but we hit that mark for a day in December, and bounced in the 4.625% range for a while.

But 4%? Really? Why?

According to Nightly Business Report, the authors of the plan to push rates to 4% figure roughly 40 million home owners would qualify, saving roughly $420/month. And, the plan's architects reckon that the government could even come out ahead because they can now borrow at 2.5%, earning a cool 1.5% spread. However, independent estimates say it could cost $20 billion a year, or more.

Furthermore, if we dive into the math, I think we'll find it could be flawed.

In order to achieve a $420/mo savings, they must be figuring that the average loan size is roughly $290k with an average interest rate of 6%. I'll actually buy that as credible assumptions. But, their figure of 40 million households qualifying - and using this cheap money - seems a little bit optimistic.

There are roughly 80 million homeowners in the US. I don't know the exact number of homes with mortgages, but...it's probably less than the full 80 million homeowners. Let's call it 80 million mortgagees, for the sake of simple math. Cut that down by those with negative equity (ie: those who are upside down and can't refinance) which Nouriel Roubini's RGE Monitor pegs around 12 million to 15 million, and you're left with 65 million homeowners with mortgages. Cut that further by those that could qualify (have the income, assets and credit required) and the number is likely lower still. Nevertheless, the architects of the 4% rate plan figure roughly 40 million households will qualify? Really? That would be a HUGE win, if 50% to 60%+ of all mortagees could qualify for that 4%, and save $420/mo. Might be a pipe dream...

Another reason I'm not banking on seeing 4% mortgage rates is that although the Fed is buying Mortgage Backed Securities, they're buying those securities in the 5% to 5.5% range, which translates into mortgage rates of 6% to 6.5%. When the Fed buys those MBS, they're buying from Fannie and Freddie. That frees up Fannie/Freddie capital to go buy more MBS from originating banks, in turn creating more capital to generate more loans. But, what's the incentive for Fannie/Freddie and/or originating lenders to lower their mortgage rates? Oh yeah...there isn't one. But, I'll touch on that below.

Meanwhile, the Fed is buying at that level because they know that mortgages in the 6% to 6.5% range are most likely going to be those that get refinanced with rates around 5% to 5.5% - where mortgage rates are now. So, in effect, the Fed is creatively freeing up capital for Fannie/Freddie and other originating lenders, at the same time, the Fed is making sure they're buying in a market with a short horizon to maturity/payoff, so they're not over extending themselves (as much as they otherwise would be).

Now, back to why a bank might not lower rates down to 4%... as I've been saying for a while, what's the incentive for banks/investors to lower rates beyond the 5% to 5.5% range they're in now? There isn't one. Those are already incredible mortgage rates. And, these banks/investors are trying to claw their way back to some semblance of solvency as quickly as they can. Since they dug this hole with our backs, you can bet they'll climb out on them too. The only way I believe mortgage rates will get that low is if the government explicitly mandates it. That too could backfire in the long run, if inflation were to rear its head. In an inflationary environment, anyone lending money at 4% will lose out quickly, regardless of their borrowing costs, as inflation erodes their return on investment.

And, that brings me to my last point about why rates are hovering in the 5% to 5.5% range, despite Herculean efforts to drive them lower: Inflation. Yes folks, even though we'll likely be more concerned about deflation in the near future than inflation, this too ties back to uncertainty.

The amount of economic stimulus, tax cuts and quantitative easing/printing money is unprecedented. Although Bernanke et al suppose that the mounting massive deflationary pressures will keep a lid on any inflation for some time, regardless of their fiscal and monetary policy, the markets are going to hedge.

If the Feds overshoot, we could find ourselves humming out of this economic downturn at quite a clip, which, some people worry, could cause a period of hyper inflation. Or worse yet, maybe the economy continues to languish AND we have inflation. Since, as you know from reading my musings, inflation is the arch enemy of mortgage rates because it erodes the long term return an investor gets on their money, to counter that possibility, those lenders/investors may hold rates higher than they otherwise would.

But.... that's just my opinion based on what I read and hear. As I said, I didn't think rates would hit 4.5%, and I was wrong. They did. But, the point remains the same. If you're considering refinancing, you have to know where your value threshold lies. Anything beyond that point is gravy. And remember, that while you wait, you might be paying more than you would otherwise need to, too.

If you're looking to buy, then rate movements should not be driving your decision process at all. Finding the right home for your needs and budget is most important. Catching historically low rates is a bonus. And remember, a 1% change in rate equates to about a 10% change in purchasing power. In most cases, that's not enough to drastically change what you'd buy. And, there's definitely still the potential to see continued erosion with home values. So, having a long-term horizon on ownership remains important.

Lastly, this is an incredibly volatile and dynamic market. What exists today could be gone tomorrow, or...may be even better. As we twist and turn, I'll do my best to keep you posted and give you information so you can make educated decisions about what best fits your needs and goals.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for this week. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	8.000%	1	8.240%	$300,000.00	$ 2,086
30 yr fixed mortgage	5.000%	1	5.240%	$300,000.00	$ 1,610
15 yr fixed mortgage	4.625%	1	4.825%	$300,000.00	$ 2,314
3/1 ARM	4.750%	1	4.940%	$300,000.00	$ 1,565
5/1 ARM	5.000%	1	5.210%	$300,000.00	$ 1,610
5/1 ARM Int Only	5.250%	1	5.510%	$300,000.00	$ 1,313
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	7.625%	2.25	8.885%	$550,000.00	$ 3,893
15 yr fixed mortgage	6.625%	1	6.880%	$550,000.00	$ 4,829
3/1 ARM	5.750%	1	5.930%	$550,000.00	$ 3,210
5/1 ARM	6.875%	1	7.095%	$550,000.00	$ 3,613
5/1 ARM Int Only	7.125%	1	7.375%	$550,000.00	$ 3,266
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Mon, 05 Jan 2009 13:24:11 -0600

January 4, 2009

Happy New Year! I hope the Holidays treated you well and I wish you a happy, healthy and prosperous 2009.

First off, I want to thank you for helping me have a great 2008. My business thrives on your thinking of me when you think of real estate financing.

I truly appreciate all the questions, calls, emails and referrals you bring my way. I know I can't always help directly, particularly with today's tighter guidelines and lower home equity levels, but I'll always lend my thoughts, insight and perspective to a scenario in an effort to arm you with information so you, your friends and family can make educated decisions based on your specific situation, with the facts we have at the time.

It's also important - while I'm fortunate and thankful to be doing well - to recognize that there is real pain out there now. I have several clients and friends at or near retirement age who've suffered significant losses in their retirement portfolios. Some of whom are now considering delaying retirement as a result. I talk weekly with those who've lost, or risk losing their jobs and homes. That's nothing to gloss over. But, it also doesn't do any good to dwell on it. We do what we can, and we have to move forward.

2008 was loaded with challenges to overcome. 2009 is likely to be laced with plenty of them too. But, we'll get through these tough economic times. We always do. Hopefully, we'll learn a bunch on the way. And, for some, there are definitely opportunities to capitalize on, which is where I hope to focus this year. It's much more positive and constructive, in the long run. Just like Mom used to say, you can't cry over spilt milk. You just have to try to not spill the glass again.

So, what's in the glass for 2009? Nobody knows, really. But, here are some of my thoughts.

1) Mortgage Interest Rates: I think mortgage rates will hover around the 5% range for 30yr fixed conforming loans (those under $417,000) for most of the year. Yes, this is a change from my thoughts prior to Thanksgiving, before the Fed formally announced they'd purchase Mortgage Backed Securities (MBS) and other securitized debt. Prior to that move, banks/investors were holding mortgage rates around 6%, and I thought they'd rise, even though their borrowing costs were significantly lower. The Fed basically recreated a market where there was none, by saying they'd buy MBS. They'll actually start that purchasing process this month. We could see another dip down to the 4.5% level, as a result. Super Conforming rates (up to 115% of the median home price per zip code as defined by HUD, with a new limit of $625,500) will hover around .375% to .5% higher than Conforming rates. I think it's likely that towards the end of the year, Jumbo interest rates (anything over $625,500) will start to come back from astronomical levels too. Right now, they're trading in the mid 6% range for ARMs and much higher for 30yr fixed loans. Overall, mortgage rates have become a priority of the Fed (and others in the government) in order to help spur demand, and get buyers to start soaking up some of the excess housing inventory. We'll worry about paying for it down the road.

2) The Housing Market: I've felt like a bottom is forming in California for much of 2008. I still feel that way. I'm going to call a bottom some time in late 2009 (and that might slip into early 2010). In the mean time, it's not unreasonable to expect another 5% to 10% dip from current price levels. If we don't see that dip, I'd call it a bonus. But, as I always say, we'll know the bottom 6 months after it's gone. And, if you have a long-term (10+yr) horizon on owning that home, a slight dip in price in the short term should equalize over the long haul. Here in Sacramento, we're already approaching a 6-month supply, which is where the market can start to stabilize. So, although my knowledge and experience is in California, I think it's likely that the rest of the country - where home values didn't rise as high and shouldn't fall as low - will also plateau towards the end of 2009. It seems like California, Florida, Nevada and Arizona - where most of the ridiculous increases were loaded - have mostly fallen back down to affordable levels. Although I do expect a plateau in prices towards the end of this year, I don't see them rising appreciably for another two or three years after that.

3) Word of the Year: I actually have two. Yep, there's a theme, I tend to slip in a couple predictions under one heading...Stagdeflation and Quantitative Easing - I sort of borrowed Stagdeflation from Nouriel Roubini. If you like reading about economic stuff, look him up. Or, visit www.rgemonitor.com. He's an economics professor at NYU and a very smart guy. He's one of a handful of people who a few years ago predicted the mess we're in now. Essentially, Stagdeflation is the opposite of Stagflation. It's defined by a period of slow or declining economic growth and falling prices. Although we can look at lower prices/cost of goods as a good thing, deflation can be as insidious and destructive to our economy as inflation. And, it can spiral out of control. I won't go into the mechanics of the potential spiral here, but...if I'm right, we'll be hearing a lot about it in the coming months through the mainstream media, as prices continue to fall. Quantitative Easing basically means printing money. Since the Fed has reduced the Fed Funds Rate to a range of 0 to .25%, they really can't get lower. Ok, they can target 0. That's it. Beyond that, the interest rate powder is spent. So, what can the Fed do to fight deflation and spur economic growth? In short, print money. We can inflate - or try to inflate - our way out of the economic and deflationary mess we're in. Again, if I'm right, you'll hear a lot more detail about Quantitative Easing in the coming months. That's the only set of tools Bernanke and Co. have left. That brings me to my next prediction.

4) Knock, Knock. Who's there? A trillion dollar government stimulus package. Come on in, old friend. Unfortunately, it's not a joke. But, you can already see every state, county, and city government working on getting their "shovel ready" list together. I hope it's a story with a happy ending. But...although the intentions - and history - can be in the right place, it's going to take exceptional planning, and even better execution for the government stimulus plan that the Obama administration is promoting to have a positive economic impact, rather than just building a ton of "bridges to nowhere" that dig our nation into a greater hole of debt. To be sure, our infrastructure can use investment. Look at the Minnesota bridge collapse, or Sacramento's levee system, or the areas still recovering from devastating hurricanes as glaring examples. We can use a spearhead for "green technology" particularly when many other conventional financing channels have run dry. We can rebuild aging roads, schools and hospitals that otherwise might not receive immediate investment. All those things can create jobs. But, unfortunately, our Congress doesn't have the best track record of keeping their hands out of the pork barrel. Just remember, we voted them in. We can vote them out. So, my prediction - to summarize, since I really just glossed the pitfalls - is that the government stimulus package will be a huge bone of contention all year long. Being the optimist that I am, I think history will look back and call it a good thing, but...as with so many things, only time will tell. If planned and executed well, it can have tremendous short and long-term economic benefit.

5) Debt forgiveness: Yes, debt forgiveness. I think we're going to see wholesale debt forgiveness for some homeowners who are upside down. We're already seeing that 50% of those whose loans have been modified are behind again. There are a variety of reasons, but, one of them is certainly that people aren't really motivated to pay for something that they put little to no cash into that will take them 10 years of making payments for them to get back to where they started. Especially when they can go rent something that's similar, or maybe nicer, for less than they're currently paying to own. Loan modifications are continually evolving. From a lender's perspective at some point, it might make sense to just forgive the debt and receive steady payments, rather than foreclosing - incurring the time and expense - and getting the same net result of reduced income. And, if we don't see outright debt forgiveness, I believe debt deferment will become popular, allowing homeowners with negative equity to pay only what they can afford, for a period of 10 years or so, before they face a balloon on the remaining principal balance, plus interest. A plan like that "should" give enough time for the market to stabilize and head back up at a normal and sustainable 5% per year, or so. At the very least, it slows the bleeding.

6) My freebie: Commercial Real Estate collapse. Typically, commercial real estate lags residential real estate by a couple years. That makes sense, because first the new home communities are built, then the stores, malls and office spaces are built to service those new residents. Well, we know what's happened on the residential side. There's still a ton of commercial square footage being built that was in the pipeline years ago. Just look around on your drive to work. On top of that we now have companies closing and vacating office space en masse. Retailers are closing right and left. Restaurants are going out of business. So, not only do we have surplus inventory of commercial space, but we have slack demand. That doesn't bode well for those making those payments, and thus those expecting to collect on those payments. The Commercial Mortgage Backed Securities (CMBS) market dwarfed the residential market. Fortunately, for all intent and purposes, they stopped packaging those deals over a year ago, but...the volume of cash that was outstanding up to that point is still a huge shoe to drop. And, like MBS, CMBS were leveraged ten times over, and insured by those who don't have the capital to repay in the event of default, just like MBS. In the words, sort of, of Ross Perot, "what yer gonna hear, my friend, is a big suckin' sound."

So, it's definitely going to be an interesting year. The good news is, if you're looking to buy or refinance real estate, it could be a great year of opportunity. Money is cheap, and prices are back to pretty reasonable levels. Either way, it's definitely not going to be boring. And, I truly hope you can make the most of it.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for this week. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	7.750%	1	7.990%	$300,000.00	$ 2,030
30 yr fixed mortgage	4.750%	1	4.990%	$300,000.00	$ 1,565
15 yr fixed mortgage	4.500%	1	4.700%	$300,000.00	$ 2,295
3/1 ARM	5.625%	1	5.815%	$300,000.00	$ 1,727
5/1 ARM	5.750%	1	5.960%	$300,000.00	$ 1,751
5/1 ARM Int Only	5.875%	1	6.135%	$300,000.00	$ 1,469
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	8.750%	1	9.010%	$550,000.00	$ 4,327
15 yr fixed mortgage	8.500%	1	8.755%	$550,000.00	$ 5,416
3/1 ARM	5.875%	1	6.055%	$550,000.00	$ 3,253
5/1 ARM	6.375%	1	6.595%	$550,000.00	$ 3,431
5/1 ARM Int Only	6.625%	1	6.875%	$550,000.00	$ 3,036
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Sun, 04 Jan 2009 22:16:01 -0600

December 24, 2008

Merry Christmas, Happy Chanukah, and best wishes for a fun, joyous, and safe Holiday, whatever you celebrate!

Well, 30 Year Fixed mortgage rates managed to briefly hit a new floor of 4.5% (cost/points varied by the hour) over the last week, after the Fed's Open Market Committee Meeting and subsequent policy statement on December 16. But, don't be fooled by the media - it wasn't the cut of .75% to the Fed Funds Target rate that caused that dip. The overnight lending rate - which the Fed Funds Rate targets - was already trading around .125% before that move. The Fed just brought their target rate down from 1% to where money was already in fact trading.

What caused the dip to mortgage rates was the Fed's reiteration that they will be buying Mortgage Backed Securities and other securitized debts like credit cards, student, and auto loans, in an effort to recreate that dried up market. Mortgage rates have moved slightly higher over the last few days - mostly due to profit taking by the securities traders - but I expect them to stay in this low range for some time.

We're finally starting to see some focus on the demand side of the housing rebalancing equation, instead of an exclusive focus on stemming incoming supply. I'll go into more detail on those moves in my next letter, where I'll outline my predictions for 2009.

For now, let's review how my thoughts for 2008 panned out.

1) My "word for the year" was Stagflation. I thought we'd go through a period of stagflation with increasing inflation and slowing economic growth. My gut was pretty accurate, as we saw a steady increase in prices across the board, with a spike in July. At the same time our economy began contracting. We've now seen that pricing pressure reverse, but... our economy is continuing to slow down. Next year's word is going to be stagdeflation, but...I'll cover that in my next letter.

2) I thought we'd enter a shallow recessionary period, buoyed by a weak US Dollar and increased exports. I think I was wrong there. We entered a shallow recessionary period, that's for sure. Then we blew right past it. Exports rose on a weak dollar, temporarily. But...our economy is still receding and exports are lagging too. At this point, I think it'll be the end of 2009 before we begin to recover. And, that could even be optimistic. We WILL recover, but...the recession will likely intensify some, before getting better. More thoughts on that for my 2009 predictions.

3) Part A - Interest rates for conforming 30yr fixed loans will hover around 6% for most of the year - check. I got that one right. We saw 2 distinct, and short-lived dips to rates around 5% in Feb/March and September, respectively. Other than that 6% was the norm for the year. At least until the most recent dip to 4.5% last week - and subsequent lower trading range - which was created by the Fed's unprecedented move of buying Mortgage Backed Securities. Part B - I was wrong on my Jumbo mortgage prediction. I thought rates for those loans, because historically Jumbo borrowers have had stronger income and credit histories - would remain within a .5% to .75% range from conforming loans. However, this market all but vanished. New laws were passed revising loan limits - first higher to $729,000, then back down to $625,000 - and a new category of "Super Conforming" loans was created. But none of that helped Jumbo loans. The Jumbo mortgage market - now any loans over $625,000 - is still abysmal with rates about 2%-3% higher than those for conforming loans. I do expect it to improve in 2009 though, and I'll explain why later.

4) Major financial institutions will crumble. Dead on. In fact, I didn't really see how bad and how far reaching that would be. We know the losers. It started with the likes of Countrywide, Bear Sterns and IndyMac but quickly spread to Lehman Brothers, Merrill Lynch, Wachovia, and many others. In fact, whole business models of the giant Brokerages like Goldman Sachs changed. They've become banking holding companies in order to qualify for Federal Aid as they fight for their survival.

5) FHA and other government backed loans will resurge as conventional financing tightens. This too has proven accurate. According to FHA's November, 2008 newsletter, FHA Endorsements (underwritten and insured loans) were running around 150,000 per month. That's up from about 50,000 per month in previous years. According to the Mortgage Bankers Association for October 2008, government insured loan applications comprised 32% of all loan applications, up from just 10.2% in Oct. 2007. This is the highest level of government backed loans since February of 1991. This trend is likely to continue for the foreseeable future.

6) The new President of the United States would be someone who'd not entered the race yet. I was wrong. But, Barack Obama wasn't nearly the front-runner he became during the year. Hopefully, now that he's got the gig, he'll make good decisions and work to implement policies that will help - rather than hinder - our economic recovery.

So, I got 3.5 out of 6. Not bad, for just another "educated guesser!" That puts my predictions on par with many other analysts, most of whom do this sort of stuff for a living. I'm just a loan guy who likes to read and think about our economy, where it's headed and what that means to the rest of us.

Best wishes to you and yours for a very Merry Christmas, and a happy and prosperous New Year! As I like to say, with challenges and changes come new opportunities. I hope you can make the best of them.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for the rest of the week. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	7.750%	1	7.990%	$300,000.00	$ 2,030
30 yr fixed mortgage	4.750%	1	4.990%	$300,000.00	$ 1,565
15 yr fixed mortgage	4.500%	1	4.700%	$300,000.00	$ 2,295
3/1 ARM	5.625%	1	5.815%	$300,000.00	$ 1,727
5/1 ARM	5.750%	1	5.960%	$300,000.00	$ 1,751
5/1 ARM Int Only	5.875%	1	6.135%	$300,000.00	$ 1,469
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	8.750%	1	9.010%	$550,000.00	$ 4,327
15 yr fixed mortgage	8.500%	1	8.755%	$550,000.00	$ 5,416
3/1 ARM	5.750%	1	5.930%	$550,000.00	$ 3,210
5/1 ARM	6.250%	1	6.470%	$550,000.00	$ 3,386
5/1 ARM Int Only	6.500%	1	6.750%	$550,000.00	$ 2,979

Rates subject to change without notice.

These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer Priority 1st Mortgage 3300 Douglas Blvd. Ste. 270 Roseville, CA 95661 direct: 916-223-4235 office: 866-771-9000 fax: 916-771-9099 www.priority1stmortgage.com Interest rates are a commodity, knowledge and service are not. Working with me, you'll find the best insight, knowledge and service about real estate financing, and I will meet or beat any legitimate rate and fee structure.

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Tue, 25 Nov 2008 23:20:10 -0600

November 25, 2008

And now, for something completely different...

Good news!

Of course, I've been accused of seeing life through rose-colored glasses but...there really is some pretty good news out there. We're by no means out of the woods. For each bit of "Good News" I'll highlight there are certainly counter points. I'll try to address those issues in another letter.

In the mean time, here are some big bright spots. Just in time for Thanksgiving!

Today the Fed announced they're injecting another $800 billion to buy securitized debt ($200 billion for credit cards, auto and student loans, and $600 billion for Mortgage Backed Securities/MBS). As you know, most debt these days is bundled and sold off as Asset Backed Securities. The Fed, as a new buyer for those securities - because there really haven't been any other buyers lately - caused mortgage rates to dip significantly. Here's what happened to rates: (because the media is reporting a 1% drop, which isn't really accurate. There was a 1%+ change to the price of the underlying Mortgage Backed Securities, not to mortgage rates).

Yesterday, 11/24 at close of business: 5.625% 30yr fixed with 1% origination

This morning, 11/25 at 7am Pacific: 5.25% 30yr fixed with 1% origination

This evening, 11/25 at 3pm Pacific of business: 5.375% 30yr fixed with 1% origination - there was some profit taking/selling of MBS, pushing rates back up a little.

That's still great news! Interest rates for 30yr fixed loans have gotten that low 3 times this year. Prior to that first dip in February/March, it had been 3 years since we'd seen these low levels. And, each of the previous windows of low rates we saw this year were relatively short-lived, lasting as little as a few hours.

The hope now is that the Fed's most recent action will soak up Fannie and Freddie's MBS, and free up money for them to make more loans, allowing rates to stay low for a little while. They're definitely doing what they can to work on the supply side in terms of both stemming foreclosures, and freeing up the credit markets to facilitate lending. The hope is that lower interest rates will spur people into buying.

The Fed and Treasury are being fluid, analyzing what's working and what's not, and they're willing to adapt as this crisis unfolds; not rushing right in to dole out the next batch of bail out funds, while also continuing to pursue whatever means necessary to normalize the markets, and increase liquidity.

But....they still need to work on the demand side of the equation. Just because a borrower can get cheap money doesn't mean they will, if they think that whatever they're buying will be cheaper next week, next month, or next year.

That brings me to the next piece of good news. Prices are dropping. That's great news. Gas prices are now below $2/gallon again. That alone is projected to save US Consumers over $1billion next year. And, as consumers cut back spending, companies will continue lowering prices to entice us back to spend our money. That will do wonders to help struggling consumers who are seeing their earnings and savings erode.

But...lower prices could lead us into another "too much of a good thing" situation. Deflation, if left unchecked, can be as dangerous and insidious to economic stability as inflation. That too, however, is a subject for another time.

Another good side of deflation is that home prices in the Sacramento area are hitting a level not seen since 2002. The median home price is now $194,500. That's back to an affordable level for the average household income of Sacramento residents.

The National Association of Realtors survey shows sales of existing homes are up 37.5% in the West from Oct. of 2007 (seasonally adjusted). Although they're still down from Sept. 2008 by 1.6%, the monthly drop seems to be showing signs of stabilizing; the supply of unsold homes is still hovering around 10 months. It seems people are indeed seeing that there are some good opportunities out there. Hopefully that trend will continue.

Additionally, on the demand side of the equation, there is growing discussion about tax credits for homebuyers, beyond the recently established credit for first-time buyers. Giving buyers an incentive to get back into the market will help us stabilize the housing market and begin the healing process for our economy.

Investors can actually finance more than 4 residential properties. Although Fannie and Freddie (and thus most of the lenders out there) won't allow for more than 4 properties to be financed, I've found several lenders who do not sell their loans, but rather keep them on their books. Rates are high, but...Investors can finance more than 4 properties. And, if it cash flows at an artificially high rate, then...you're in great shape when the market does normalize. Meanwhile, you can use a little leverage and ride the long-term appreciation train. And, for most investors looking to own more than 4 properties, cash flow may not be their primary concern. In fact, a slight loss might even create a tax benefit.

President Elect Obama and his economic team seem to be focused on the right tactics too. They seem to understand that the tax hikes he proposed on those earning more than $250,000 can not be implemented while our economy is under this stress. They realize that as the US Consumer retrenches, the government is the only real force to spur significant demand, which will drive spending and create jobs.

Although this will undoubtedly push our budget deficit over the $1 Trillion mark, they realize they also need to focus on cutting wasteful spending and work to ensure that any new initiatives aren't just "throwing good money after bad" but rather creating the opportunity for both near-term stimulus, and long-term sustainability. Clearly, that's easier said than done, but...they seem to be saying the right things at this point. Hopefully that too will continue.

The last bit of good news is that the longest recession the US has experienced was 18 months long. So, depending on how we count, we're somewhere between 1/4^th to 1/3^rd of the way through it. Yes, it's likely to get worse before it gets better, but...there's still plenty of opportunity, and lots to be thankful for.

On that note, I hope you have a great Thanksgiving!

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for the week. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	7.750%	1	7.990%	$300,000.00	$ 2,030
30 yr fixed mortgage	5.375%	1	5.615%	$300,000.00	$ 1,680
15 yr fixed mortgage	5.250%	1	5.450%	$300,000.00	$ 2,412
3/1 ARM	5.625%	1	5.815%	$300,000.00	$ 1,727
5/1 ARM	5.750%	1	5.960%	$300,000.00	$ 1,751
5/1 ARM Int Only	5.875%	1	6.135%	$300,000.00	$ 1,469
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	8.750%	1	9.010%	$550,000.00	$ 4,327
15 yr fixed mortgage	8.500%	1	8.755%	$550,000.00	$ 5,416
3/1 ARM	5.750%	1	5.930%	$550,000.00	$ 3,210
5/1 ARM	6.250%	1	6.470%	$550,000.00	$ 3,386
5/1 ARM Int Only	6.500%	1	6.750%	$550,000.00	$ 2,979
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Tue, 11 Nov 2008 23:43:20 -0600

November 11, 2008

Round and round we go...

This could be a long letter, but...there's a lot of good information, I think. I hope you agree. Please let me know.

As I think is clear, this economic recession began with a deflating (or bursting) housing bubble. It's morphed WAY beyond that, but, it began with housing and the end most likely will come from housing. As a result, we have a new buzz word (or words) in our vocabulary, "Loan Modifications."

Loan modifications... Help for homeowners (borrowers, that is), or a shell game? That's the Billion Dollar Question. Many billions, really.

Whatever the answer, please hear this. If you're in need of a loan modification, YOU CAN DO IT YOURSELF. Unlike shopping for a loan, you have one source. Your current lender, is the only one who can modify your loan. You do not need to pay someone to do it for you. You'll talk to the same people at your lender's Loan Modification Department that a third party will. Yes, it may be frustrating, and take you longer than someone who knows the process, but you can do it yourself.

If you decide the "grief to dollar" ratio for you is worth it to pay someone, make sure you're working with a reputable company. Make sure you're getting a money back guarantee for delivering as promised. And, make sure you're not paying more than about $1250 for the service.

It disgusts me to see so many of the same people who abused the Pay Option/Negam, stated income and other "creative" loan programs - that really had an application before they were bastardized and misused - jump into the Loan Modification Business to make a quick buck, preying on the same folks they duped before. Often I hear of people charging $3000-$4000 - with no guarantees of success - to try to modify your loan. They're all over radio and TV pushing their ads. And, the direct mail is starting to come in force too. But, being duped is a two-way street...buyer beware.

All that, with no comment from regulators, nor the industry to help guide you in this hectic time. It's a shame, really, that they're letting you, their customers get duped again. Meanwhile the same folks that bilked so many into this mess are profiting again. Don't get me wrong. I like profits. I'm as capitalistic and opportunistic as it gets, but...I like to think I have a moral compass, too.

So, let's look at what you can do, if you need a loan modification. Loan modification is not designed to help investors, and people who made bad choices or over extended, or over leveraged, or had bad timing, but...I'm sure some will try - and succeed - in gaming the system. Loan modifications are designed to help those THAT NEED to stay in their homes do so. In so doing, the hope is that a bottom to the house price correction will form.

On the bright side, today, Fannie Mae and Freddie Mac (who hold roughly 50% of outstanding mortgages) announced a plan they hope will help borrowers who really are in trouble to stay in their homes.

Here's how James Lockhart, Director of the Federal Housing and Finance Agency (the newly created agency to oversee Fannie and Freddie) described it in an interview with Susie Gharab of Nightly Business Report (www.nbr.com): "Well, I think it's more than a start. I think it's really a comprehensive program that will really help very many people that are delinquent in their mortgages stay in their homes. They will get affordable mortgages. It will be funded by the people that provided the mortgages, Fannie and Freddie, the banks that did the lending and I really think that private label security holders, those investors that had their securities sliced and diced, should also join this program. It will save them a lot of money versus foreclosures. "

It goes into effect Dec. 15. To qualify, borrowers will need:

To be at least three months behind on their home loans - I'm not sure that's a good thing, and I'll get to that below
Will need to owe more than 90% of their home's value, based on current market valuation
Will not pay more than 38% of their gross income on housing expenses (mortgage, taxes, insurance, and mortgage insurance, if applicable)

To accomplish these modifications and meet the 38% debt to income ratio guideline, Fannie and Freddie can use any or all of the following:

A temporary reduction of the interest rate to as low as 3%, lasting for 5 years. From that point, the interest rate will rise by 1%/yr up to either prevailing rates, or Fannie Mae 30yr fixed rate at that time. Whether that reduction is interest only or principal and interest hasn't been mentioned, to my knowledge.
Extension of the loan term and amortization, up to 40 years.
Temporary deferment of a portion of the principal. NO PRINCIPAL WILL BE FORGIVEN. It will either be repaid by lengthening the amortization period, or by adding in a balloon payment.

Additionally, there is the Hope For Homeowners program. Unlike the Fannie/Freddie plan, they want you current with your mortgage prior to receiving assistance. This is a voluntary program by which lenders can agree to finance your home to 90% of its current market value with an FHA insured loan. The balance may be forgiven. You may waive your right to benefit exclusively from any appreciation from that point forward. It's my understanding that you'll agree to grant a 50/50 split of future appreciation with your lender/FHA. You can find more information at http://www.hud.gov/fha/home080730.cfm, but again, I encourage you to contact your lender directly, too.

Bank of America/Countrywide, Citi, JP Morgan Chase/WAMU and Wells Fargo have all announced various plans to modify more loans, and stem the tide of foreclosures. Again, if one of those companies is your lender and you need help. Call them. They've put a moratorium on new foreclosures and have staffed up to handle the volume of calls. With Fannie/Freddie's new initiative, the landscape continues to evolve. These lenders' policies may or may not mirror the new Fannie/Freddie initiative.

Will this all work? Maybe. I'm a little skeptical, though.

We could now find a wave of people who are current, who can possibly afford their mortgage as-is, start missing payments to qualify for the Fannie/Freddie "deal." Sure, they'll tank their credit, but...if it saves them tens of thousands of dollars in the next 5 years, who cares? Their credit will be repaired in that time frame, and they can walk then, when their rate begins to rise, but their home will most likely be worth about the same as it is today.

Moreover, who's to say that someone who's upside down by $150,000 (and tens of thousands of people here in Sacramento are) will get their loan modified, but decide to blow it off anyway, rather than waiting for 10 years for them to recoup their equity? Whether that money was borrowed, or put down, what's the incentive to stay in that home and keep paying? In many cases, you can go rent a nicer home, for less money. I'd like to think the incentive is holding up your end of the bargain, following through with your commitments and paying your bills as agreed, but...unfortunately, I think that's overly optimistic.

So, we could argue that all this "help" is only delaying the inevitable correction to the historic, mean (average) level of real estate appreciation over time. On that note, we can argue that a slow bleed is better than a blood letting, but...

As I've said before, someone's pain and nightmare is someone else's dream opportunity. Blood letting could be the way to go.

Now I know, that sounds harsh, and a lot of people got jacked up for a variety of reasons not necessarily of their own doing. That doesn't mean they won't make a "business decision" either before or after a loan modification, and walk from their obligation.

So, what can we do to help?

Despite how it appears on your news channel, there are plenty of people out there with tons of cash, great income and the long-term horizon to seize opportunities and build greater long-term wealth.

Here are my ideas that I think can help stem the tide and shore up our housing market:

Fannie and Freddie should revise their guidelines for investors. Right now, they won't allow for an individual to finance more than four properties, cut down from 10 as the markets began to sour last year. 10 was only excessive because they allowed people to borrow without verifying income, with minimal down payments, and marginal credit histories. By establishing firm, yet manageable guidelines (25%-30% down, fully documented income/assets, 720+ ficos, properties that cash flow, etc.) they can open the door of opportunity to many people who will gladly soak up the excess inventory of homes en masse. Right now, only a select few local lenders who don't sell their loans, but rather keep them on their books, will consider this type of scenario. In Sacramento, you can now very easily get a 5% cash-on-cash return. Is your stock portfolio delivering that? Plus, over the next 10+ years you'll probably benefit from some appreciation, too.
They need to keep interest rates around today's levels. Yes, I'd love to see them get lower. But, as I've said, they have little incentive to lower them as they try to return to profitability and bring their balance sheets, well...back into balance. And, 6.5% is still a great 30yr fixed interest rate! It's also a great rate of return to the investor, as long as the default rates are low.
Underwriting guidelines can't be excessively loosened. Unfortunately, unless default rates drop back to historic norms, investors will either shy away from parking their money in mortgages or...they'll charge more. Again, despite what you hear in the mass media, there are plenty of strong borrowers who are great buyers out there.
Tax credits should be offered to all home-buyers, whether it's first time buyers, move-up buyers, or investors. Small credits can mean a lot to an individual. And, right now localities (cities, towns and states) are seeing massive revenue shortfalls, largely due to empty homes. Empty homes pay no property taxes. The Fed and/or state can grant a small break, that might be offset as buyers pay their local real estate taxes. That in turn will ease the burden of those localities who are now turning to the State and Fed to get "bridge" financing to cover their basic expenses. California is a great example. Revenues are so short, and lenders so few, that Governor Schwarzenegger asked for $7 billion to cover normal operating expenses. I'm not smart enough to know whether this math would pencil out, but...my gut says it could help fill part of the gap.
We need to move forward diligently but patiently, and not rush into policies that are meant with the best intentions but spin off unforseen consequences. After all, that's exactly how we got into this mess in the first place. Good ideas gone bad. Although I could be wrong, it feels to me like the Sacramento housing market is finding a bottom, and we have not seen massive amounts of loan modifications here. Sure, we could see another dip of 10% or so (maybe more, although I'll put money that it won't go much lower than that), but...either way, that's not necessarily the end of the world, if you can afford what you bought, and have a long-term horizon on owning that property.

I don't know how much those ideas will help, if at all. I don't think they'd work in isolation. Clearly, some loan modifications (ok tons of loan modifications) are a good thing. But, they're not the end-all-be-all solution either. Nor is the ever growing corporate bail-out sinkhole we're throwing our money into. Like solving any problem, we need a multi-pronged approach. Fed Chairman Bernanke has certainly pulled out all the stops he can, but...his powers and influence only go so far.

Capitalism, for better or for worse, breeds winners and losers. The strong will survive.

I know a woman, a good friend of mine's Mom, who made her fortune buying real estate in California (Santa Cruz, mostly) buying all the properties she could in the late 70's and early 80's when property values were dropping and interest rates were in the double digits. Everyone thought she was crazy. She retired twice by the time she was 45, when I moved to California in 1994. She bought on cash flow. As long as the properties covered their own expenses, she bought. Then, as rates dropped, and values rose, she was laughing. She's now a masters skiing champion and living the good life in the mountains of Utah, where...yep, real estate is relatively cheap.

My grandfather did well, too. Real estate was a big part of his success. He always used to say "I couldn't do what I did today." That's one of the few things I disagreed with him about.

Opportunities exist today, and they always will, even in the worst of times. Some say, especially in the worst of times. The shapes, sizes and colors may have changed a bit, but they're out there for those who are ready and looking for them. We're in an unprecedented time right now.

Just like every other up and down, boom and bust cycle, we will get through it. We're already reading stories about the amazing resiliency of the American economy - at least in foreign press who are now realizing the extent of their problems (see google Iceland economy if you're curious). It truly is remarkable. We'll emerge from this stronger, smarter, and for some, much wealthier. I hope you're able to capitalize, while keeping your moral compass aligned.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for the week. Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	n/a	1	#VALUE!	$300,000.00	#VALUE!
30 yr fixed mortgage	6.000%	1	6.240%	$300,000.00	$ 1,799
15 yr fixed mortgage	5.625%	1	5.825%	$300,000.00	$ 2,471
3/1 ARM	5.625%	1	5.815%	$300,000.00	$ 1,727
5/1 ARM	5.750%	1	5.960%	$300,000.00	$ 1,751
5/1 ARM Int Only	5.875%	1	6.135%	$300,000.00	$ 1,469
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	8.750%	1	9.010%	$550,000.00	$ 4,327
15 yr fixed mortgage	8.500%	1	8.755%	$550,000.00	$ 5,416
3/1 ARM	6.375%	1	6.555%	$550,000.00	$ 3,431
5/1 ARM	7.000%	1	7.220%	$550,000.00	$ 3,659
5/1 ARM Int Only	7.250%	1	7.500%	$550,000.00	$ 3,323
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Tue, 04 Nov 2008 23:30:06 -0600

November 4, 2008

The more things change, the more they stay the same.

I hope you voted today. Tomorrow, we'll have a new President, and largely a new Congress. I don't envy their position as they work to navigate us through these rough, and mostly uncharted economic waters. Let's hope they get it right. Hopefully, they'll strike a good balance between balancing our budget, creating jobs, righting our economy (although the Fed and Treasury really drive that) and moving us forward into this next phase of American, and global, economic evolution.

If not, well....we get to vote again and make our collective voice heard in a few short years.

In the mean time, it looks like the credit freeze that seized our economy after the collapse of Lehman Brothers about 6 weeks ago, has started to thaw. Money is slowly flowing more freely between banks. The interest rates they charge each other (through the London Interbank Offered Rate/LIBOR, and others) are starting to come down again.

The $700 billion bail out plan is having a direct impact. Yes, there's debate about its implementation and efficacy. But, it has brought a level of confidence back into our financial system as well as providing crucial liquidity. Bernanke should be applauded for getting very creative and marshalling unprecedented cooperation among Central Banks across the globe.

JP Morgan Chase announced last Friday that they're allocating $110 billion to work out loan modifications for borrowers in need. They're also suspending foreclosures for 90 days as they evaluate options and try to reach out to struggling borrowers. They ask that homeowners "Show a willingness to pay. Customers should continue making their payments to reflect their intent to honor their commitments" said a spokesperson.

The FDIC is discussing a $50 billion fund to assist struggling borrowers. Whether these moves - and others on the horizon - will have a lasting, beneficial impact, or simply create a false bottom to the housing price correction remains to be seen. But, on the surface they're an honest attempt.

Twenty percent of US mortgage borrowers owed more than their house was worth in Q3, according to FATCO Corelogic, a Santa Ana, CA division of First American Title Company who provides real estate data. That number will grow further if home values continue their slide.

All that notwithstanding, last week saw the biggest one week rise in the Dow Jones Industrial Average in 30 years, but...October still registered the worst month in 20 years.

Today, the stock market had its largest Election Day rally in 24 years. Additionally, mortgage rates saw a nice reversal lower today, so the see-saw action in the markets continues. Yesterday, 30yr fixed loans were around 6.375% to 6.5%. Now, they're back to about 6%. We have to remember that 6.5% is still a great mortgage rate. And, we might hope that as the credit freeze continues thawing, maybe, just maybe, rates will come down further still.

But, as I've been saying, don't hold your breath. David Hodgkinson Chief Operating Officer of HSBC, Europe's largest lender and a major player in the US mortgage market, signaled yesterday that it won't pass on to consumers or businesses the full effect of rate reductions from the Bank of England. Why? Profitability, bringing their balance sheet back in order and perceived risk premiums they're charging for the "service" of lending.

According to Bloomberg online, economists across the country agree that banks are unlikely to compete for new loans by offering lower rates so long as the economic outlook is dim, and risk of default is perceived as high.

Another reason that rates might not dip too much lower is that the US Treasury, and their counterparts across the globe, will need to issue billions of dollars in bonds to fund the massive injections of liquidity and huge expansions of their balance sheets that's taken place over the last few weeks. This added supply of safe, fixed income investments will need to attract investors. To compete for and earn those dollars, they may have to offer higher yields, which means lower prices and higher rates.

Partially offsetting that, however, is the huge drop in Mortgage Backed Securities, which also compete for those same dollars. Loan applications for residential and commercial mortgages are way down. So is the securitization (bundling, packaging and reselling) of those assets. This could result in keeping the overall supply of bonds and mortgage backed securities at about par, or at least without an excessive increase.

But on the demand side, as you can imagine, the appetite of foreign investors (China, Saudi Arabia, etc.) for our Mortgage Backed Securities and Government Bonds has shrunk drastically. Can you blame them? We sold them a lot of junk. They lost billions. So, in order to gain that business back, rates may need to remain higher than they otherwise would.

Looking on the bright side however, inflation - the only other true dictator of mortgage interest rates beyond the dynamics of supply and demand - has, as Richard Fisher Dallas Federal Reserve Bank President, and inflation Hawk noted ``froze in its tracks'' in recent months as the credit crisis worsened. ``The impetus for rising prices came to a grinding halt as the credit crisis took grip and confidence evaporated,'' Fisher said today to a meeting of the Texas Cattle Feeders Association in Grapevine, Texas. ``As the credit market congealed, inflationary momentum froze in its tracks.''

Indeed, we're seeing that deflationary pressure mount across the economies of the US and around the globe. Some drums are already beating that in a year's time we'll be fearful of devastating deflation when just a couple months ago people were clamoring about inflation running amuck.

We're hearing of continue layoffs and even corporate bankruptcy filings. Commercial vacancy rates are rising, and transactions are falling through the floor. The commercial real estate market is showing strong signs of being the next shoe to drop, but...that's a whole newsletter on its own.

What does all that mean? As we know, a bad economic outlook. With a bad economic outlook come weak corporate earnings. With weak corporate earnings come lower stock prices. If the stock market isn't providing good returns to investors, and the risks are high, where will those dollars flow? That's right. To "secure" stable, fixed income assets delivering solid returns. Enter Government Bonds and Mortgage Backed Securities redux.

But, mark my words, to securitize and bundle mortgages there's going to be a whole lot more transparency than we had over the last 7-8 years. I don't expect lender guidelines will be loosened, as some people hope will happen to allow more borrowers to qualify, because the risk of default must remain low in order to attract investors, unless the rates charged go up significantly accounting for that increased risk.

So...there's always hope for mortgage rates to stay in this 6% range. I think they will. I also expect that from time to time there will be peaks and valleys, where the peaks might be in the 6.5% to 7% range, and the valleys dip back into the 5.5% to 5% range. But, it's definitely not a time to be asleep at the wheel. It's more important than ever to keep in touch with a mortgage professional who has a grasp of these dynamics who will best position you to seize opportunities as they arise.

There are tremendous opportunities out there. As weird and crazy as this economic landscape is, it's also pretty exciting and interesting to watch unfold before us, as long as you're not getting crushed by it. I've definitely heard some tragic stories as I talk with clients and prospects, and my heart goes out to those of you who have to live through them first-hand.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for the week (or at least as of today). Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	n/a	1	#VALUE!	$300,000.00	#VALUE!
30 yr fixed mortgage	6.000%	1	6.240%	$300,000.00	$ 1,799
15 yr fixed mortgage	5.625%	1	5.825%	$300,000.00	$ 2,471
3/1 ARM	5.625%	1	5.815%	$300,000.00	$ 1,727
5/1 ARM	5.750%	1	5.960%	$300,000.00	$ 1,751
5/1 ARM Int Only	5.875%	1	6.135%	$300,000.00	$ 1,469
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	n/a	1	#VALUE!	$550,000.00	#VALUE!
30 yr fixed mortgage	8.750%	1	9.010%	$550,000.00	$ 4,327
15 yr fixed mortgage	8.500%	1	8.755%	$550,000.00	$ 5,416
3/1 ARM	6.375%	1	6.555%	$550,000.00	$ 3,431
5/1 ARM	7.000%	1	7.220%	$550,000.00	$ 3,659
5/1 ARM Int Only	7.250%	1	7.500%	$550,000.00	$ 3,323
Rates subject to change without notice.
These rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Wed, 22 Oct 2008 15:55:37 -0500

October 21, 2008

High low, high low, it's volatile as we go...

Much like 500 point intra-day swings are becoming common place in the stock market, volatility continues as the norm with Mortgage Backed Securities. Just a week ago mortgage rates had risen to the highs of 2008, with 30yr fixed around 6.5%. Now, a scant 5 business days later, we're back to 5.75% and thinking/hoping that another short window of opportunity may open where we touch 5.5%, or maybe lower, for 30-yr fixed money.

Keep in mind, just like the dips we saw in September, and February/March before that, these windows open and shut quickly. In the middle of September, we had about a 2-day window where rates fell to 5.5% then climbed back to 6% just as quickly. February and March's low of 5.25% lasted for just a day or two as well, with 5% appearing for a scant three hours one morning!

So, if those low points spell opportunity for you, get your ducks lined up in a row, and be ready to pull the trigger. And, make sure you're in touch with a professional loan officer who follows the daily movement of Mortgage Backed Securities, so you're best positioned to catch those interest rate dips.

It never ceases to amaze me how many people miss great opportunities hoping to save an extra .125% that, alas, rarely seems to materialize. Or, those who are watching the wrong trends, such as Treasury Yields, which don't always move in the same direction as Mortgage Backed Securities.

The good news, however, is that there's usually another dip around the corner. If you missed the last one, be patient. Another should materialize. Or will it? Have the rules changed?

Ever the optimist, I always believe rates will continue to rise and fall based on the usual factors of 1) supply and demand, 2) inflation (or lack of it). Sometimes there can be long gaps between highs and lows, but...over all, I think that trend will continue. But, what if my belief that banks (and the ever increasing amount of Government Sponsored Enterprises) must increase their profitability and repair their balance sheets to stay alive - and there are only two ways to do that - proves correct?

That could mean that even as borrowing costs for banks, whether from Central Governments (Fed Funds Rate target, etc.) or from each other (LIBOR, for example) get lower, mortgage rates and other consumer financing may not follow. Why would that be? More profitable margins for the banks are the answer.

As we know, banks make money in a couple places. Generally, they borrow money at one rate, and lend it out at a higher rate. If you're Mr. Bank CEO, and you're tasked with rebuilding your company's balance sheet and returning to profitability, you have two ways of doing so: 1) cut costs 2) increase revenue/profits. That's it.

We're seeing the cost-cutting with continued lay offs, sale of losing assets, etc. but...that's another story. Meanwhile, if you can increase your margin between your cost of borrowing and your rate of lending, wouldn't you? I would. Especially when 6%, 6.5% and even 7% money to the consumer is still VERY cheap.

That could usher in an era where despite seeing super low Fed Funds target rates and LIBOR rates (remember LIBOR is a rate at which banks lend to each other and also acts as the index for a huge volume of other loans too), mortgage and other consumer interest rates (credit cards, auto loans, etc.) could remain slightly higher than we may otherwise expect.

During the last period of historically low Fed Funds target rate, between 2001 and 2004, when the Fed Funds rate ranged from 1% to 2.25% fixed mortgage rates followed that down-trend and stood at 40-year lows between 4.75% to 5.5% for the same period. ARMs were even cheaper. But, it could be different this time. Banks might decide to not pass on the full benefit/spread between rates at which they're borrowing, and at which they can lend.

Remember, that a difference of .5% on a $300,000 loan is about $100/mo. In isolation, for most borrowers, that's not a huge deal breaker in their ability to finance a home. That same .5% rate difference only equates to roughly 5% change in purchasing power. Again, that's usually not enough of a shift to afford someone a drastically different type of home or neighborhood. Chances are you'll probably find a very similar home and neighborhood for $285k as you would for $300k, or for $150k vs. $140k and so on.

But, to me, Mr. Bank CEO who's lending $50 billion/year for 30-yr fixed mortgages, that .5% difference means roughly $15.5million PER MONTH to my bottom line. That's not chump change.

So again, if I'm a lender, and my cost of borrowing drops to historic lows again, what's my motivation to pass that along to you, the borrower? If supply of credit is low, and we've seen how much it's diminished in the last 12-24 months, can't I afford to charge a little premium? There really isn't much motivation for me to pass those savings on to you. I might just pocket that extra spread to help my company return to profitability and bring my balance sheet back to solvency. Just a thought, anyway.

Now, the counter argument is pretty easy, and I discuss it every day: "But Eric, we need to see cheap money, so people can borrow easily which will encourage financing and help to create a bottom to the housing price (and other asset value) corrections. So, of course banks will lower their rates accordingly. Right?" Right. Because they're always looking out for you, huh?

It's cheap money, and loose underwriting guidelines - allowing many people who were way over extended on the personal and corporate level - to continue borrowing beyond their ability to repay that got us in this mess in the first place. As I've said, credit is a great thing, and is the lubricant to a vibrant economy. But, as we've seen so many times, too much of a good thing can have pretty adverse consequences when used irresponsibly.

We've just hit the reset button on our economy and financial practices, erasing much of the paper wealth that was "created" between 2001 and 2007. Hopefully, in addition to the massive government efforts to pump liquidity back into the markets and get the US and global economies on their way back to recovery, those who run our financial institutions and the agencies that regulate them will find a good balance between establishing transparency and regulations, while not stifling economic innovation.

I'm confident they will. I'm equally confident in the resiliency of our National, and global economic framework that there is light at the end of this tunnel. And, as I've said throughout, there are always great opportunities for those with the eye and financial wherewithal to capitalize on them. As we work through this, I'll do my best to keep you informed so you can make educated decisions based on what best fits your needs, goals, and time lines.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for the week (or at least as of today). Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	7.250%	1	7.490%	$300,000.00	$ 1,919
30 yr fixed mortgage	5.750%	1	5.990%	$300,000.00	$ 1,751
15 yr fixed mortgage	5.500%	1	5.700%	$300,000.00	$ 2,451
3/1 ARM	5.500%	1	5.690%	$300,000.00	$ 1,703
5/1 ARM	5.625%	1	5.835%	$300,000.00	$ 1,727
5/1 ARM Int Only	5.875%	1	6.135%	$300,000.00	$ 1,469
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	8.875%	1	9.135%	$550,000.00	$ 4,190
30 yr fixed mortgage	8.500%	1	8.760%	$550,000.00	$ 4,229
15 yr fixed mortgage	8.000%	1	8.255%	$550,000.00	$ 5,256
3/1 ARM	6.250%	1	6.430%	$550,000.00	$ 3,386
5/1 ARM	6.750%	1	6.970%	$550,000.00	$ 3,567
5/1 ARM Int Only	7.500%	1	7.750%	$550,000.00	$ 3,438
Rates subject to change without notice.
Please keep in mind, these rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line. To add someone who would appreciate this information, send me their email with SUBSCRIBE as subject.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com

Your Interest Rate Update

Eric Grathwol (Priority 1st Mortgage) — Fri, 17 Oct 2008 18:29:53 -0500

October 1, 2008

"I'm just a bill. Yes, I'm only a bill. And I'm sittin' here on Capitol Hill" SchoolHouse Rock, circa 1975.

And wow, what a bill we have with the Troubled Asset Relief Program. When Henry Paulson and Ben Bernanke brought the act to congress last week, it was three pages. The version that was voted down in the House of Representatives was somewhere around 120 pages. The version the Senate just passed this evening is now some 451 pages long.

Granted, 3 pages may have been too much of a blank check. The addition of some revisions, safeguards, and structure was probably a very good thing. But, in the same breath, our Congress has done what our Congress does. They've attached so much crap to this legislation (and wasted valuable time in so doing) that the punch may be taken out of its full impact. What's worse, it could set the stage for political one-upsmanship where people keep slapping pet projects in there to "buy" their vote.

As an example, on page 300, Section 503, "Exemption from Excise Tax for certain wooden arrows designed for use by children." What? Are you freaking kidding?!

Then, on page 301, Section 504, "Income averaging for amounts received in connection with the Exxon Valdez litigation." Huh?

And one of my favorites, on page 308, Section 506, "Modification of penalty on understatement of taxpayer's liability by tax return preparer." Yeah, 'cause THAT's why companies were allowed to leverage assets to 30x their value, which helped crush our credit markets once home values began dipping....

At least the Senate did pass this 451 page monstrosity. Hopefully the House will follow suit, without too much other dilutive crap. There are some very good components of the bill. But, remember those three items (and many others) that were added above, the next time you go to vote for your favorite public official.

More importantly, while our elected officials wasted time and added pointless legislation, the wheels of our economy could be coming off. I'm hearing about car dealers who can't draw on their lines of credit to buy more inventory or make payroll. This evening I heard that the State of California could be facing liquidity challenges, and potentially prohibitively high borrowing costs (or complete lack of anyone to lend) to fund regular projects and critical expenses such as payroll.

How much of that is real, or media hype, I really don't know yet. But, I'd definitely err to the side of caution if I had a vote on this bill.

We're surely in uncharted economic territory, so nobody knows for sure what actions will help or hurt our recovery, in the near and long term. But when you hear two really well respected, non-partisan (certainly in Ben Bernanke, and I'd bet in this case Henry Paulson too) heads of our economic centers, who've made careers of studying and working within our financial system, laying out the potential impact of inaction, you've got to take that seriously. There are cynics who think this is another Weapons of Mass Destruction deal, but...I don't. It's entirely different.

Do I think inaction will bring the world to a grinding halt? No. Do I think passage of this legislation (as is, or in a further modified form) will right our economy in short order? No.

You know, what I think. Basically, for a lot of people it's likely to get worse, before it gets better. For others, there will be huge opportunities along the way.

Again, if credit (lending and borrowing) is the life blood of our economy and prosperity, then....lenders/creditors will be lining up to lend to strong borrowers. Just look at Warren Buffet. He just doled out $8 billion, $5billion to Goldman Sachs, and $3billion to GE. I'd call both of those companies pretty strong borrowers. And, he's apparently got another $32billion waiting to place. I can't believe he's alone.

Yes, they're paying a premium for that cash infusion from Warren. He saw opportunity and moved quickly. Warren's doing quite well - by some accounts already being up $1billion from his Goldman position alone - but...those companies, GE and Goldman Sachs will use this money to grow in turn.

That's the same thing if you're buying or refinancing your home or other real estate. At least it should be. Yes, lenders are going to want to know exactly who they're lending to. And, they may even charge you more than they otherwise would, but...if you're a strong borrower, money will still be available. But, if you're buying a home you're not buying "an investment" you're buying a place to house your family. And, with a long-term horizon (10yrs or so), chances are in your favor that your home will appreciate.

If you're buying an investment property, and you can get positive cash flow or at least break even, again, you're well positioned to profit over the long haul.

And, we have to remember that even at 6.25% for 30yr fixed money, that's very cheap. In fact in the last two weeks I'd locked many of my clients' loans in at 5.5% or so for 30yr fixed money. That's the 2nd time this year rates have dipped that low. Will we get there again, who knows? As of today, rates are back up around 6%. Again, not too big a swing, but...why not grab the opportunity of those dips if you can? If you can't, 6% isn't bad!

In my opinion, at least from the perspective of financing real estate, it's mostly the folks on the fringe who will be hurt. If you can't fully document your income and assets, it's going to be more difficult and expensive to borrow. We've essentially flashed back 10 years coming back to where guidelines were then. But...interest rates were much higher 10 years ago. Will money ever flow as easily as it did during the last 6 years or so? I doubt it. Will mortgage rates rise back to where 7% is the norm for 30yr fixed money? Maybe, but...I'm optimistic that for strong borrowers, rates will stay low.

Granted, institutional memory is often very short, but...I do think this economic implosion is a pivotal point that can lead to some very positive changes that don't hinder credit and growth, yet thoroughly monitor and verify enough financial information to know who's holding what obligations and how much they're leveraged. And, that goes from the personal level to the corporate and mega-bank-brokerage level.

In the mean time, it's likely to be a bumpy ride, so...fasten your seatbelts, and try to enjoy the view. If you're positioned right, you might see some great opportunities. If you have time, call or write your Congressional Representative and urge them to support this bill.

Friday's jobs report will be interesting. We learned Monday of this week that although inflationary pressures didn't continue their rise, they're still uncomfortably high. However, the current state of affairs, should be deflationary, but...we'll see.

As always, call or email if you or anyone you know has questions about financing residential or commercial real estate. Here are your rates for the week (or at least as of today). Cheers! E

Conforming	Rates	Points	APR	Loan Amt	Payment
40 yr fixed mortgage	6.750%	1	6.990%	$300,000.00	$ 1,810
30 yr fixed mortgage	6.000%	1	6.240%	$300,000.00	$ 1,799
15 yr fixed mortgage	5.750%	1	5.950%	$300,000.00	$ 2,491
3/1 ARM	6.000%	1	6.190%	$300,000.00	$ 1,799
5/1 ARM	6.250%	1	6.460%	$300,000.00	$ 1,847
5/1 ARM Int Only	6.375%	1	6.635%	$300,000.00	$ 1,594
Jumbo (ask me about the new limit, per your zip code)
40yr fixed mortgage	8.875%	1	9.135%	$550,000.00	$ 4,190
30 yr fixed mortgage	8.750%	1	9.010%	$550,000.00	$ 4,327
15 yr fixed mortgage	7.625%	1	7.880%	$550,000.00	$ 5,138
3/1 ARM	7.125%	1	7.305%	$550,000.00	$ 3,705
5/1 ARM	7.375%	1	7.595%	$550,000.00	$ 3,799
5/1 ARM Int Only	7.500%	1	7.750%	$550,000.00	$ 3,438
Rates subject to change without notice.
Please keep in mind, these rates and statistics are for informational purposes only to give you a sense of market movement and my opinion as to why. Although these rates exist today, based on certain qualifying characteristics, your scenario may allow for lower or higher interest rates. Licensed by the CA Dept of Real Estate, #01760965. Equal Opportunity Housing Lender. If you'd like to be removed from this list, please reply with REMOVE in the subject line. You can also use this link, mailto:egrathwol@priority1stmortgage.com and add REMOVE to the subject line.

Eric Grathwol

Loan Officer

Priority 1st Mortgage

3300 Douglas Blvd. Ste. 270

Roseville, CA 95661

direct: 916-223-4235

office: 866-771-9000

fax: 916-771-9099

www.priority1stmortgage.com

egrathwol@priority1stmortgage.com