Russia says it won't deploy missiles near Poland, scolds Iran

You may ask, “why mention Russia's decision to scrap plans to deploy missiles in the MetFund Mortgage blog?”

Because, it too has an impact on interest rates.  The following headlines are affecting rates to some degree:

Analysis: Toughest test coming up for health care overhaul

Asian countries want greater decision-making role

Families 'cross over' to the smaller side of SUVs

Well Educated and Flat Broke

You must understand that any serious trader of bonds in large quantities pays attention to the headlines of the day.  Any individual headline alone may not move the market.  But in combination with other events it can serve as a catalyst to move traders to take some different position and therefor affect the interest rate complex.

If a trader believes that new college grads will have less money to spend after graduation, perhaps retail sales won't be as strong and...

By the way, it looks as though scrapping the eastern european missile defense shield is a good idea.  Russia slaps Iran over its nuclear program.

•  Fannie's 'Serious' Delinquency Rate Breaks 4%
The serious delinquency rate on Fannie Mae guaranteed single-family loans topped 4% in July, according to mortgage giant's monthly summary report.

•  FDIC Wants Depositories to Prepay $45B in Upfront Premiums
Banks and thrifts will front the Federal Deposit Insurance Corp. $45 billion in advance deposit insurance premiums under a new proposal designed to bolster the beleaguered insurance fund.  More on this tomorrow as we off to...

•  U2 tonight at Fedex Field.

•  We look for anecdotal information from which we can extract valuable insights to provide our clients with an edge.  We offer this:

"Employment continues to worsen more than the numbers show.  Extended Unemployment Claims rose a very large 80k.  This means that continuing employment claims would have been 80k worse except those unemployed people’scontinuing claims.  In addition the exhaustion rate hit a record 52%: 52% of those on EUC completely ran normal unemployment benefits ran out: they are now no longer counted as out of benefits and are on their own.  They are no longer even counted as unemployed (except for the U-6 unemployment rate, which is not what everyone looks at)."

                                                                        Mr. Practical

•  Existing Homes Sales Decline After Months of Gains
After five straight months of increases, existing home sales took a breather in August — along with rising values.

•  Survey: Tax Credit Extension Could Influence First-time Buyers
At least seven in 10 potential first-time homebuyers said an extension of the $8,000 tax credit would have at least some influence on their decision to purchase a home next year.

•  Freddie Mac: Fed Moves Could Keep ARM Rates Low
Recent Federal Reserve moves could make adjustable rates more relatively attractive while potentially putting upward pressure on 30-year rates.

FHA News Release

•  Buyers Hold the Power according to an article by the Associated Press.  Besides noting the need for sellers to price correctly, rightly viewing your home as a place to live instead of a piggy bank and the last minute hiccups that sometimes occur there are several anecdotal stories concerning the realities of today's marketplace.  It is referred to as the “new normal”.

•  Bloomberg reported that the UN is calling for a new global reserve currency to fix the broken “confidence game”.  This could be dangerous for interest rates in the US.

•  Debt Repudiation: Consumer Borrowing fell a record amount ($21.6 billion) in July, the most dating back to 1943.

•  Deflation continues: "Food prices are dropping on some key items as retailers slash prices to better compete and food makers do more promotions and pass along savings from lower ingredient and gasoline costs," according to USA Today. "A Labor Department price index of food sold to be eaten at home fell for the seventh time in eight months in July. The index, which is part of the consumer price index, fell 0.5% in the most recent month and is down 0.9% in the past 12 months."    USA Today

•  On Saturday, the Kansas City Federal Reserve posted a speech given by its president, Thomas Hoenig on August 6th to the Kansas Bankers Association.  Minyan Peter, a former banker himself characterizes it as, "one of the most candid assessments of the banking system and the Federal Reserve that I have read in a long time."

•  What would have happened if a bank “too big to fail” had failed?  Would the world have come to an end?  We doubt it.  Would there be an adjustment period with some discomfort?  Probably.  There definitely would have been less bankers on your favorite golf course.

Yet, there are plenty of small, community banks such as one of my favorites, MainStreet Bank, that would have picked up the slack to whatever degree possible.

I have to wonder if that wouldn't have been preferable to the situation now as described by Paul Farrell in Goldman's new 'American Socialism Manifesto': 8 ways 'The Conspiracy' is destroying our American democracy

Credit guidelines are tightening while the number of people it affects grows.  But you can help yourself if you are aware of the following trends in credit and understand their implications.

Credit Limit Reductions

Credit Card companies have systematically begun to reduce the available credit to consumers.  They can do this whenever this wish even if you have a perfect payment history with no derogatory credit reported.

This can lower your credit score as it will increase your debt ratio: the current balance versus your available credit. Consider these options to combat this credit situation:

    •  Spread out the balance among several different revolving credit account to keep each debt ratio lower.

    •  Establish business credit, which does not necessarily impact your personal credit.

    •  Keep an extremely low or no balance on the card, in which case the debt ratio should not be affected.  This can defeat the purpose of having available credit, but it also can help increase your FICO score.

Judgments

Judgments are popping up more frequently due to the economic crisis.  They can stay on your credit report as long as a state's laws allow.  In most cases this is seven years.

Home Equity Line of Credit (HELOC) Reductions

This past year many borrowers found that just when their need for the HELOC was greatest the remaining credit was no longer available.  Even if their previous balance was zero ($0).

Besides it being a major inconvenience, depending on how this is reported it can also affect your scores due to the limiting of revolving credit.  Some of us were required to endure the expense of an additional appraisal to show that our homes had not dropped in value to the level that an automated valuation model (AVM) had assigned.

Predictive Credit Score Modeling

Contrary to claims otherwise, it is virtually impossible to tell the exact impact of any particular action without actually “pulling” the credit report.  Yes, the predictive models do give a good indication but because the scoring is based on a combination of factors including being moved to different “scorecard” the real affect can only be speculated.

Collections

Collections can stay on a report for seven and a half years from the date of last activity (DLA).  It used to be that if you paid off an older collection it could actually cause your score to drop because the DLA was brought forward to the date of satisfaction.  Apparently, in newer versions of Fair Issac modeling this is not the case.  It now includes a date of initial delinquency, not a date of last activity.

Collection companies only have to show that they sent the notice – not that you actually received it.

The “Bumpage Theory”

Some credit scams insist that if you, yourself pull your credit multiple times daily that the “soft” credit inquiries will bump the “hard” credit inquiries off your report.  The thinking is hard inquiries can lower a credit score; soft inquiries do not.

Most often, this is found to be a waste of time.  Credit inquires only count for 10 percent of the overall credit score.  More importantly, any bureau that removes a hard inquiry within 24 months of the inquiry date violates the Fair Credit Reporting Act.

Here's what else we're juggling today:

•  MBA Releases Plan to Replace Fannie Mae and Freddie Mac
The Mortgage Bankers Association on Wednesday morning released a working paper on rebuilding the secondary market — a plan that does not include the continued existence of Fannie Mae and Freddie Mac in their present form but instead relies on the creation of a small number of mini-GSEs that could be in co-operative form.

•  Housing Value Recovery May Be Becoming More Broad-Based
The latest 2.7% quarterly gain in Freddie Mac's Conventional Home Price Index's Purchase-Only Series suggests a more broad-based recovery in housing values is starting to emerge.

•  Credit Managers' Index Shows Signs of Retrenchment
After six months of gains, the Credit Managers' Index is showing slower progress, according to the National Association of Credit Managers, Columbia, MD.

•  July a Weak Month for the Nation's Mortgage Insurers
The nation's beleaguered mortgage insurance companies wrote $7.54 billion of new traditional MI policies in July, its third worst volume month of the year.

•  Loan-Value Data Shows Ills Persist
The fair value of loans held by the nation's largest commercial banks continues to decline, indicating that credit markets have not yet turned around and raising serious questions about the effectiveness of the government's efforts to help the industry through the credit crisis.

•  We have been critics of the Federal Reserve's existence, critical of it's manipulation of the US money supply for the benefit of its member banks and believe the recent turmoil indicates “the present arrangement no longer works for the public interest.”

We have sought simple, executable solutions beyond the outright leveling of the Federal Reserve into oblivion.  And until we were shown the August 3, 2009, edition of The Nation, where William Greider, a long time follower and chronicler of the Federal Reserve, we thought there may not be any alternative but to “End the Fed”.  Here, in the article entitled Dismantling the Temple, Greider, author of Secrets of the Temple: How the Federal Reserve Runs the Country, provides us with six reasons granting more power to the Fed is a “really bad idea” and a cogent argument for democratizing the Fed and what a totally reconstituted Federal Reserve might look like.

We, as citizens must “nudge” Congress to take charge of its duty as the Constitution prescribes: "The Congress shall have the power to coin money [and] regulate the value thereof."

•  Expected Defaults Edge Higher
Under current economic conditions, nonprime investors and lenders should expect defaults on loans currently being originated to be 137% higher than the average of loans originated in the 1990s, according to the latest UFA Mortgage Report.

•  FDIC Hoping Worst Is Over for Single-Family Loans
Federal Deposit Insurance Corp. officials are hoping the worst may be over for single-family mortgages but they fully expect the performance of commercial real estate loans will continue to deteriorate.