Inside Lending Newsletter - For the week of February 6, 2012 – Vol. 10, Issue 6

>> Market Update  QUOTE OF THE WEEK..."A story to me means a plot where there is some surprise. Because that is how life is -- full of surprises." --Isaac Bashevis Singer INFO THAT HITS US WHERE WE LIVE..."The Federal Reserve surprised the market last week by indicating that short-term rates were likely to stay at their current low levels until the end of 2014," according to the Mortgage Bankers Association chief economist. He added, "Longer-term Treasury rates dropped... and mortgage rates for the week were down slightly." Freddie Mac's chief economist felt rates had eased because "fourth-quarter growth in the economy fell short of market projections." He did see "one bright spot... residential construction spending rebounded in December, rising 0.7%." For the year, housing starts in fact rose 25%! Maybe that's why the National Association of Home Builders' Market Index rose from 14 in September to 25 in January, a 4-year high. Both new and existing homes are now very affordable, with prices at post-recession lows. Yet the home price decline since the end of the recession in mid-2009 has been a modest 3%-7%.  BUSINESS TIP OF THE WEEK... Have a clear vision of what you want. Success doesn't just happen, you have to work for it. So make sure you know your goal. >> Review of Last Week UP WEEK... The latest surprise was Friday's unexpectedly upbeat January jobs data. This boosted the Dow to its highest close since 2008, while the Nasdaq outdid that, hitting its highest level since December 2000 and the S&P 500 reached its best reading since last summer. The good mood on Wall Street came from the Bureau of Labor Statistics report that nonfarm payrolls were up a greater than expected 243,000 in January and the unemployment rate edged down to 8.3%. Some questioned the numbers coming out of Washington in an election year, but no matter what your politics, you have to hope jobs will improve for the sake of the housing recovery. Another positive sign came with ISM Services, up greater than expected, showing growth for the sector with over 80% of the jobs. But ISM Manufacturing grew less than expected and the Chicago PMI manufacturing read dropped for the month. Also disappointing, Consumer Confidence fell in January after improving the prior month. For the week, the Dow ended UP 1.6%, at 12862; the S&P 500 closed up 2.2%, at 1345; and the Nasdaq gained 3.2%, to 2906. Friday's nonfarm payrolls beat slammed Treasuries, but the mortgage bonds we care about held on well enough. The FNMA 3.5% bond we watch ended the week up just .02, to $103.24. National average rates for some types of mortgages registered new all-time lows in Freddie Mac's weekly survey of conforming mortgages. DID YOU KNOW?...Part of the Treasury Department's monthly budget report, the Federal Deficit is the amount by which government expenditures exceed tax revenues. The difference is made up by borrowing from the public by issuing Treasury Bonds.   >> This Week’s Forecast TRADE AND FEDERAL DEFICITS, THE CONSUMER'S ATTITUDE... Last week's avalanche of economic data is being followed by a light dusting of financial reports. We of course will continue to watch weekly Initial Unemployment Claims. Friday, the December Trade Deficit is forecast up a little, which is not the right direction, after which the Treasury Department gives us the read on the Federal Deficit for January. In between the two deficit measures, we'll check the pulse of the consumer. University of Michigan Consumer Sentiment for February should drop slightly. >> The Week’s Economic Indicator Calendar Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates. Economic Calendar for the Week of Feb 6 – Feb 10  Date Time (ET) Release For Consensus Prior Impact W Feb 8 10:30 Crude Inventories 2/4 NA 4.175M Moderate Th Feb 9 08:30 Initial Unemployment Claims 2/4 370K 367K Moderate Th Feb 2 08:30 Continuing Unemployment Claims 1/28 3.475M 3.437M Moderate F Feb 10 08:30 Trade Deficit Dec -$48.2B -$47.8B Moderate F Feb 10 09:55 Univ. of Michigan Consumer Sentiment Feb 74.0 75.0 Moderate F Feb 10 14:00 Federal Deficit Jan -$40.0B -$49.8B Moderate >> Federal Reserve Watch    Forecasting Federal Reserve policy changes in coming months... The week before last week, the Fed said its goal was to keep the Funds Rate super low through late 2014. No one yet doubts their resolve. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same. Current Fed Funds Rate: 0%–0.25% After FOMC meeting on: Consensus Mar 13 0%–0.25% Apr 25 0%–0.25% Jun 20 0%–0.25% Probability of change from current policy: After FOMC meeting on: Consensus Mar 13      <1% Apr 25      <1% Jun 20      <1%

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