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How Did the Bureaus Get Breached?

Part II of the Bureau Breach

Unfortunately, cyber credit attacks happen. And when they do, we all start to panic. We’re back this week to discuss why the bureaus get breached. Who is behind all this? This tip is a true gem for all readers because we now know at least one major area the hackers infiltrated Equifax’s system. Equifax clarified that their security team first investigated and blocked suspicious traffic it identified in its online dispute portal on July 29th, 2017. The online dispute portal allows consumers to file disputes themselves and most of the online credit repair firms utilize this system as well.

Luckily for you and your clients, this is a place we avoid like the plague. Unfortunately, an unfathomable number of individuals who may themselves have filed disputes, or who had online disputes filed on their behalf, potentially ended up with a lifetime of headaches, as they tried to tackle one issue and got stuck in a catastrophic data breach. You know kind of like when we teach North Korea a lesson by banning textile exports and they respond by providing us with a nuke in our back yard…we shouldn’t go there, that will get me in big trouble.

The key, once again in our opinion, is to personally scour your own credit report at least a couple times a year (you can periodically access a free credit report from many places online, and certainly do it months before you need to use your credit) and if you find anything derogatory that is erroneous or even just questionable you need to flag it. If at that point you want our help, in our experience on items that have been flagged in that manner, we have remarkable success removing them. Credit can easily be the most expensive or adversely beneficial aspect of your life, it’s worth that personal attention.

If you are unsure if your credit was breached, we have several tools at loan sweet home that can assist you with these…just shoot us an e-mail to beny@loansweethome.me.

If you missed Part I, you can read it here!

*some of this content was written and composed by Chris Kumerow from Continental Credit

Market Update: The Great Leap of Faith

I think the Phillips Curve has been broken. Long known for its historic and inverse relationship between unemployment rates and rates of inflation, it doesn’t apply today. Or at least for the past few years there doesn’t seem to be a correlation. Effectively the premise behind the curve is that as the unemployment rate moves down, inflation will move up (and vice versa). We’ve certainly seen the unemployment rate move down and over the past two years, inflation started to move higher before dropping even further. The graph below points out this observation with the red arrows. Inflation is not following the Phillips Curve.

And the Federal Reserve, in all of its stubbornness believes at some point the correlation will hold; it’s a temporary setback; the drop in inflation is transitory if you will. In the past 30 days they announced the unwinding of the balance sheet to begin this month as well as they plan to raise rates in December (market odds currently at 77% vs 23% a month ago). With PCE currently at 1.3% year-over-year versus their 2.0% target, how do you justify more rate increases and the unwinding of the balance sheet simultaneously?

The answer is and will always be the Phillips curve. It certainly cannot be related to the high probability of tax reform or infrastructure spending or any type of stimulus package coming out of Washington. That dream likely died not long into 2017. But a hawkish Fed is always to be respected and the current 2.35% on the 10 yr (which is up 30bps in the last month) is a result of the plans to unwind the balance sheet and raise rates again in December.

The good news, however, is that the Fed controls the front end of the curve, the overnight rate. Mortgage rates trade closely with the longer end of the curve such as the 10 yr Treasury and low inflation and subdued growth should keep rates low for the foreseeable future.

Loan Sweet Home Unemployment vs. Inflation

Economic Calendar

  • Oct 12th PPI
  • Oct 13th CPI
  • Oct 19th Jobless Claims / Leading Index

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Market Update: The Great Unwind

The Federal Reserve followed their telegraphed script by announcing the beginning of a large unwinding of the balance sheet in the FOMC meeting. The main details are as follows in how they will reduce the $4.5 trillion balance sheet:

  • $6 billion in Treasuries and $4 billion in mortgage-backed securities to runoff each month
  • Quarterly adjustments to that runoff with unspecified increases (leaves wiggle room)
  • No time frame on when it’s complete and the ultimate size of the balance sheet (more wiggle room)

In addition, 12 members expect the Fed to raise rates by at least 25bps before the end of the year with only 4 expecting the benchmark rate to remain unchanged. Another interesting piece is that 14 members expect rates to rise next year (average of 3 times for 75bps) but there are two members who still expect no changes to the Fed Funds rate or all of 2018. I appreciate their skepticism.

The unwinding of the balance sheet will have some impact to interest rates. It is in effect a reduction in demand for Treasuries and mortgage-backed securities which will inevitably lower their price and raise their yield. And with the Fed’s majority believing one more rate increase is in store before the end of 2017, this was a pretty hawkish Fed meeting. But what wasn’t so hawkish was the market reaction which only saw the 10yr move up a few basis points to 2.28% today.

Now in terms of the reduction of the balance sheet and the runoff of Treasuries and mortgage-backed securities, there is a technical aspect that is worth explaining. As I mentioned above the reduction of artificial demand from the US Government will, all things being equal, raise Treasury yields. Mortgage-backed securities are priced off of Treasuries so if Treasuries yields go up, typically so do mortgage rates. When you combine that with the reduced purchases of mortgage-backed securities, that means those yields will move higher disproportionately versus Treasuries (meaning mortgage rates should move higher faster than Treasuries yields). That is assuming all things being equal. However you may see rebalancing of positions where more buyers are attracted to the higher mortgage yields. It’s hard to say at this point but something certainly worth watching. See graph below showing the 5yr Treasury yield, the generic mortgage-backed securities yield and in red, and the spread between the two. As you can see the spread has come down (meaning mortgages have traded very well relative to Treasuries in recent months). We could be in for a reversal and that spread increase, which would be bad for mortgage rates.

The big buoy for rates really is GDP and inflation. Not to mention there has been no tax reform, no health care reform, no infrastructure spending plan, geo-political issues with regard to North Korea and threats of nuclear war, plus several hurricanes now in the gulf of Mexico and Caribbean.

The Fed talks a big game with their plans for rates and the balance sheet; their opinions certainly have to be acknowledged and respected, but until there is real inflation, rates should stay close to where they are today. Let’s just hope the market’s reaction to the unwinding is muted.

great-unwind-graph

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When The Bureaus Get Breached

What do you need to know about when the bureaus get breached?

Creditors get hacked every five minutes. Scary stuff! But now we know that half of the country has been exposed at the bureau level! Over a three-month time frame, from May to July 2017, hackers accessed our socials, DOB, addresses, DL numbers and for an unlucky 209,000 people even credit card numbers.

First off, don’t make the mistake of thinking the worst of it is over. The credit cards would probably be used first, but monitoring that and replacing them if needed is relatively easy, and let’s face it, in today’s fraudulent age that’s nothing we don’t have to continuously do anyway. Unfortunately, the other information the hackers accessed could be used over many many years to come (maybe a generation). It’s far too much information for any one faction to utilize effectively never mind in a timely manner. The information will most likely be sold many times over to citizens of countries who earn a living from defrauding us, and this gives them a possible lifetime career. Additionally, our government was far too bogged down with these attacks before this happened, so for now, we’d expect little help there.

Regarding the aftermath, here is where our opinion varies from the rest of the web. Our recommendation for now would be to ensure that you are reading before you click on any advertisements that may pop-up from the website. Be careful and wary of this as credit monitoring services may be luring you in that could involve long-term expensive fee’s. My best advice is to do your research.

Nothing in today’s market ultimately protects you and that gets proven continuously. The concept of identity fraud/theft is the thieves use your information to pretend to be you, so in a lot of scenarios how can creditors tell the difference? The key, once again in our opinion, is to personally scour your own credit report at least a couple times a year (you can periodically access a free credit report from many places online, and certainly do it months before you need to use your credit) and if you find anything derogatory that is erroneous or even just questionable you need to flag it. If at that point you want our help, in our experience on items that have been flagged in that manner, we have remarkable success removing them. Credit can easily be the most expensive or adversely beneficial aspect of your life, it’s worth that personal attention.

Market Update: A Potential Game Changer

Game Changer

Don’t look now but the 10yr yield is almost trading with a 1 handle. With the 10yr down 37bps on the year and now trading at 2.06%, 1.99% is just in sight. This is a psychological barrier that could spark a game changing attitude about growth and the long term prospects for rates. The market was defiant at the start of the year with most calling for 4 increases to the benchmark rate. As of right now two increases, the one in March and the one in June are probably all that we will see in 2017. The hawkish Fed of 2017 is now back-peddling on rates. Just this week Kaplan said he wants to wait and see on inflation. Brainard said the Fed should move more slowly on rates until inflation is above 2 percent and Kashkari said the Fed may have already gone too far with rate increases. That’s about as dovish as you will hear the Fed given their stance earlier this year. The current odds for a Fed increase in December is 25% and when we have disasters such as Harvey and Irma, and potentially more in the forecast, those typically cause a short-term drop to interest rates.

Now is the time to capitalize on rates while they are low!

But before claiming victory we need to get below 2%. There is a good possibility the 10yr starts trading between 1.80 and 2.00%. The current 2.06% level is more transitory. It might pop back up between 2.10 and 2.40% or fall to a refi-inducing sub 2%. Incremental escalations with North Korea and/or Hurricane Irma should do it. A hurricane hitting south Florida will likely do significant damage and FEMA is almost out of money. The debt ceiling debate is still to be had and tax reform is taking a backseat to immigration reform. The dislocation in Washington is so large that action seems impossible. Hopefully politics will play themselves out and legislation is forthcoming. As it stands with another major hurricane on the horizon, things look bleak and that’s why the market has broken 2.10%.

Let me repeat however that we have not broken 2.00%. See graph below on the 10yr for the past year and a half.

 

Loan Sweet Home 10 Year Treasury

You may be wondering about inflation in all of this. Not to worry as it hasn’t gone anywhere but down. See below for PCE as it has fallen below 1.5%. So much for the Fed’s target of 2.0% and their expectation we would reach it by year end. Time to re-adjust their forecast or perhaps Kashkari was right by saying that maybe the Fed went too far already. I’ve been a big critic of the Fed and their excessive optimism but we have to live by what the market’s opinion is and the falling 10yr and flattening yield curve suggests the market is becoming very pessimistic. More bad news will be a game changer.

Loan Sweet Home PCE

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Through Adversity We Rise

Meet Molly.

A story of bravery, honesty and her home and bun oven buying experience.

Molly grew up in an amazing family. Her parents have been married for over 35 years and are still best friends. She has a brother a year and a half older, someone that she always has looked up to.  Sounds lovely and perfect. Even more special, is the fact that she has an identical twin sister with whom she shares a bond with that is so special most people could never understand.

Molly and her twin sister were always by each other’s side, but as twins they were always compared to one another. Jumping right in…they were so close and struggled so much with body issues they battled a severe three years of anorexia together.

They slipped deeper and deeper into eating disorders and lost more and more weight, while alienating those closest to them. They lost their friends and began to even shut out those most important to them—their family.

After years of battling and the constant comparison of measuring food and exercise they were exhausted. But one great fear they had, next to death, was not having kids and a family of their own. They feared they’d never become mothers.

What does this have to do with buying a house? Good question.

At 36 years old, Molly also feared that she’d never be able to own a home in California much less in the Pacific Palisades.

She was raised that you need to invest and you need to BUY something.

And the first question she needed answered was “well what can I afford?”

In comes big brother Beny, that’s right that big brother from earlier. He pretty much had to lay it out for her that she wasn’t going to be able to afford quite what she had envisioned right out of the gates. Another fear confirmed.

As she went looking for places that were “in her budget” she couldn’t believe what she COULDN’T get for her dollar.

“Everything was a dump!” Molly exclaimed.

Well NO KIDDING!

It is something that this particular age bracket struggles with, especially as a single earner, here in California where she has worked as a stylist for over 9 years at Elyse Walker in Pacific Palisades.

What we get for our dollar now is tough for the majority of us to swallow. “I get WHAT for $750,000?”

Um…palm to forehead. I need a drink.

Not unlike her doubts about her body and her ability to become a mother, she doubted and asked herself “can I do this?” Can I afford to buy a house all by my tiny self?”

It seemed like she looked at a million places every weekend and even put in offers on some and every time she was outbid by people paying all cash. Discouragement set in because there was no way she could possibly compete!  Damnit, she needed a loan!

She couldn’t believe the speed at which the houses were flying off the shelves and that they were going far above the asking price. Was it ever going to be in her cards to be a home owner or what?

One day she looked at one place, a little over her budget (actually more than a little) and she fell in love. It needed no work! But after coming home and crunching numbers with what she brought in and what the down payment would need to be she decided not to even put in an offer. It was too much.

Tick tock…time keeps going by. But one morning the one she loved popped back up again and she figured must have fallen out of escrow. Her family and Molly discussed it with Beny and with a little help from them she was able to give more of a down payment to make her mortgage closer to something she could afford. And the best part was that she wouldn’t need to completely gut the place!

Her offer was accepted! Finally!!!! And so, the mortgage process began.

The process was relatively easy, but overwhelming at times. So many things are involved. Wire transfers, paperwork, proof of employment, inspections, blah blah. It felt never ending! Beny was super involved throughout the entire process and even caught something with her credit that she never even knew about!

The mortgage process can be confusing so he really helped her to understand the process and also guided her on things that were super time sensitive. He helped Molly to be calm through what seemed like a whirlwind of work to actually get the house. There is so much back and forth throughout the mortgage process and Beny helped to close on the house quickly because he was so on top of each step that needed to be done and even called on some things for on behalf of Molly to ensure it was getting done.

I don’t think everyone is like this.

I truly believe Molly would not have this beautiful home if it weren’t for him. Yes, he is Molly’s brother, but I also know how hard working he is and how much he cares for his clients. He is always working! And I know many people appreciate this about him.

Oh yeah and back to the baby issue…

In the midst of the home buying process, she still struggled with the fact that she wasn’t a mother. Didn’t have her own family yet and wanted to take some action towards it. Molly was just “over” finding the right mate to have a family with, she decided to go into fertility treatment to have her own family the way she wanted it to be. The Molly way.

As a single woman, she decided to go for it and go thru fertility treatment alone. She went thru the many challenges and emotions that face any woman who goes through this process of conception outside of the “normal way”.  What is normal anyways? Blah.

After multiple rounds of treatments, Molly got pregnant. From her first ultrasound she found out that she was carrying multiples. Another fear…more than one baby!? How would she manage that as a single mom?

She made a decision with her fertility doctor that reducing from twins to a singleton was going to be the best option for her. And don’t judge. Not only were both babies at risk, but her health could also be at risk.

As she waited for the procedure, her mind going back and forth about whether she was doing the right thing, the doctor said, “there is something wrong with baby A’s heart.” The heart was far to the side rather than more towards the center and the stomach was up in the diaphragm causing the heart to be where it was.

“How could yet another thing be happening to me? This kind of stuff only happens to other people,” said Molly.

The reduction decision was a hard one for her, but now at 6 months pregnant her mind is at ease because she knows she has one healthy baby. With her being a twin, I can understand how much harder this decision must have been for her considering the insanely close bond they share and how in the back of her mind she just might feel like her baby BOY might be missing that bond. But that bond could not have been at the expense of all 3 lives.

Needless to say, she faced that challenge head-on and faced the home buying challenge simultaneously.

Her story is one that brings tears to your eyes and also one that inspires—making us take a step back to realize that everyone has their “stuff” and goes thru challenges we need to face head on.

We all can make our dreams come true no matter what they are. She got both–the baby and the beautiful home to raise her baby boy, right by the beach in sunny Southern California.

Beny helped her thru both of these challenges. He had her back then, and he has her back now. Find out more about how Beny can help you make your dreams come true as you walk down the home buying path.

To learn more about Molly’s personal journey, follow her blog “Molly’s Choice” at:

https://mollyschoice.com/

Or go visit her at the salon Elyse Walker in Pacific Palisades:

http://elysewalker.com/stylists

Market Update: Interest Rates and Low Inflation

Today, we are going to talk about interest rates and low inflation.

With almost 8 months of 2017 now gone, interest rates are enjoying one of the longest runs of low volatility since the financial crisis. Take a look at the graph on your screen which plots the 10yr Treasury for all of 2017. Note that the 10yr is actually down on the year and this is in spite of the fact that the Fed raised interest rates in both March and June. There are still three FOMC meetings left this year but the odds of the Fed raising rates a third time have fallen to only 30%.

The 10yr has settled into a range between 2.10 and 2.40% and this is primarily driven by low inflation, the lack of tax reform and lack of health care reform. Speaking of inflation, please note on your screen the Fed’s preferred inflation measurement, Core PCE. The line in red indicates the Fed’s target of 2% and as you can see, other than for a few months in 2012, inflation has remained below the Fed’s target for over 7 years.

Inflation was nearing close to the Fed’s target in 2016 and post-election there was a lot of optimism that inflation would continue to rise. Fortunately for interest rates inflation has continued to fall and now the Fed is forced to make a potentially controversial decision on what to do with both interest rates and the balance sheet for the remainder of the year. As of right now the Fed is telling the market they will likely shrink the balance sheet in lieu of any interest rate increases.

In the coming weeks you should keep an eye on the following items:

  • Next week brings very important GDP data for the 2nd quarter in addition to Core PCE
  • Next Friday is non-farm payrolls and the unemployment rate
  • Continue to watch corporate earnings as well as any talk of the debt ceiling.

Loan Sweet Home Core PCE

Loan Sweet Home 10 Year

Watch the market update here!

Market Update: Inflation Conundrum

Alan Greenspan in 2005 referred to the bond market as a “conundrum” when the Fed had raised rates 150bps yet longer term bond yields were falling. And at the same time the dollar was falling and stock prices were rising. His successor, Ben Bernanke, had his own conundrum. Long periods of lower rates encourage excessive risk taking but rising rates could create large losses in the financial system. As the FOMC has moved over to Chair Janet Yellen, there is a new conundrum that has similar markings of the old ones. The FOMC is raising short term rates and seeing no lift in longer term rates. That doesn’t seem to be moving the long term rates needle so now they are discussing unwinding the balance sheet to force longer term rates higher.

Will that work or backfire?

The problem the Fed faces is due to the inflation expectations that they laid out for the market. The belief they would soon be hitting 2.0% inflation has become 1.8% and may soon become 1.6%. Lowering the bar does not raise the market nor does it instill confidence in the economy, or the Fed. The inflation conundrum is really the inflation expectations conundrum. How does the Fed raise rates (at both ends of the curve – short and long term) when inflation is stubbornly low? The market certainly doesn’t think the Fed can do it as they are only pricing in a 38% chance of a raise in rates by December. Remember earlier this year when some were calling for four increases this year, guaranteed? The Fed set this trap for themselves and now they must deal with it. But how do they fix the situation?

The Fed might have to wait for fiscal policy, actual legislation out of Washington. That’s a scary thought because the prospects of tax reform, health care reform or infrastructure spending making its way through the legislature to the President for signature seems remote. At this point I think the Fed realizes they are alone in dealing with this conundrum. In all honesty their best bet is to shrink the balance sheet and hope the market follows suit, allowing longer term rates to move higher. But there is always the chance this backfires and long term rates come down. Don’t forget the Fed is still considering issuing even longer dated bonds and the debt ceiling isn’t going anywhere.

All of this may hinge on inflation and inflation expectations. See graph below of the Fed’s preferred inflation measurement for the past 5 years. Rising to 2.0% doesn’t seem as easy as it did in 2016.

Loan Sweet Home Inflation Conundrum

The 10yr Treasury is at 2.26% while the 2yr trades at 1.36% (inly 90bps between them).  The average last year during the refi boom was 99bps.  In 2015 it was 143bps and in 2014, 207bps.  Yes the yield curve continues to flatten and it’s letting the Fed know they are bumping up against a wall in yields.

Watch the Video on this Inflation Conundrum