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Will Rates Go Lower?
What More Quantitative Easing Could Mean



Historic, low home loan rates have been about the only thing stable in the economy these days. This low level mark breeds complacency, especially with the buzz in the air that rates may go even lower. But the question hangs in the air like humidity on a southern summer day - will rates go lower? And if there is a chance, should you wait and see or move forward now?

More Quantitative Easing
The buzz that began earlier this fall stemmed from talk coming out of the Federal Reserve that they were considering another round of Quantitative Easing in an effort to stimulate the sluggish economy.

What is Quantitative Easing? Here is what Wikipedia says:

The term quantitative easing (QE) describes a form of monetary policy used by central banks to increase the supply of money in an economy when the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero.

"Quantitative" refers to the fact that a specific quantity of money is being created; "easing" refers to reducing the pressure on banks.

During the first round of quantitative easing, implemented during the credit crisis, the Federal Reserve bought Mortgage Backed Securities (MBS) which helped drive home loan rates lower. Lower rates resulted from these purchases because of supply and demand. When there is more demand, prices move higher and yields (interest rates), which move inversely to prices, move lower.

The Federal Reserve announced their new bond-buying program at their monetary-policy meeting on November 3 and they will be purchasing $600 billion in Treasuries through June 2011. This second round has been dubbed by the media as QE2.

Here's the Difference
With the new program, the Federal Reserve will only be purchasing Treasuries. Both Treasuries and MBS are bonds and compete for the same investment dollar. There is a natural spread between Treasuries and MBS. If the yield of Treasuries goes down because the Federal Reserve is buying $4 billion to $5 billion in Treasuries per day, it would likely help MBS move down in yield (interest rates) and up in price as well to remain competitive. This natural spread is the reason many anticipate mortgage rates improving.

Another camp speculates that MBS may get disappointed by QE2, like a jealous suitor, and sell off. A sell off would mean price deterioration, resulting in higher yields (interest rates). An old-time trader's saying goes something like this, "Buy on the rumor and sell on the news." Since all this QE2 talk began, the bond market has (for the most part) had a small party. Could this be the "buy on the rumor" behavior? If so, then that would take us down the path of thinking that "sell on the news" will follow.

But How Low Can They Go?
Assuming the market responds favorably and MBS improve, it is probably unlikely that rates will move significantly lower than they are today. For lenders to be able to offer a mortgage rate around 3.625% to 3.75%, it would require significant trading by Wall Street investors in the 3.0% coupon. This coupon has seen very little activity.

In addition, lenders have been slammed with refinance volume and are running at, or over, capacity. Also, processes have slowed due to new government guidelines and lenders increased attention to compliance. With processes moving slower, lenders are requiring longer lock periods which impact interest rate pricing. They may look to further manage capacity by regulating their volume through the interest rate offered.

"Wait and See" is full of risk. If MBS improve, and if lenders pass on the price improvements to the borrower, it is highly likely the benefit in interest rate will be incremental. That's a lot of "if's" to hold onto for a hope of small gains.

The downside risk is far greater than the upside potential for rates to improve. If QE2 is not well received, the bond market would sell off and mortgage rates would suffer. History shows us this can happen much more quickly than any improvement.

With these incredibly low interest rates, there may not have ever been, nor ever be again, a better time in our history to purchase or refinance your home. The waiting game could be risky and the opportunity may disappear. Call Gary at 609-338-1339 for more help.

Check Your Home's Fire Extinguishers

According to a fire loss study done by the National Fire Protection Association, house fires accounted for 75% of all structural fires in the United States. There's about 400,000 residential property fires in the U.S. each year, and these residential fires account for over 3,700 human fatalities each year. Even when all other natural disasters are combined, fires still typically claim more American lives per year.

Considering the cost, frequency, and loss of life related to residential fires, it's important for homeowners to have loss control measures in place. A fire extinguisher may seem like a simple item, but when properly selected, placed, and maintained, a fire extinguisher can be a powerful tool to prevent widespread fire loss. The best thing is that a fire extinguisher is a relatively cheap investment, as prices start at around $20.00.

It's important to become familiar with the different classes of fire extinguishers. There are five classes, with each class based on what type of fire the extinguisher is capable of extinguishing. The five extinguisher classes are marked with a class specific color, geometric symbol, and/or picture.

Class A Fire Extinguisher

Color - green

Geometric symbol - triangle

Picture - burning garbage can and woodpile

This class of fire extinguisher is intended to be used on ordinary solid combustibles. These types of fires might involve cloth, wood, rubber, paper, or certain types of plastic.

Class B Fire Extinguisher

Color - red

Geometric symbol - square

Picture - container of fuel and burning puddle

This class of fire extinguisher is intended to be used on flammable liquids and gasses. These types of fires might involve lacquers, gasoline, alcohol, diesel oil, oil-based paints, or flammable gas.

Class C Fire Extinguishers

Color - blue

Geometric symbol - circle

Picture - burning outlet and electric cord plug

This class of fire extinguisher is intended to be used on energized electrical equipment. It would be used for fires that involve an appliance, electrical wiring, circuit breaker, or electrical outlet.

Class D Fire Extinguisher

Color - yellow

Geometric symbol - star or decagon

Picture - burning bearing and gear

This class of fire extinguisher is intended to be used on combustible metals. These fires might involve magnesium, potassium, sodium, or titanium. It's important to note that some Class D fire extinguishers will work on multiple metal types, but others are metal specific.

Class K Fire Extinguisher

Color - black

Geometric symbol - hexagon

Picture - burning pan

This class of fire extinguisher is intended to be used on combustible cooking fires. It can be used to put out fires from cooking oils and fats.

Fire Extinguisher Tips

*Fire extinguishers are important fire protection tools. However, it's vital to know the fire type and extinguisher class before attempting usage. Using the wrong extinguisher on the wrong fire can make the fire worse and cause life threatening injury.

*It's extremely important for all members of the household, babysitters, housekeepers, and any other potential user to know how to safely and correctly use the fire extinguisher. Since most will not be using an extinguisher on a regular basis, it's also important to periodically review the instructions.

*Because fires may often involve a combination of elements, most fire protection experts recommend a fire extinguisher with an ABC rating.

*Fire protection experts recommend that a medium-sized fire extinguisher be placed in the kitchen and garage. A fire extinguisher should also be placed on each additional floor of the home.

*All fire extinguishers should be annually inspected and maintained by a professional fire equipment supplier. If not properly maintained, a fire extinguisher might not discharge when needed. There's also the risk of it rupturing when pressurized, which can result in serious injury.

* Having fire extinguishers in the home may reduce the cost of home insurance. Contact the insurance broker for the home to find out if a discount for fire loss prevention measures is offered.

Keep in mind that fire extinguishers are vital protection against fire loss, but they must be properly selected, placed, and maintained.