This week also brought an interesting report called the Employment Cost Index - one of former Fed Chair Alan Greenspan’s favorites - which measures the change in employment costs like wages and benefits. This report showed that costs are increasing, with wages increasing by 3.6% and benefit costs increasing by 3.1% over the past year. So not only are employers having to pay more in salaries due to a tight labor market, but the benefits they are providing to their employees are costing more too. What’s a business owner to do? You got it - consider raising the price of their goods and services to cover the rising costs of their employees…and higher prices means inflation. Not good news for inflation-hating Bond prices and home loan rates, which lost the improvements made earlier in the week and ended unchanged to slightly worse for the week overall.

THE JOB MARKET IS TIGHTENING, AND A COLLEGE EDUCATION IS MORE IMPORTANT THAN EVER - YET 97% OF AMERICAN FAMILIES HAVE NOT PLANNED PROPERLY FOR THEIR CHILD’S COLLEGE FUND. THINK YOU’VE GOT ALL KINDS OF TIME BECAUSE YOUR KIDS ARE YOUNG? WAITING COULD COST YOU…READ THIS WEEK’S MORTGAGE MARKET VIEW FOR A CAUTIONARY TALE OF TWO PARENTS, AND LEARN WHY YOU SHOULD GET STARTED SAVING RIGHT AWAY.

If either of these reports are out of line - showing more inflation than expected or markedly more jobs than expected - this could cause Bond prices and home loan rates to suffer. And on the flip side - if the reports show low inflation or fewer job creations than anticipated, this could help Bond prices and home loan rates improve.

Mortgage Bonds are now trading within a few whiskers of a very important technical floor of support at the 200-day Moving Average. Why is this floor so important? The chart below shows that Bonds have traded above this floor for eight months - and the last time Bonds traded beneath this level, the 200-day MA became a tough overhead ceiling of resistance, putting a lid on Bond prices or home loan rates improving for one and half years. So…if the news of this week forces the Bond beneath this 200-day MA floor of support, it may mean higher home loan rates for a while.

In today’s world, a college education is more important than ever. Many of the jobs that do not require a college degree have been outsourced to workers in other countries, or replaced by a computer or machine. And according to Fed Chairman Ben Bernanke, the income disparity between college grads and non-grads is growing every year. In 1979, college grads earned 38% more than those with only a high school diploma - but today, college grads earn 75% more than those without degrees.

But let’s face it, college is expensive, and becoming more so every day, inflating at around 5% per year historically. If anything, the cost will continue to rise as the upcoming high school graduating classes are expected to be the largest in history. The demand for four-year colleges will likely increase and with the number of seats in the classrooms still the same, expansion of space will probably not be an option for colleges and universities, but bumping the price tag certainly will be. And the type of college your child attends can have a big effect on the cost too - for just one year of tuition, room and board, an average private college runs just over $30,000, a public out of state college around $19,000, and even a public in state college is close to $13,000.

So as a parent who wants your child to have the chance to attend college - what can you do? Plan early. Let’s look at a tale of two parents to illustrate how important it is to get started right away.

The preschool open house was in full swing, and two parents were chatting over the punchbowl, remarking on how they knew time would fly, and before you know it - their kids would be off to college. Taylor’s parents are prepared, having recently sat down with a mortgage professional and learning that to completely fund Taylor’s four year education at the local college would cost either $300 per month in savings - or by being able to tap into the equity in their home, only $133 per month after tax. “What a relief to know it’s all taken care of!” they commented to Max’s parents. But Max’s parents replied, “Hey, what’s the rush? Look, the kids are only knee-high right now…we’ll worry about this later.”

Seven years later, the kids are in 5th grade, and the parents meet up again at a birthday party. College comes up in the conversation, as Max’s parents just learned that for him to attend the very same college as Taylor, it will now require them to save $835 per month to be ready on time, which is not something they are prepared to do. Taylor’s parents recommend that they meet their trusted mortgage professional, who advises them that by using the mortgage wisely, it will only cost them $260 per month after tax. Much easier to swallow - but it’s twice as much per month as Taylor’s parents, who planned ahead and started earlier.

The moral to this story? If you want to save for a college education for your child, start the investment early. And encourage your children to invest and save too, with a portion of funds from their allowance or a side job like mowing the neighbors’ lawn or babysitting. They will see how the value of their savings grows over time, and most importantly, will help instill the importance and value of a college education to your child. And as the college years approach, explore scholarships, financial aid, or federal direct aid, which is money that does not have to be repaid. When your child is young - you just don’t know if they will be a star athlete or straight A student - so always better to plan ahead, and if scholarship money does become available, what a wonderful problem to have more than enough money in savings, due to your good planning.

Let me know how I can help - if you want to discuss options and strategies on saving for your child’s college education, contact me and we’ll get started right away!

Economic Calendar for the Week of April 30 – May 04

But this wasn’t to be - what happened? Bond prices were feeling the love, home loan rates were improving - but right in the middle of the party, Bonds ran dead into a tough ceiling of technical resistance, stopping them cold and turning them back, causing them to lose some of the nice ground they’d made in the first part of the week. The path of least resistance ahead appears to be that Bond prices and home loan rates may worsen before they get better…but it all depends on the flavor of the news ahead.

FOR MOST AMERICANS, TAX SEASON IS OVER…BUT MORE PEOPLE THAN EVER ARE HEARING THEIR CPA SAY, “I DON’T KNOW HOW TO TELL YOU THIS…BUT YOU’RE GOING TO HAVE TO PAY ALTERNATIVE MINIMUM TAX THIS YEAR”. NOT GOOD NEWS. WHAT’S THE STORY? THIS WEEK’S MORTGAGE MARKET VIEW EXPLAINS.

Unless any of the news and releases this week prove to be surprises, Bond prices and home loan rates are likely to respond to technical factors. The chart below shows how Bond prices made a strong move higher this week, helping home loan rates improve - but now appear to be trapped beneath a tough layer of overhead resistance. What does this mean? That it will take some very “Bond-friendly” news to help Bonds muster up the strength to mount a successful attack against that ceiling of resistance, and help home loan rates improve.

Bottom line: If the news this week tends to be economically weak or negative, or otherwise helps reduce the fears of inflation - Bonds would make another run at the ceiling. But if the news is economically positive - or even moderate - Bonds will likely follow the path of least resistance they are on presently, moving lower and causing home loan rates to rise.

The nasty AMT isn’t just for the wealthy anymore, as it is trapping an alarming amount of the middle class, especially those who own homes and live in states with high income tax rates. And it’s getting worse. Pretty soon, over half those with incomes between $75k - $100k will be victimized by the AMT.

So what’s the scoop with AMT, and what do we need to watch out for?

The AMT was first enacted nearly 40 years ago to ensure that wealthy taxpayers pay at least some federal income tax versus sheltering their entire income with big write-offs. This strategy worked at the time, but AMT has never been indexed for inflation, resulting in more middle-income taxpayers owing the additional tax.

All of us go through the AMT test each year. Our income is matched up with the tax brackets it falls into and the tax owed is calculated. But we also go through a second calculation - The AMT calculation. Many deductions are eliminated and the tax brackets are reduced. The tax owed under AMT is then compared to the tax owed under the bracket calculation. And guess which one you owe? The higher tax, of course.

More individuals will pay the higher AMT tax since it does not allow deductions such as certain interest on some home loans, property taxes, state and local income taxes, standard deductions, or personal exemptions for children and dependents that are normally deductible under the regular tax brackets. As stated earlier, certain interest on some home loans will be wiped out under the AMT. There are two types of home loans that can be eligible for tax deductibility.

First, there is Acquisition Debt, which allows interest to be deductible on a loan used to acquire or improve your primary or second home, with a loan limit of $1 million dollars. The good news about Acquisition Debt is that it remains deductible, even if you are subject to AMT. This makes Acquisition Debt very valuable. But once you pay off or reduce the balance of your Acquisition Debt, it is gone and only the interest on the remaining portion is deductible. So taking out a new loan at a higher amount will not give you that precious Acquisition Debt back.

The next best thing to Acquisition Debt is Home Equity Debt. Home Equity Debt has a limit of $100,000, which can be used over and above the Acquisition Debt Balance. And Home Equity Debt is flexible in that you can pay it down and pull it back out, which is not allowable for Acquisition Debt. But Home Equity Debt is eliminated under AMT…ouch. And with so many people being trapped by the AMT and also having loan amounts higher than what was used to acquire the property, the lost deduction is significant.

It’s always good to check with a tax professional about your own personal scenario, and learn how this impacts you. If you need a referral to a tax pro, I’d be more than happy to make a suggestion, just give me a call!

Economic Calendar for the Week of April 23 – April 27

And the Fed was watching too…remember that the pop in new job formations and stronger wages creates that risk of further inflation ahead, and this news comes on the heels of a higher read on inflation from the Fed’s most closely watched indicator - The Personal Consumption Expenditure Index. So, despite the media and many “so called” experts saying the Fed has to cut rates soon - don’t expect a cut in the near future, as the Fed’s main priority is controlling inflation.

WANT TO REDUCE THE INTEREST YOU PAY ON CREDIT CARDS? YOU’RE NOT ALONE…SO DON’T MISS READING THIS WEEK’S MORTGAGE MARKET VIEW, TO GET SMART ON THE TRICKS THAT CREDIT CARD COMPANIES USE TO CHANGE THE RULES AND COST YOU MORE, IN WAYS THAT YOU MIGHT NOT EXPECT.

The chart below shows that Bond pricing has been skidding lower of late, meaning home loan rates have worsened right along with them. And the next “floor of support” to catch them is lower still - indicating that Bond pricing and home loan rates will likely get a bit worse before they get better.

The market may see some added volatility early in the week, as last Friday’s trading session was condensed into just a few hours of trading before a market close in observance of Good Friday. Stocks should improve off the strong Jobs Report, which could hurt bonds and home loan rates.

Credit card companies do a great job at disclosing all of their terms and conditions…but do so in an exceptionally hard to read font and verbiage, designed to dissuade you from really reading the infamous “fine print”. But failing to understand the terms can be costly.

Most people know that when your bill arrives, it needs to be paid on time or you’ll be hit with a hefty late fee - but many don’t know that paying late usually entitles the credit card company to raise your rate immediately and significantly. And worse yet - did you know that paying late on one of your credit cards also entitles all your other credit card companies to raise the rates you are paying them as well? You bet - it’s called the “Universal Default Clause”, and it basically means that if you are late on one credit card account, all other credit card companies that you have accounts with can increase the interest rate too, even if their accounts have been paid completely on time.

But the plot thickens further - this goes beyond late payments on credit cards alone.

If one of your credit card companies has the Universal Default Clause noted in their disclosure - and most of them do - this clause states that they have the right to penalize a consumer with an increased interest rate if a late payment is reported to ANY other creditor, including utilities, car loans, and home loans. Better believe that credit card companies with this clause sit back and wait for the opportunity to increase the interest rate…and continually monitor their customer’s credit reports, just waiting for the opportunity to do so.

And just when you thought it couldn’t get any worse…

…it’s not just late payments that trigger the Universal Default Clause; interest rates can be increased if a consumer exceeds a credit limit, bounces a check, or applies for additional credit. All of these signs may be read by the credit card company that a consumer is “high risk”. The penalty? You guessed it - a higher interest rate.

Further, if an offer seems too good to be true, it probably is. This popular phrase rings true for many consumers that sign up for zero percent interest offers. Although these offers sound great and every consumer goes in with the best intentions of paying the balance in full before the zero percent interest term expires, the vast majority of people do not pay off the bill before the offer ends. And what consumers do not realize is if the account is not paid in full, the creditor does not start charging interest from the date the deal expires, the creditor goes back to the day the purchase was made and charges interest on the balance for the entire period.

Or - back to the Universal Default Clause, if you are late on another credit card payment during the introductory time period with the zero percent rate offer - the card issuer of that sweet deal could prematurely break it off and force a steamed up interest rate, retroactively charged back to the original date of purchase. That smoldering rate could mean paying double or even triple for the purchased merchandise.

Try your best to only charge what you can afford to pay off in full, on a monthly basis. Beyond being just good advice, here’s another little known credit card fact that could cost you.

If you charge and then pay the account in full, there is no interest due. But if you charge and choose to only pay half of the bill when it arrives, guess what - you get charged interest not just on the remaining balance, but for the entire charged balance, regardless of your paying half the bill in full. If the bill is not paid in full the following month, this game continues until the account is paid in full.

So although the fine print can be a real snoozer to read, taking the time to become familiar with credit card terms and conditions can save you some serious dollars. Review your current credit card terms and conditions and take the time to find a credit card company that truly matches your spending habits and needs. You will save yourself a few sleepless nights - and more importantly, save yourself a lot of money too!

Economic Calendar for the Week of April 09 – April 13

The Fed closely watches the rate of inflation and uses the Core Personal Consumption Expenditure (PCE) Index as its favorite gauge. And last week the Fed was thrown a curve, as the PCE increased more than expected during February for the largest monthly spike since August. As previously mentioned, the Fed wants inflation no higher than 2%, and the annual rate of PCE just rose to 2.4% from the previous reading of 2.3%.

Also of note, the Personal Savings Rate remains negative at -1.2%. It appears that achieving a meaningful amount of savings for many Americans is as tough as hitting a pitch from Mariano Rivera. Mortgage Bonds worsened during the week, causing Home Loan Rates to increase modestly.

SLOWER BASE RUNNERS ARE NOT THE ONLY ONES CAUGHT STEALING - THE BIGGEST CREDIT CARD SCAM IN HISTORY WAS UNCOVERED - AND YOU COULD HOLD ONE OF THE 45 MILLION CREDIT CARD NUMBERS STOLEN. LEARN HOW TO PROTECT YOURSELF IN THIS WEEK’S MORTGAGE MARKET VIEW.

Mortgage Bonds have been in a slump since the middle of March, causing home loan rates to trend slightly higher. But Bond prices are now resting near a floor of support at the 50-day Moving Average, as evidenced in the chart below. If this floor of support fails to hold, we could see Bond prices continue to drift lower still, which would further worsen home loan rates. A weak Employment Report should help Bonds rally and help home loan rates improve, but a strong jobs number may cause home loan rates to worsen…and could also signal that another Fed rate hike may be on deck.

That’s right, if you shopped at TJ Maxx over the past few years, your credit card may be one of the 45 million - yes 45 million - that was accessed and copied in the biggest data leak ever. The card info was used to make duplicate dummy cards…and those cards were used to buy gift cards at WalMart and Sam’s Club for $400 each, which is under the $500 threshold for showing identification. This is not the first time this has happened. You may recall the DSW Shoe security breach about a year earlier; and like Déjà vu, it’s Déjà DSW all over again. And unfortunately, it’s a good bet that something like this will happen yet again.

You might be saying it’s a good thing you have that security code on the actual card to show that you have it in your possession…but the latest scam is designed especially to gain that information.

Scammers lure you into giving them the security code by impersonating themselves as employees of the credit card company, calling the cardholder, and acting as though fraud has already taken place in hopes that you will give up that precious three digit code. Here is how the call plays out.

The caller identifies himself by name, badge number, and states that the call is from the Security and Fraud Department of Visa or MasterCard. They use the news about TJ Maxx and asked if you have shopped there in the past 4 years…a decent chance you have and have also heard about the data leak.

The caller explains that your card has been flagged for an unusual purchase pattern, he is calling to verify a charge that was made to your account (reads the account number to you), and asks if you made a purchase in the amount of $497.99 to a Marketing company in Arizona for an Anti-Telemarketing Device? When you respond “no” the caller states that a credit will be issued but to issue the credit the caller needs the security code (the three digit code from the back of the card) to process the credit. You innocently pull out the card; give the caller the security code, and minutes later are hit with a charge not a credit in the amount of $497.99. Even though the scammers have your account number, name, and some personal information, this information is not always enough to make purchases and the scammers need the security code.

Should you receive a call that is similar to the description above, take the following steps to protect your identity and your credit:

• Do not give the caller the security code.
• Ask for the caller’s name and terminate the call.
• Call the credit card company immediately, but do not call the number the caller provides.

Additionally, here are a few extra steps you can take to protect your sixteen digit credit card number and personal information:

• Be aware of your surroundings when purchasing merchandise. If the individual behind you in line is crowding your space, cover your credit card information.
• Watch your card when individuals around you in public places have cell phones. Thieves can easily use a cell phone to take a snapshot of your credit card.
• Shred all credit card receipts. Many merchants issue a charge receipt with the full account number and your name.
• Don’t leave credit card statements lying around the house or office, file or shred statements once paid as they contain all of the information for a thief to perform this scam.

Economic Calendar for the Week of April 02 – April 06