As discussed in last week’s newsletter, there was very little domestic news to trade on this week as everyone has waiting on the election results.  The election is done and the markets went crazy on Wednesday with investors pulling their money out of the stock market causing the DOW to experience its largest one-day decline of the year of 313 points.  On Thursday, the markets continued to tumble with another drop of 121 points.

Individuals not in tune with the markets believed that the drop was due to the fact that President Obama had been re-elected for another 4 years.  As much as investors and Wall Street were not thrilled with the election results, the sell-off in the markets was due to the fact that the landscape of government has not changed.  The fear that is taking over the markets is that if both sides of government do not start working together quickly, the economy will very likely by thrust back into a recession at the start of 2013.

You may or may not know what it is, but the headlines all over the business wires are about this thing called the “Fiscal Cliff”.  In 2011 the Budget Control Act of 2011 was passed.  This law was created to permit the government to extend the debt ceiling, which allowed the government to continue to borrow money to keep operating.  The law was passed and, simply put, stated that if the government is allowed to continue to borrow money, then Congress must agree to adopting certain spending controls and policies by the end of 2012.  In the event that Congress does not put these controls in place, then spending cuts and tax increases will be triggered on January 2, 2013.

Well… here we are almost at the end of 2012 and Congress is no closer to coming to an agreement on taxes and spending which means we are getting dangerously close to the Fiscal Cliff becoming reality.  Investors are scared and are starting to pull their money out of the stock market now.  If Congress does not get their act together then the spending cuts will be triggered and you can bet your last dollar that we will see the stock market tank like it did back in 2007.

Personally I believe that Congress WILL come to an agreement, however it may not happen until after the cuts begin to take place and pressure is put on them to take immediate action.

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Hey, if someone is earning less than .5% on their cash in the bank, but paying 4% on their mortgage, why not refi? (The flip side, of course, if a bank is paying 0% to its depositors, but earning 4% on the mortgage portfolio, why encourage anyone to refi?) The latest figures certainly bear this out, with Freddie producing figures that showed U.S. homeowners who refinanced in the third quarter lowered their principal balance in 29% of the new loans. In the quarter, 83% of those refinancing their first-lien mortgage either kept the loan amount the same (54%) or reduced it (29%).The average reduction in interest rate came to 1.7 percentage points, “or a savings of about 31 percent in interest rate,” Freddie Mac said.

This week’s economic reports are:

As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate information.  I welcome the opportunity to serve you in any way I possibly can.

Fred Arnold
Certified Mortgage Consultant (CMC)
American Family Funding
A Direct Lender
DRE License # 01173600/01215943
Direct: (661) 284-1150 x 109 
Fax: (661) 284-1163 
24961 The Old Road #101
Stevenson Ranch, CA 91381