Mortgage Rate Down to March Level

Mortgage Rates have dropped in eight of the last nine weeks. Continuing slump in housing market and indications of slowing economy are main reasons behind this downward trend in mortgage rate.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.31% in the week that ended today -- down from its 6.40% average last week. At this time last year, the loan averaged 5.91%. The 15-year fixed rate averaged at 5.98% this week, again a slide from last week's 6.06%. At this time last year this rate was 5.48%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 6.00% decreasing slightly from last week's 6.08%. This rate averaged 5.44% a year ago. The 1-year Treasury-indexed ARMs have an average rate of 5.47%, down from last week's rate of 5.54%. At this time in 2005, the 1-year ARM averaged only 4.68%.

Large Cap Mutual Fund Standout

Here are 3 leading Large-cap mutual funds in three categories of investment styles (from Morningstar's database):

Large-cap Value-based Funds: There are about 394 funds of this type with $1.9 billion in net assets on average. Their returns averaged 9.0% over the past 10 years. The leading name in this category is $7.0 billion Excelsior Value & Restructuring (UMBIX) which averaged 14.2% annually in last 10 years.

Large-cap Blend Funds: There are 643 Large-cap blends with an average size of $1.55 billion in Morningstar's database. They've averaged 7.9% return in the past 10 years. Among them the $2.5 billion Mairs & Power Growth Fund (MPGFX) was the standout, averaging 12.9% annual gains for the past decade.

Large-Cap Growth Funds: There are about 499 funds in this category with an average of $1.4 billion in net assets. Their returns averaged 6.0% annually in the past decade. The lead among this pack is taken by the Janus Growth & Income (JAGIX) with market cap of 6.6 billion and a solid return of (10-year average) 11.4%.

Housing Market Sinking More

Early this week the National Association of Realtors said median prices for existing homes fell in August for the first time in 11 years. The median sales price fell 1.7% year-over-year to $225,000 in August.

We fail to understand who are still buying stocks of the nation's largest home builders like KB Home (KBH), Lennar (LEN), Pulte Homes (PHM), Toll Brothers (TOL) and Hovnanian (HOV). All these companies have been lowering guidance on home sales in recent weeks, reporting lower prices and excess supply of homes on the markets. Today Lennar Corp. issued another profit warning, this time for its fiscal fourth quarter, saying the U.S. housing market has pulled back further and faster than anticipated.

All these stocks sank in similar fashion by 30-50% over the last few weeks. We are surprised because in last few sessions these stocks have received some small but positive gain. Surely some people out there are getting greedy and expecting these stocks to have a similar run they enjoyed over the last few years.

Some part of the media is propagating a dream that the housing sector would come back faster and quicker than expected. Just remember faces and names of these analysts. After one year find them out and grill them again with your questions. They would surely have lot of intelligently manipulated reasons why the dream propagated by them were not seen anywhere. But by that time you would loose money in these stocks and those analysts will not be responsible for that.

Make no bone about it -- the housing sector is in real trouble. Over the last few years people bought more than what they could afford by accepting (without thinking) those terms and conditions of interest-only loans or ARMs and now they are getting squeezed by increased interest rate. The single-digit PE ratios of those home-building companies look cheap but uncertainties in months ahead are clouding over them and it's better to avoid them until they sink further and find some other lower ground.

Ultrashort Mutual Funds

Ultrashort funds typically own a variety of investment-grade debt from government agencies, corporations and mortgage issuers with an average AA credit-rating. Because these bonds will mature soon, ultrashort funds are less sensitive to interest-rate movements that can badly affect longer-term bondholders. The principal of such funds fluctuate, unlike a money-market fund, but the fluctuations tend to be minor. It's a low-risk option for getting a rate higher than conventional savings account or Certificate of Deposits (CDs).

Prices of such a Bond typically fall when rates rise. Both 1994 and 1999, for instance, were punishing years for bonds. Rising rates pushed intermediate-term bond funds down 4% on average in 1994, and the group lost 1.3% in 1999. But ultrashort funds, with their ability to renew themselves, rode the rising-rate trend to post average gains of 4.4% in 1994 and 2% in 1999.

Because they offer low-risk income, ultrashort bond mutual funds should be considered along with money-market funds and bank certificates of deposit (CD) as a good option to keep your cash for a short time. Look for low expense ratio funds. A few names are: Fidelity Ultra-Short Bond Fund (FUSFX), Payden Limited Maturity Fund (PYLMX), Schwab YieldPlus Fund (SWYPX), Vanguard Short-Term Tax Exempt Fund (VWSTX).

Mortgage Rate Down Again

The Federal Reserve held interest rates steady for a second straight meeting. On Thursday, after an index of manufacturing in the Philadelphia region showed a negative result for the first time since April 2003, the Long-term Treasury prices rallied, driving the yield on the 10-year note to a fresh six-month low. In intraday trading, the 10-year yield fell as low as 4.648% -- down from its Wednesday closing level of 4.728%.

...And solid evidences for slowing housing market and signs that inflation is leveling off helped to lower mortgage rates again this week. The benchmark 30-year mortgage now has declined in eight of the last nine weeks. People are expecting the economy to expand at a slower rate during the fourth quarter, keeping inflation in check and helping mortgage rates stay at this comfortable level.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.40% in the week that ended today -- down from its 6.43% average last week. At this time last year, the loan averaged 5.80%. The 15-year fixed rate averaged at 6.06% this week, again a slide from last week's 6.11%. At this time last year this rate was 5.37%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 6.08% decreasing slightly from last week's 6.10%. This rate averaged 5.26% a year ago. The 1-year Treasury-indexed ARMs have an average rate of 5.54%, down from last week's rate of 5.60%. At this time in 2005, the 1-year ARM averaged only 4.48%.

Mid Cap Mutual Fund Standouts

Here are 3 leading mid-cap mutual funds in three categories of investment styles (from Morningstar's database):

Mid-cap Value-based Funds: There are about 120 funds of this type with $920 million in net assets on average. Their returns averaged 11.2% over the past 10 years. The leading name in this category is $4.2 billion Ariel Fund (ARGFX) which averaged 13.7% annually in last 10 years.

Mid-cap Blend Funds: There are 185 mid-cap blends with an average size of $950 million in Morningstar's database. They've averaged 10.9% return in the past 10 years. Among them the Meridian Value Fund (MVALX) with 1.6 billion market cap was the standout, averaging 17.4% annual gains for the past decade.

Mid-Cap Growth Funds: There are about 302 funds in this category with an average of $744 million in net assets. Their returns averaged 7.8% annually in the past decade. The lead among this pack is taken by the Baron Partners Fund (BPTRX) with market cap of 1.4 billion and a solid return of (10-year average) 14.7%.

Housing Market Sinks

According to today's report from Census Bureau, housing starts sank to an annual rate of 1.67 million last month from July's 1.77 million pace. That marked a 6% decline from July and a nearly 20% drop from a year earlier. The current level is the lowest since April 2003. It also marked the 6th time in the last seven months that starts have fallen from the previous month's level.

The nation saw an unprecedented building boom in 2004 and 2005, which topped with last year's record 2.07 million starts. This left the market with an oversupply that could take years to work through.

Many of the nation's largest home builders, including KB Home (KBH), Lennar (LEN), Pulte Homes (PHM), Toll Brothers (TOL) and Hovnanian (HOV), have been lowering guidance on home sales in recent weeks, reporting lower prices and excess supply of homes on the markets. All these stocks sank in similar fashion by 40-50% over the last few weeks. Their single-digit PE ratios look cheap but uncertainties in months ahead are clouding over them and it's better to avoid them until they sink further and find some other lower ground.

Another Week Starts

Currently, various economic indicators are pointing to a "Goldilocks" scenario, of not too hot, not too cold economic activity. The Federal Reserve Board, meeting Wednesday, is widely expected to keep short-term interest rates unchanged at 5.25%, just like it did at the Aug. 8 policy meeting. And this week's two key data for housing market are widely expected to confirm further weakening of the already fragile U.S. housing market. The following data to be released this week and the words that we may hear from the Fed on Wednesday will dictate the trading activity in Wall street for the next one month until the Fed meets again in October:

Tuesday: Producer Price Index (PPI), Core PPI, Housing starts, Building permits,
Wednesday: Fed meeting.
Thursday: Leading indicators, Philadelphia Fed

Earnings to watch: Oracle (ORCL) on Tuesday; Circuit City (CC) and Morgan Stanley (MS) on Wednesday; Fedex (FDX) and Nike (NKE) on Thursday; KB Home (KBH) on Friday.

Mortgage Rate Resumes Downslide

After last week's rise (that came after 6 successive weeks of decline), Mortgage rates resumed their downfall again sliding to levels seen in the spring. We expect the long term rate to undergo fluctuations like this within a range of 6.25% and 6.75% throughout the rest of the year - in particular, in a week like this before Fed meets on 20th and traders get some indication of what the Fed thinks about American economy and inflation.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.43% in the week that ended today -- down from its 6.47% average last week. At this time last year, the loan averaged 5.74%. The 15-year fixed rate averaged at 6.11% this week, again a slide from last week's 6.16%. At this time last year this rate was 5.32%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 6.10% decreasing from last week's 6.14%. This rate averaged 5.26% a year ago. The 1-year Treasury-indexed ARMs have an average rate of 5.60%, down from last week's rate of 5.63%. At this time in 2005, the 1-year ARM averaged only 4.46%.

Small Cap Fund Stand-outs

Here are 3 leading small-cap mutual funds in three categories of investment styles (from Morningstar's database):

Small Value-based Funds: There are about 131 funds of this type with $588 million in net assets on average. Their returns averaged 12.4% over the past 10 years. The leading name in this category is Tamarack Micro Cap (TMVSX) which averaged 14.5%annually in last 10 years.

Small Blend-type Funds: There are 217 small-cap blends with an average size of $705 million in Morningstar's database. They've averaged 10.9% return in the past 10 years. Among them the Pennsylvania Mutual Inv (PENNX) was the standout, averaging 14.3% annual gains for the past decade.

Small Growth Funds: There are about 273 funds in this category with an average of $407 million in net assets. Their returns averaged 7.6% annually in the past decade. The lead among this pack is taken by the UMB Scout Small Cap Fund (UMBHX) which has a solid return of (10-year average) 11.4%.

Reverse Mortgage

At some point of our life we stop looking too much forward in future -- we have no option, you know. At this point of time you may think of taking advantage of whatever you built up over the years. Reverse mortgage is one such opportunity that one can avail of and utilize as an effective way for retirement income.

Reverse Mortgage is a kind of loan that you can get on the equity built up over years of home mortgage payments. It is getting very popular among senior citizens. The money can come back to you in different possible ways: In a one time lump sum, in monthly payments for life or designated length of time or in a credit line that allows the homeowner to decide when and how much they want to be paid. With a reverse mortgage you no longer make monthly payments. For a change, you start receiving them.

Here we present a few important details that are common among all kinds of reverse mortgages:

• Within each program of reverse mortgage, the amount of loan you can get generally depends on your age and your home's value. The older you are and the more your home is worth, the more cash you can get.
• The proceeds from a Reverse Mortgage are Tax-Free.
• You continue to be the owner of your home and remain responsible for paying your property taxes and home-owner insurance and for making property repairs, just like you are with your forward mortgage. Failure to these may lead to termination of your mortgage contract and the lender may impose repayment.
• All reverse mortgages are due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home, which means that none of the co-borrowers has lived in the home for one continuous year.

Crucial Week Before Fed Meeting

August had been a surprisingly good month for stocks. Speculation that the Fed might not increase the short time interest rate, a better outlook in oil inventory and consequent drop in crude oil price -- all contributed to that late summer rally.

And now is our turn to get cautious. This week we expect bearish trends taking over the market with traders opting to wait and watch the economic data and the mood in the street. Several key reports to be released this week will be keenly observed in order to gauge the mood the Fed memebers will have when they'll meet on 20th: (i) Tuesday: US trade balance (ii) Thursday: Retail Sales, Business inventories (iii) Friday: Consumer Price Index (CPI), Core CPI, Capacity utilization, Industrial production, University of Michigan sentiment index (preliminary).

A number of crucial earning reports from some of the bellweather companies will also be keenly observed this week to get a feel of the economy. The list includes: Best Buy (BBY), Goldman Sachs (GS), Lehman Brothers (LEH), Bear Sterns (BSC), Adobe Systems (ADBE).

So, be cautious and have some cash in hand. Keep your eyes on some good stocks or funds and purchase them on any weakness that might happen anytime this week or the next around the Fed meeting date.

Mortgage Rate Up After 6 Weeks

After a 6-weeks long downslide, the mortgage rate moved up this week for a change. The rate is going to see fluctuations like this within a range of 61/2% and 7% throughout the rest of the year and in September in particular before Fed meets on 20th and traders get some indication of what the Fed thinks about American economy and inflation.

According to Freddie Mac's weekly survey, the 30-year fixed-rate mortgage averaged 6.47% in the week that ended today -- up from its 6.44% average last week. At this time last year, the loan averaged 5.71%. The 15-year fixed rate averaged at 6.16% this week, again a slight rise from last week's 6.14%. At this time last year this rate was 5.30%.

Rate for 5-year Treasury-indexed hybrid adjustable-rate mortgages (ARM) averaged at 6.14% increasing from last week's 6.11%. This rate averaged 5.30% a year ago. The 1-year Treasury-indexed ARMs have an average rate of 5.63%, up from last week's rate of 5.59%. At this time in 2005, the 1-year ARM averaged only 4.45%.

Dividend -seeking ETFs

Today we present a list of eight Exchange Traded Funds (ETFs) which invest in good companies that consistently pay out dividend:

In November 2003 Barclays Global Investors introduced the first dividend ETF, iShares Dow Jones Select Dividend (DVY). That fund carries an expense ratio of 0.4%. The timing of its introduction was perfect and it gained a lot taking advantage of the 2003 federal legislation that slashed the income tax rate to 15% on dividends paid out by corporations. The fund's tracking index targets the top 100 domestic stocks by dividend yield, screened by dividend-growth rates, payout ratio and trading volume.

PowerShares Capital Management offers as many as 4 ETFs that invest in income-producing stocks: PowerShares High Yield Equity Dividend Achievers (PEY) , PowerShares Dividend Achievers (PFM) and PowerShares High Growth Rate Dividend Achievers (PHJ) hold U.S. companies, while PowerShares International Dividend Achievers Portfolio (PID) tracks foreign stocks.

State Street Global Advisors manages the SPDR Dividend ETF (SDY), which follows a Standard & Poor's index measuring the performance of the 50 highest-yielding domestic stocks that have consistently raised dividends for at least 25 years.

First Trust Morningstar Dividend Leaders (FDL) is based on a benchmark of about 100 high-yielding companies with a history of consistent payouts.

Vanguard Dividend Appreciation Index Vipers (VIG) is the first dividend-seeking ETF from Vanguard Group and tracks the Mergent Dividend Achievers Select Index. It began trading on the American Stock Exchange in late April and carries a low expense ratio of 0.28%. "Vipers" (short for Vanguard Index Participation Equity Receipts) are ETFs designed as separate share classes of regular Vanguard index funds - in this case the Vanguard Dividend Appreciation Index Fund (VDAIX).

In one of our past postings we discussed relative merits and demerits of iShare's DVY and Powershare's PEY.

Ethical Will

Well ...you have finished your financial planning and now you also have a legal will and a living will. Great! But not yet! They are not going to let you finish that 'what to do' list. From their bag comes out another estate planning tool -- the so-called ethical will.

Lawyers and financial advisers are seeing more and more interest in ethical wills, documents that stipulate the general life guidance you'd like your heirs to follow. If you want your kids to attend college, if you want your kids to avoid drugs or to be religious, you may scribble your wish into this. Ethicalwill.com is a site that can give you more information about this.

The concept of ethical will is not new. The Hebrew Bible first described ethical wills 3000 years ago (Genesis Ch. 49). References to this tradition are also found in the Christian Bible (John Ch. 15-18) and in other cultures.

Ethical wills have no legal validity but its business is gaining more and more ground throughout USA. Of course, imparting a legacy of values doesn't come cheap. Consultation fees average around $350. So, we think a much better option would be to avoid the fee and simply tell your heirs about your values by spending some quality time with them -- it's a much more rewarding option. Verbal communication is always better than written document, especially if the latter does not have any legal value.