Kathy Harrison

For immediate release January 13, 2012

What is the Velocity of Money and How Does it Impact Home Loan Rates?

By Kathy Harrison, Bell Mortgage, Division of State Bank & Trust

Bloomington, MN – If you’ve been watching the economic news, you’ve probably noticed that market experts and traders have been keeping a close eye on the Commerce Department’s Personal Spending and Personal Income reports. Obviously, those reports provide insight into the health of our economy, but did you know they also influence home loan rates? That’s right, personal spending can actually influence the interest rates that are available when you purchase or refinance a home.

Here's why. It has to do with something called the velocity of money. Even though the government keeps pumping money into the system, nothing happens until that money is spent or lent – and passes from one hand to another or one business to another. The speed at which this money passes between parties is called the velocity of money. With the job market still very sluggish, consumers aren't spending much money these days, and businesses are still reluctant to spend money to make investments in their business. With the present velocity at low levels, inflation remains subdued and that's good for home loan rates. That's because rates are tied to Mortgage Bonds and inflation is the archenemy of Bonds, so low inflation is good for Bonds and rates. However, once velocity increases, the excess money in the system will cause inflation – which is bad for rates, since even the slightest scent of inflation can cause home loan rates to worsen. While we certainly want to see better economic recovery news in the near future, we have to remember that there's an inverse relationship between good economic news and Bonds and home loan rates. Weak economic news normally causes money to flow out of Stocks and into Bonds, which helps Bonds and home loan rates improve. Strong economic news, on the other hand, normally has the opposite result.

Currently, home loan rates are at a historically low level, but that situation won’t last forever. That means now is an ideal time to purchase a home or refinance before the velocity of money – and rates – change. If you or anyone you know would like to learn more about the current economic situation and how to take advantage of historically low home loan rates, then please contact me.

~Kathy Harrsion

Here’s some information on the latest Modification scams out there:

Contact a trusted advisor with questions or concerns you may have.

Phony Counselors – Scam artists present themselves as “counselors” who will negotiate a deal with the lender IF the borrower pays a fee first.  Some scammers even require that all the Mortgage payments be made to them while they negotiate on the borrower’s behalf.

Fake “Government “ Modifications – Scammers will claim to be approved or affiliated with the government.  Their documents and website will use terms like “federal” and “TARP”.  They will claim a fee is necessary to use the modification program.  Borrowers should call their lenders directly to find out if they qualify for a government loan modification.

Bait and Switch – The scam artist tells borrowers that by signing loan modification documents the existing Mortgage will become current.  What the borrower is really signing surrenders title to the scammer in exchange for a “rescue loan”.

Rent-to-Own or Leaseback Schemes – Scammers tell borrowers that if they will surrender title to their home that they can stay there as a renter, and then buy the home back in a few years.  The scammer then raises the rent over time to the point they can’t pay.  The scammer evicts the borrower and sells the home.  Another variation is when the scammer has the borrower sign over title and move out.  They promise to find a buyer for the home and share part of the profit once the home is sold.  What really happens is that the scammer rents out the home, never making the Mortgage payments and lets the lender eventually foreclose, while they walk away with all the rent money.

Bankruptcy to Avoid Foreclosure – The scammer promises to negotiate a refinance with the lender for a fee.  He pockets the fee and files a bankruptcy in the name of the borrower without the borrower’s knowledge to temporarily stop the foreclosure process.   The borrower thinks things are going well because the collection calls stop.

Online Security Awareness Tip

Avoiding Identity Theft

By Eric Andring, IS Risk Manager

Identity theft occurs when personal information such as your Social Security number or bank account number is taken without permission and used to commit crimes or fraud. Identity theft can be carried out via phone, email or through fraudulent websites.

Follow these tips to help prevent identity theft:

• Keep your billing and banking statements and other personal records secured, and shred them when they are no longer needed.
• Keep your confidential information to yourself. Never respond to phone calls or emails asking to confirm your personal information. Don’t leave PIN numbers, passwords or other personal information around for others to see.
• Practice secure postal mail practices. Use a public mailbox rather than your home mailbox to send payments and other mail containing sensitive information. Pick your mail up promptly and ask the post office to hold your mail while away.
• Review your bills and bank statements promptly. If you find any charges or debits that you didn’t make, contact your bank or the company immediately.
• Protect your Social Security number. Don’t carry your Social Security card or other cards that have your Social Security number on them unless you are going some-where where you will need them. Only provide your Social Security number when there is a legitimate need to do so.
• We recommend that you monitor your credit report for unauthorized activity. You are entitled to receive a free copy of your credit report once every 12 months. Request a report by visiting the official government site, annualcreditreport.com, or by calling 877.322.8228.

Here are some additional anti-identity theft tips for when you’re spending time online:

• Use anti-virus and anti-spyware software and a firewall on your computer, and keep them updated.
• Ensure the website is secure when you provide financial or other sensitive information online. The website address should change from “http” to “https” or “shttp.” A “lock” symbol may also indicate that the website is safe.
• Be cautious with suspicious e-mail messages by deleting them; they could contain harmful software or links that could lead to the exploitation of your computer and personal information.
• “Stop – Think – Click.” Stop and think before you click the attachment or link.
• Spam or phishing e-mails may look like they are from someone you may recognize. If any of the information sent to you seems suspicious, it is a good idea to contact the sender directly for verification before opening any attachments or clicking on any links. If someone hasn’t sent you an e-mail in a long time and suddenly sends you strange messages containing attachments or links, they may have a virus on their computer. Don’t open any attachments or click on any links from this sender. If you do, your computer and information could be at risk.
• Monitor your accounts online frequently. You can discover problems much faster online than if you wait for bills or statements to be delivered by mail.
• Never call a number provided within an email related to your personal information, unless you are sure it is valid. Always verify the number with a source you already know and trust. Fraudsters can set up temporary phones and may attempt to trick you into revealing personal information.
• Some common email subjects that fraudsters use to “hook” their victims within emails are:
• Failed Bank Transfer – contact the number below immediately or click on this link to “manage” your account.
• We suspect an unauthorized transaction on your account.
• Your order was processed. Your bank account will be charged $###.##. Click on this link to view your order. (This comes from a company that you didn’t order anything from.)

For more information relating to cybersecurity and identify theft, the following websites are very helpful:

• The Federal Trade Commission sponsors a website called www.onguardonline.gov. This website provides practical tips from the federal government and the technology industry to help you be on guard against Internet fraud, secure your computer and protect your personal information.
• Consumer Federation of America’s website contains helpful consumer protection tips such as identify theft. http://www.consumerfed.org/consumer-privacy/fraud
• The Department of Homeland Security provides cybersecurity tips and best practices. http://www.dhs.gov/files/cybersecurity.shtm

Protect Your Credit Score!

Jill knew she had to get her credit score "under control" before graduating from college if she wanted to avoid problems with signing an apartment lease or getting a loan.  "I want to get a car someday and I want it on my own without help from my parents" Jill said.

Jill cut back on her spending in order to pay down her credit-card debt faster.  Finally six months later and debt-free the 24 year old pays any balance in full each month.  Her credit score has gone from an average to score of 697 to an excellent score of 785. 

Jill is just one of the many twenty-somethings learning to importance of a credit score, a number used by lenders to determine if you qualify for a credit card, mortgage and other loans.  Your credit score is also used when you apply for an apartment lease and even for some jobs.

The credit score is the only grade that matters after you graduate from school some say.  It's "your number or grade" that follows you around for the rest of your life.

A credit score is comprised of factors including your payment history, debt amount & how much of your credit limit is currently used.  There are many credit scores, but the most widely used is the FICO score.  Depending on the information in your credit report, you could get a FICO score from each of the three major credit-reporting companies:  Experian, TransUnion & Equifax.  A FICO score ranges from 300 to 850, with a score above 725 landing you the best approval and interest rates, according to FICO.  A score below 560 deems you a credit risk.

Younger adults typically have a short credit history so blips can make a big impact on their credit scores.  To keep a good score intact or to revamp a bad score, focus on making loan and credit-card payments on time.  Also, try to pay more than the minimum amount each month.  Having a balance of more than 30% of your credit limit will hurt your credit score too.

If you'll begin to repay student loans later this year, set up automatic payments through the lender or online banking so you don't miss any payments. 

It may be tempting to cancel extra credit cards once you've paid off your balances, but doing so could actually lower your score.  If you cancel your oldest credit card it will affect the length of your credit history, one of the factors in stermining your score.  But also be careful about applying for credit cards or loans.  Each time a lender officially looks at your credit report and score, your score gets dinged. 

If you don't have a credit history, you can start to build one with a secured credit card, in which you deposit a sum into the card and can charge up to that amount.  It's a good way to build your credit history.

Whatever you do, just keep in mind that your credit score is used to analyze your finacial worthiness so, protect your credit and watch it annually.