BRRRR…The east coast got their first major blast of winter on Friday, and the financial markets got a load of snow down their neck as well! After a relatively calm week, mortgage bonds got a big boost from a surprising Jobs Report on Friday morning. The market was expecting around 150,000 new jobs reported for the month of November, but received only 57,000 – talk about an early lump of coal in your Christmas stocking as far as stocks are concerned. The rally in bonds on Friday was the best single day since September 5th…no coincidence, as that was the exact date we last experienced a worse than expected Jobs Report. This banner day for bonds caused mortgage interest rates to improve about .25%.

But really - how bad was this Jobs Report? Here’s the story. The employment situation is not filled with as much doom and gloom as the economists are making it out to be. After all, remember that the economy is growing and jobs are being added! The unemployment rate is 5.9%, not 15%. And chew on this one - technological advances have allowed businesses to be more productive while not hiring new employees quite yet. The record high Productivity Report of last week bears this out. Think this doesn’t involve you? Consider the host of advanced and inexpensive technological tools at our disposal, which can take the place of additional workers. Next time you dial 411 and get an automated operator that can recognize your speech, remember that used to be someone’s job. Just think of how much more productive we all are with the tools we routinely use today that were not in wide use just 5 short years ago. Mobile phones, email, the Internet, wireless devices…the list goes on and on – all adding up to increased productivity and less need for workers! Another major factor not considered in the Jobs Report is the increasing number of individuals moving towards self-employment. So, the real deal? The report is not quite as bad as it might first have seemed. In the meantime, enjoy the ride higher in bond prices and the decrease in mortgage interest rates while they last!

NAUGHTY OR NICE? No one knows yet, but that’s the question the Federal Trade Commission would like to have answered as they sue AMERIDEBT, one of the nations largest credit counseling agencies. Are they really “the friend of consumers in crisis”? Maybe, maybe not! And does credit counseling really help or hurt your credit? What are the red flags that should tell you to run the other way from a credit counselor? Don’t miss the Mortgage Market View below for all the details!

In the very wise words of Yogi Berra – “It’s tough to make forecasts, especially about the future.” So true Yogi - but let’s give it a go anyways. As evidenced by relatively flat trading during the early part of last week, traders were grasping at straws, looking hard for any kind of information to base decision making and trades on. The market appears to have overreacted to finally having some meat to chew on with the Jobs Report, and it would not be surprising to see it come back a nudge towards previous levels. Notice in the chart below that the charge upward in bonds was stopped cold by the 200 day Moving Average, which has been a strong ceiling in the past. As mortgage bonds test this ceiling into next week, it would be fairly unlikely to see a break through, which could result in a further decrease in mortgage interest rates. To the contrary, the ceiling is expected to hold, and mortgage interest rates should be stable to slightly increasing over the coming week.

“THE FRIEND OF CONSUMERS IN CRISIS”, AmeriDebt has labeled themselves – but what kind of friend are they really? The FTC would argue that with friends like these, you don’t need enemies. The Federal Trade Commission filed a lawsuit against AmeriDebt on Wednesday, claiming that the company hides fees, does not educate consumers about debt as they claim, and falsely describes themselves as a nonprofit agency. FTC’s Director of Consumer Protection, Howard Beales, agrees that consumer credit counseling is a needed service, but says that “consumers should not be tricked into doing business with a company that they think is working for them, and should not be induced to pay hundreds of dollars to AmeriDebt when they’ve been led to believe that their payment is going to their creditors.”

AmeriDebt attorney Zynda Sellers disagrees, and says that they do provide educational services, and that the payments to AmeriDebt are “voluntary contributions”. A voluntary contribution from a consumer in crisis to a corporation? Hmmmm.

With consumers taking on increasing debt loads and record bankruptcy levels, there is certainly a demand for credit counseling, but the Better Business Bureau statistics show complaints are growing faster by the minute. Five short years ago, there were only 237 complaints filed against credit counseling agencies. Just last year that number grew to 1480 with the largest percentage specifically aimed towards AmeriDebt. A director at the Consumer Federation applauded the FTC’s action, and said that “AmeriDebt has become the symbol of bad credit counseling in this country, but they are by no means the only shady operators.”

With that warning in mind, what should consumers considering credit counseling be watching out for?

First, understand how debt counseling works. The agency involved helps negotiate smaller payments and lower rates on outstanding debt, and usually collect a consolidated payment, which they then dole out to the various creditors. Sounds like a good thing right? Not so fast. A renegotiated payment agreement with a creditor can often reflect poorly on your credit report, as they have the right to report that the originally agreed upon payment is not being made. A creditor can report late payments and may also indicate the fact that your account is in credit counseling right on your credit report. Although having this label may not seem like a problem, new creditors seeing that might worry about extending any new credit your way. Mortgage lenders are a prime example, as they view any trace of consumer credit counseling just like a Chapter 13 bankruptcy, which is debt reorganization. If a consumer decides that they absolutely need the assistance of a counseling agency, it’s wise to investigate the company carefully before signing up.

Here are some red flags you should watch out for:

Large upfront fees. Most true non-profits only charge a very nominal set up fee, usually around $10. If you are paying much more, look out, as you might be the one getting “set up”.

Payments that “disappear”. Many agencies have fine print that informs you that your first consolidated payment actually goes to them as part of their fee, rather than going to your creditors at all. Having a completely missed payment can wreak havoc on your credit report, as even if a payment is made the next month, the missing payment can cause a “rolling” late to show up every single month.

No accreditation. Legitimate counseling firms are all affiliated with either the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling. Beware a company that is not listed with one of these agencies

Last but not least, if it sounds too good to be true, it probably is. Companies that claim that they can settle your debts for little or no money, with no impact on your credit rating, are probably not giving you the whole story. Legitimate agencies help you consolidate debt, reduce interest rates, provide education, and fully prepare you for the fact that you very well may have an impact on your credit rating as a result of participating in counseling.

So – naughty or nice, friend or foe…how will the AmeriDebt suit play out in the coming months? No one can be sure yet, but with credit counseling having grown to a $7 billion dollar industry, there are certainly many eyes watching and waiting for the verdict. Please contact me if you have questions about credit.

There are two big hitters to be watching out for this week. First, the infamous “Fed Meeting” coming up this Tuesday, more officially known as the Federal Open Market Committee (FOMC) Meeting. What will Chairman Alan Greenspan say about the economy and interest rates? Although there is little chance of a rate change, the traders have been buzzing all last week as to what verbiage and language the Fed might lay on the table. Each word from Greenspan is analyzed, weighed and measured for possible clues to predict the outlook for the future. Even if there is no change in policy, the manner in which Mr. Greenspan delivers the decisions can create volatile financial market reactions.

The second release that the financial markets will be paying attention to is the Retail Sales report on Thursday. Just exactly like it sounds, the Retail Sales report is a measure of the total receipts of retail stores, including products that represent all shapes and sizes of retail businesses throughout the nation. It is the timeliest indicator of broad consumer spending patterns, which should bring some interest as we head into the busiest retail spending season of the year.

Remember, as a general rule, weaker than expected economic data would indicate the economy is not improving as quickly as expected, and could cause mortgage interest rates to improve. Positive data would indicate a strengthening economic climate, and could cause mortgage interest rates to gradually climb higher.

For the week of December 8th - December 12th, 2003