Do you think interest rate Do you think interest rate will be higher or lower on will be higher or lower on

Jan 1Jan 1st st 2011?2011?

Please share your Please share your opinions and perspective opinions and perspective on the future of interest on the future of interest

ratesrates

•Key Driver to all other data that follows•If Inflation kicks above 3.5% the Fed will take foot off of Gas•Politics could play a role and we could trade short term improvements for long term disaster•Low risk of inflation, thus adding confidence to forecast

Inflation Picture

•No Room to go down•Fed pushes down through Spring of 2011•Slight increases as economy improves late Q2

What will the FED do?

•2000 point Dow correction in Q1/Q2•Based on rising unemployment•Plunging GDP•Housing starts drop more•Drives one last flight to quality!

How will the DOW behave?

•Unemployment gets worse before improving•Remains too high throughout 2011•Keeps easing pressure on Fed•Damages Demo chances, thus leading to tax cuts

Unemployment Rate

•GDP plunges in Q1 proving double dip forecasters right!•Helps keep pressure on FED•Provides ok refinance business•Holds down purchase business

Do we double dip?

•Housing Starts may lead the turnaround late in Q1•Expect anemic starts through the Q4 2011, perhaps dipping once more•Existing home sales and inventory absorption will be drivers

Housing Starts

•Fed Intervention will be a huge and unquantifiable driver!•Expect dip in Q1 prior to a shake out in Q2•Overall I see current levels plus or minus 75 bps as sustainable for yr•Typically this is not a Fed controlled instrument

10 Year Bond Behavior

•Most of the same logic as ten year comments apply•Spreads between the 10 year and MBS must remain constant to hold forecast•Rapid and sudden drop in values will widen the spread, due to quality fears•Increased Fed control could narrow the spreads

Mortgage Rates

Why do I want to buy?

Once in a Lifetime? The Data Speaks

Loudly!

Homes were LESS Affordable in the 70’s!

“Pigs get fat and hogs get slaughtered”

18 months ago…rates were in the mid 6% range!

Key Takeaways

• 2011 will be better than 2010

• Q1 2011 could be tough without momentum

• Rates NOT purchases will save 2011

• A hiccup in rates and you suffer without purchase

• Use Blogs, FTB seminars, press releases and office meetings to tell this story! The press sure is not getting it!

Thank you Cecelia Marlow

Chicago Bancorp

www.yourhomeloanpartners.com