Archive for March, 2008
Looking Back And Looking Ahead : March 24, 2008
Posted by: | CommentsConforming mortgage rates edged slightly lower for the second week in a row.
Mortgage rates fell for two main reasons:
- The Federal Reserve offered fiscal support for troubled mortgage-backed securities
- A government group gave Fannie Mae and Freddie Mac permission to lend more of money to American homeowners
These two actions combined to make mortgage-backed securities safer for mortgage bond investors and when mortgage bonds are safer, their required rate of return (i.e. interest rate) comes down.
This is the financial concept of Risk vs. Reward in action.
Expect mortgage rates to be in flux and highly volatile again this week, however.
Aside from housing and consumer confidence data, markets will respond to Friday’s Personal Consumption Expenditures data. PCE is a “Cost of Living” index that the Federal Reserve watches very closely.
PCE is different from other Cost of Living indices because it accounts for “substitutes”. For example, if beef is getting too expensive, PCE will substitute chicken — much like a regular person would.
In this way, PCE better reflects the true cost of living for the average American.
PCE is expected to show 2 percent growth year-over-year. If the actual figure is higher, expect mortgage rates to rise on inflation concerns.
Re-Approve Your Pre-Approval
Posted by: | Comments
Since December 2007, mortgage lending guidelines have changed very quickly and often without notice.
Some of the more well-known changes include:
- Broad restrictions on stated income home loans
- Broad restrictions on 100 percent financing
- “Risk-based fees” for credit scores under 740
Some of the lesser-known restrictions relate to property type and occupancy status as well as debt-to-income levels and mortgage payment histories.
Because of the number of changes and their collective scope, home buyers should be prudent and get re-pre-approved for their home loan.
Even if you last spoke with your loan officer four weeks ago, it’s important to know how market changes could ultimately impact your home loan approval.
The market really is that different. Talk to your loan officer about a re-pre-approval today.
Making English Out Of Fed-Speak (March 2008 Edition)
Posted by: | CommentsThe Fed lowered the Fed Funds Rate by 0.750% to 2.250% yesterday.
Because it is tied to the Fed Funds Rate, Prime Rate also fell by 0.750% yesterday. Prime Rate is now to 5.250%.
Holders of home equity lines of credit and credit card debt benefited from the change and will see lower interest costs in next month’s statements.
Mortgage rate shoppers didn’t.
In the statement above — as explained by The Wall Street Journal — the Fed expresses a growing concern of inflation from rising commodity prices such as oil. In part, this caused the mortgage bond market to sell off immediately following the press release’s issue.
Mortgage rates rose close to a quarter-percent yesterday.
The Federal Open Market Committee’s statement leaves the possibility of future Fed Funds Rate cuts open. The FOMC’s next scheduled meeting is a two-day affair April 29-30, 2008.
Source
Parsing the Fed Statement
The Wall Street Journal Online
March 18, 2008
http://online.wsj.com/internal/mdc/info-fedparse0803.html
Expect A Fed Funds Rate Cut This Afternoon
Posted by: | CommentsThe Federal Open Market Committee meets today and will issue a press release in addition to cutting the Fed Funds Rate at 2:15 P.M. ET.
The verbiage of the press release will be as widely watched as the rate cut itself because markets are curious about how far the Federal Reserve will go to lessen the impact of an economic recession.
With every Fed Funds Rate cut, recession becomes less likely, but the other side of the equation is that the probability of long-term inflation grows.
Like recession, inflation can be bad for the economy, too.
The Fed Funds Rate now stands at 3.000% this morning and the FOMC is expected to lower it by 0.750% or more this afternoon.
Mortgage rates are rising today because cuts to the Fed Funds Rate weaken the U.S. dollar which, in turn, makes mortgage re-payments less valuable to investors.
Looking Back And Looking Ahead : March 17, 2008
Posted by: | CommentsMortgage rates fell last week on growing evidence of a recession, but far fewer Americans were eligible to take advantage.
Mortgage lenders continue to reduce product menus and that is leaving homeowners with fewer mortgage financing options than before.
As an added hurdle, Fannie Mae and Freddie Mac recently added “risk-based” fees on all conforming home loans, subjecting mortgage applicants to higher mortgage rates based upon:
- Property Type
- Credit Score
- Loan-to-Value
So, even though mortgage rates moved lower last week, for many homeowners, the cost of homeownership did not.
This week, the biggest scheduled news is the Federal Open Market Committee’s Tuesday meeting.
It’s widely expected that the Federal Reserve will lower the Fed Funds Rate by 0.75%, lowering Prime Rate to 5.250%.
This is good news for Americans carrying revolving consumer debt because those credit types are often tied to Prime Rate. Two popular types of revolving consumer debt are:
- Home equity lines of credit
- Credit cards
Meanwhile, a cut in the Fed Funds Rate should push mortgage rates up because Fed Funds Rate cuts can lead to inflation.
Since September 2007 — when the Fed started to cut its benchmark rate — the Fed Funds Rate is down 2.250% but mortgage rates are slightly higher. This is a normal occurrence and should happen again this week.
Markets will be closed for Good Friday this week.
Palo Alto Mom of three, FHA loan officer
