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Mortgage Interest Rates Drop as Markets Crumble

The old adage of flight to safety was more than apparent in today’s market.

The inverse relationship between stocks and mortgage backed bonds played true today. After a massive sell off in all major indexes, Mortgage Backed Bonds closed at a 6 month hi.

With newfound liquidity in the mortgage bond market, thanks to last week’s bailout of Fannie and Freddie, Mortgage rates are experiencing lows not seen since the brief dip in early January and are testing three year lows.

Fed Rate Forecast Cut 8/16/2008

Fed Fall 2008 Rate Cut

The Federal Open Market Committee (FOMC) is scheduled to meet again this week and it's predicted that rates will be cut again. It's commonly thought that a cut in interest rates by the FOMC brings with it a decline in home mortgage rates.

This is not always true.
If you are considering obtaining a new loan, the time to pick up the phone is now.
Historically, the time to make an application to capture the best rate may be before an FOMC meeting, not after. While it's true that mortgage rates may improve immediately following a rate cut, they can just as quickly get worse.

Don't lose out by playing the waiting game.

Why do home loan rates often rise following rate cuts by the FOMC? The reason is that Fed rate cuts can be seen as inflationary and bond traders hate inflation. It is the bond market that sets long-term interest rates.

After two recent FOMC meetings, interest rates rose significantly after a rate cut. First when rates were cut in September of 2007 and then again following the inter-session emergency meeting in January 2008. In each case the price of bonds deteriorated quickly and in the span of two days, interest rates increased up to .75% off of their low points.

If you would like to know how you could benefit from refinancing or are in the process of buying a new home, make sure you have your application in process. This way, you can capture the best interest rate when it is available. If you wait, you may cost yourself the best chance to have the lowest rate.

Contact me today for a FREE evaluation of your home loan. Not calling me could cost you hundreds of dollars each month.

Bush isn’t to Blame for the Current Mortgage Market Mess

I consistently hear uninformed and misinformed individuals take the easy way out when speaking about the current mortgage and real estate fiasco, by blaming the mortgage mess on Bush and his presidency. I have drafted a quick primer on what happen and how we ended up in this lovely mess that will so fondly be remembered as the “Credit Crunch/Crisis”.

Subprime mortgages have now been credited for bankrupting well over 110 lenders (and still counting) and seriously damaging operations at many major mortgage firms. They've reportedly wiped out multiple hedge funds, tens of thousands of jobs, and have led to millions of foreclosures with millions more on the way. And, as if that weren't enough, subprime mortgages are also blamed for massive volatility in the stock, bond, credit, futures, and real estate markets here in the US and around the globe. Some say losses in the mortgage securities market alone could reach hundreds of billions of dollars this year.

This means that, for any Americans looking to buy, sell, or refinance a home, they are confronting a very different market from the one that existed just 2 years ago.

How did this happen? The Greenspan real estate boom was fueled by a period of record home appreciation and historically low interest rates. Banks, in order to compete, loosened guidelines and began offering more funding to more borrowers through riskier, non-conforming or "exotic" mortgages.

These ideal lending conditions persisted for several years, supported by high demand, historical real estate data, home prices, and massive trading volume/profits on mortgage-backed securities and other financial instruments on Wall Street.

In the fall of 2006, a slowdown in real estate led to a deterioration of home values, an increase in inventories, and ultimately to today's tightening of credit guidelines, leaving many investors unable to sell or refinance out of their existing positions. Many Americans who had tapped into their equity were suddenly tapped-out and overextended as home values fell. Foreclosures have followed in record numbers and a re-valuation of mortgage bonds and other financial instruments created the credit/liquidity domino effect we're now enduring.

Unfortunately, it's going to get a lot worse before it gets better. According to the latest estimates, over 2 million subprime and Alt-A adjustable rate mortgage (ARM) holders will face payment increases of up to 30%-100% when their loans reset in the next 2 to 18 months. These loans make up less than 40% of the total mortgage market, but the negative effects, as we have seen, of increased foreclosure activity can have a ripple effect throughout the industry and around the globe.

What does this mean to you and your mortgage?

Sellers: If you're planning on selling your home, be prepared for an even smaller pool of qualified buyers. While some experts predict a settling of this credit crisis over the coming year, tightened credit guidelines and diminishing mortgage products could knock out as many as 15%-30% of potential qualified buyers. Now is not the time to sit and wait for the best possible price. Have a serious talk with your real estate agent. Having experienced buying/selling transactions in your area, he or she can help you price your home accordingly. He or she can also help ensure that your buyers are pre-approved and stay pre-approved throughout the entire transaction.

Buyers: Get pre-approved by your mortgage professional. While there are a lot of great deals out there, getting credit is becoming tougher and tougher, and it's taking longer and longer to complete a transaction. Remember, what you qualify for today could change tomorrow in a volatile market. For those looking to refinance, keep this in mind. There is no time to delay! Communicate with your lender. Don't do anything that could negatively affect your credit, and make sure you get all your documentation in on time.

ARMs Borrowers: If your ARM is scheduled to reset in the next 2-18 months, you need to schedule an appointment with a mortgage professional right away. Whether your ARM is subprime, Alt-A, or even if you have a pre-payment penalty, don't let a default or foreclosure situation sneak up on you. Did you know that your monthly payments can increase anywhere from 30% to 100% once your loan resets? At the very least, give yourself the peace of mind of knowing what your adjusted payment will be.

Borrowers with less-than-perfect credit: Each week it seems lenders are shedding more and more mortgage products. Many lenders have stopped offering No-Doc loans and are reducing all forms of Stated-Income loans. While it might be challenging, borrowers with credit issues need to see a loan expert. Often they have credit repair resources and other strategies to help you reach your financial goals.

Finally, there's an important concept to embrace: all markets, while cyclical in nature, are self-correcting, be it credit, real estate, stocks, or bonds. For the last 6 or 7 years, real estate was booming and riding high. The correction we're experiencing now – while it seems harsh and could get much worse – is, in a sense, "natural" and directly related to the extremely loose guidelines and perhaps overzealous lending and leveraging during the boom cycle.

--William Doom Will@MyEquityPro.com Certified Mortgage Planner

Off the Money on this one Carmen Wong Ulrich

WOW Misnomer of the Day?

The non accredited Financial Guru of CNBC ubber popular personal finance show “On The Money” Carmen Wong Ulrich (CWU) explained in a recent Web Extra: Mortgage Insurance: You Don’t Want It “If you’re a homeowner and you’re paying PMI – or private mortgage insurance – you should know that you probably don’t want it and definitely don’t need it."
Watch the video for more.

-Sorry young Padawan, you are Way off base, you must have missed the memo or fallen asleep in Mortgage PMI 101.

I don’t know what CWU means by a little equity if she is referring to 20% then yes CWU is correct.

Any Conforming loan above 80% LTV will require you to pay PMI. If a borrower is taking an FHA loan they will be required to pay MI even if the LTV is <80% (Note: Years will be determined when the loan balance equals 78%, provided the borrower has paid the annual MIP for at least 5 years (scheduled or actual)).

MI is determined on a risk based method for Fannie and Freddie, FHA has a flat .50% which is soon to change to risk based credit grade. Risk based is calculated by a borrower’s credit and LTV.

As a mortgage planner I don’t know of one lender left that is currently offering LPMI (Lender Paid MI), if you are lucky to find one you pay for it your in interest rate.

There is no way around MI if you have a high LTV Mortgage. A borrower is required to have MI if they would like the Mortgage.

This is why there are accreditations and certifications, to insure erroneous information is not released to the masses.

I am watching you Carmen Wrong on this one Ulrich

Discount Window – What’s the Hype all about? Lehman Bro’s

As for as the discount window, the Fed has lowered the discount rate through a series of rate cuts to 2.25% from the 6.25% rate that was effective in August, 2007. This is the interest rate that banks pay when they borrow money directly from the Fed. The problem with this, however, is that most banks do not like to borrow from the Fed’s discount window because it can be construed as a sign of weakness.

How so?

Imagine that you are in an action movie playing the part of the hero who is being mistaken for a criminal.

You are on the run from the police who don’t really know that you are on their side in the first place. After a few days on the run, you start getting hungry. You find a grocery store, find some food and proceed to the check-out line. You are faced with two choices:

• Pay cash for the food
• Use a credit card

If you use the credit card, you know that the authorities will be monitoring all the activity on that card. This will tip them off to your location and "BAM" – you are caught! On the other hand, if you pay cash for the food, you can remain anonymous and continue with whatever it is you are doing to prove your innocence and give the movie a happy ending.

The banking industry is like an action movie, and the banks that need funds are like the heroes of the movie. The banks on the sidelines are like the authorities. If you are a bank that needs funds, and you go directly to the Fed and borrow from their discount window, this would tip off all the other banks that you could be experiencing financial difficulty. This in turn causes them to be more cautious when dealing with you and could potentially result in driving down your stock price because the stock market may interpret this as a sign of financial weakness.

That is why the discount rate is often referred to as symbolic, as most banks don’t like to borrow from the Fed’s discount window if they can avoid it. If a bank finds other sources of funding outside of the Fed’s discount window, they can borrow anonymously and avoid tipping off all the other banks to the fact that they are in need of short term funds.

Mortgage Planner William Doom

Way to make Means by Rep. Charles Rangel (D-N.Y.)

If you haven’t heard I am sure you will?

Rep. Charles Rangel (D-N.Y.) managed to avoid to paying taxes on rental income and mortgage interest for a beachfront villa. It is estimated he avoided mortgage interest of 10.50% and upwards of $75,000 in tax free rental income for multiple years. The toughest part of the story to swallow is the fact he is the Charmin of the House Ways and Means Committee. The House Ways and Means Committee is the chief tax-writing committee of the United States House of Representatives. The Committee has jurisdiction over all taxation, tariffs and other revenue-raising measures, as well as a number of other programs. (Wikipedia) Rangel is also a staple champion of Affordable Housing initiatives. Ironic; Tax –writing and affordable housing, from his actions he obviously has hands on experience.

INVESTING IN REAL ESTATE

Are you a speculator or investor?

Great fortunes can be made and lost in real estate. William Doom Certified Mortgage Planning Specialists and Sarah Reiter REO Professional are committed, qualified and equipped to help you implement the seven keys to profitable real estate investment:

• Determine Level of Liquidity - liquidity is the ability to quickly convert an investment into cash, without losing any of the principal that you've invested.
  
• Determine Level of Marketability - marketability is the ability to convert an investment into cash quickly, at any price.
  
• Determine the Impact of Leverage - leverage is the use of borrowed funds to finance a portion of the purchase price of an investment. The ratio of borrowed funds to the total purchase price is known as the loan-to-value (or LTV) ratio. A high LTV would result in high leverage, while a low LTV would result in low leverage.
  
• Determine the Impact of Leverage - leverage is the use of borrowed funds to finance a portion of the purchase price of an investment. The ratio of borrowed funds to the total purchase price is known as the loan-to-value (or LTV) ratio. A high LTV would result in high leverage, while a low LTV would result in low leverage.
  
• Evaluate the Investment Management Issues
  1. Asset Management - this is where you monitor the financial performance of the investment and make changes as needed.
  2. Property Management - involves the overall day-to-day operation of the property and the physical maintenance of the building or buildings.
  
• Consider the Tax Impact of Your Investment Decisions: This includes such issues as:
  1. Classifications of passive
  2. Active and portfolio income and losses Capital gains taxes Income taxes
  3. Tax Credits Tax deductions
  4. Tax Deferments
  
• Evaluate and Reduce Investment Risk - risk is the possibility of losing either the principal invested and/or the potential income from the investment. CMPS professionals help you reduce investment risk in several ways
  - Risk Analysis - This is the process of evaluating alternative investments based on their level of risk
  - Shifting risk - structure your leases and rent agreements to shift the exposure of increasing costs to the tenants. This can include shifting the risk of rising interest rates, operating expenses or tax increases.
  
• Due diligence prior to purchasing an investment property - Due diligence is the process of examining a property and related documents such as appraisals, inspections, environ mental surveys and title work in order to reduce risk.

For more info or Help with your Real Estate Portfolio feel free to contact William Doom will@MyEquityPro.com

Mortgage Interest Rates react Favorable to Fed Back Stop

Mortgage Bonds soar higher yesterday on the announcement that Fannie Mae and Freddie Mac will come under control of the government.
This announcement came as the government felt both these institutions will no longer be able to meet their mission statement which is to provide liquidity, stability and affordability in the housing markets.

Fannie Mae and Freddie Mac both have issued many Bonds which over time mature, and Fannie and Freddie need to pay back the principal on the maturing Bonds. The way they raise capital to pay these maturing Bonds is to issue new Bonds. This happens every month. And as long as Fannie and Freddie can sell new Bonds this system works well. But the problems in the mortgage industry have reduced investor appetite to purchase these Bonds...and that's where the trouble begins. Without the ability to sell new Bonds, Fannie and Freddie are less able to meet the capital requirements to pay off the maturing Bonds. And that's the big fear. If Fannie and Freddie were to default and become insolvent, it would throw the beleaguered mortgage and housing markets even deeper into the abyss.

Additionally, the recent lack of appetite for Fannie Mae and Freddie Mac Bonds caused the two mortgage giants to have to do something to make their Bonds more attractive...so they offered their Bonds at higher yields to gain more investor interest. However, since they couldn't go back and raise rates on loans that had already been closed, it sucked even more profits out of Fannie and Freddie, reducing capital even further, and exacerbating the problem.

That's why the Treasury has stepped in and said that they will back the payments on these Bonds. This action has given investors a lot of confidence to step in and now buy Mortgage Bonds. Think about it. For a higher rate of return, investors can now buy Mortgage Bonds with the same guarantee as lower yielding Treasury Bonds. This caused a nice rally in pricing yesterday – which combined with the break above the 200-day Moving Average has reduced mortgage rates almost a full 1%.

Feel free to contact me to discuss your Mortgage Options. Will@MyEquityPro.com

HR3221 NEW Housing Bill

It’s hard to believe that anything that takes nearly 800 pages to describe could be time sensitive, however, President Bush recently signed the Housing and Economic Recovery Act of 2008 and, for many, it may provide the incentive needed to act now, and finally buy a home of their own.

Why?

A new $7,500 tax credit for first-time home buyers is a temporary incentive from the government to boost interest in real estate – but the time frame to take advantage of the credit is limited.

Blue Light Special in the Homes Aisle

When retailers have too much inventory they have a sale – and the same is true in the real estate market. With home prices falling all across the nation, the real estate sale is clearly marked with “For Sale” signs everywhere you look. According to the National Association of Realtors, home prices have dropped about 7% nationally from one year ago, and the inventory of homes available is the highest since 1968…all meaning there is a great selection of well-priced homes on the market.

Add to that the government’s new $7,500 tax credit for first-time home buyers and what you have is a real opportunity for many Americans who act quickly to take advantage of lower prices and make their dream of homeownership a reality.

And the more buyers who enter the market, the faster things will improve for distressed home sellers and areas hit by foreclosure at all price levels. The $7,500 tax credit for first-time home buyers could be a substantial contributor to change for those who qualify: anyone who hasn’t owned a home in the past three years and buys a home between April 9, 2008 and July 1, 2009.

And hey – notice those dates? That’s right, the credit is retroactive for folks that bought earlier this year.

So what’s the catch? Of course there are a few. You have to fall within certain income guidelines, typical for a tax benefit. And interestingly enough, the tax credit must be paid back over fifteen years – so it’s much like an interest-free loan. But it remains a tremendous benefit worth discussing, and for some people, it could be just enough to make the difference between renting and owning.

Think the Market is Depressed? Gain Some Perspective.

Limiting options in this challenging real estate market is disappointing; however, history provides some perspective. Only one in four households owned their home in 1934 when the FHA was formed during the Great Depression. In addition to the economic devastation, mortgage terms were nearly impossible: Mortgages were limited to fifty percent of the property’s market value, repayment was spread over only three to five years and there was usually a large payment due at the end of the schedule. Can you imagine having to come up with half of a home’s value to buy it? In that light – things really aren’t too bad today.

How big is the step between renting and buying? Anyone with a steady job and a landlord should immediately make an appointment with a reputable lender to find out.

And the $7,500 tax credit is a real door buster. You can bet that there will be more massive, too-good-to-be-true, never-before sales on vehicles or appliances, but the opportunity to get a special deal on your financial future is a limited time offer. Don’t let the door close in your face if there’s a chance you could be ready to cross the threshold to homeownership.

William Doom is a locally-based consumer advocate and loan officer. Email will@MyEquityPro.com to see if you qualify for the tax credit, and what actions you may need to take now.

Fannie & Freddie Weekend Bailout.

Looks like the end is here.

It is speculated that the Fed will backstop Fannie and Freddie this weekend.
How will this affect Mortgages?
Some believe the backstop will help add liquidity to the mortgage market and equate to slightly lower rates. With the extinction of Subprime lenders and the absence of Alt A lenders, Conforming and FHA loans have been the mortgages of choice over the last year.

Will this truly help?
Given the already strict Conforming and FHA guidelines, this will most likely not imidetly fill the void of Subprime and Alt A mortgages.

How will it affect investors in the two?
The already quasi entities could leave investors empty handed in the end. Coupled with the devastating effect to scores of investment, banking and insurance companies that hold billions of dollars in their preferred shares. Details on the monumental event are scarce.
Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.

Ultimately what does this do to a Free Market?

The move could cost taxpayers billions.

Also reported Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 %, were either behind on their payments or in foreclosure at the end of June.

It is estimated Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages estimated at almost half the nation's total.

One of my Favorites leaves the Game.

Homecomings AKA ResCap (Residential Capital LLC) the child of GMAC Financial Services calls it quits today and has exited the Wholesale mortgage game. ResCap will stop originating through its wholesale lending subsidiary, shut down 200 retail offices and lay off 5,000 employees in the process.

The restructuring was approved Tuesday, parent GMAC Financial Services announced today.
The statement indicated that all 200 GMAC Mortgage retail offices will be closed.

Effective 5 p.m. eastern time on Thursday, September 4, 2008, ResCap's Homecomings Financial, LLC wholesale division will no longer accept new loan submissions.

You will be dearly missed and Big up to my A.E. Mike “too Much” Trombley

Is your Home Green is your Home Mortgage a Green Loan.

Go Green apply for a Green Home Mortgage Loan.

Over the last week I have been doing a little research and fell upon a Investor/Lender that offers Green Home Loans (AKA Energy Efficient Mortgage (EEM)).

What is a Green Home Loan?
It is a Home Loan for both Purchase and Refinance applicants. EEM offer lower interest loans to energy efficient borrowers. The EEM forecasts the future savings on energy efficient upgrades/improvements and allows the borrower to account for the savings as additional income. With increased income = increased loan amount.

What is the Science behind a Green loan?
It is a normal loan, no funky ARM or balloon mortgage. It is a simple Fixed Rate. Borrowers will be allowed an additional $4,000 or 5% of the loan amount (capped at $8,000) on top of their initial loan. A Home Energy Rating System (HERS) audit is required. This will bring to light the cost effective improvements. The cost of the improvements are required to be less than the cost of the energy saved over the life of the improvement. The EEM requires a final audit to verify improvements and allow for the release of funds. Similar to a 203k loan EEM funds will be held in an Escrow Holdback account. A Green Borrower will have 90 days to implement and finish improvements.

Is your House Green?
If you would like to learn more about how you can go Green with your Mortgage Loan, Feel free to contact me. It’s time to reduce your Homes “SQ Footprint”..