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Posts Tagged ‘federal reserve bank’

Home Mortgage Rates Expected To Drop Below 5% Soon

January 5th, 2009 by Matthew C. Keegan | 11 Comments | Filed in Home Buying, Home Financing

Very good news in the form of lower home loan rates is beginning to unfold across the nation. After peaking just above 6% in Spring 2008, rates are currently just above 5% and expected to continue to fall over the weeks ahead. According to The Wall Street Journal (Home-Mortgage Rates’ Next Stop: Below 5%; January 2, 2009, page C2) house moneyrates may fall even further, perhaps as low as 4.5% for a fixed rate thirty year loan.

This news comes at a time when the country’s housing market is battered and bruised. In some areas of the country, home prices have lost most of the gains realized since 2000 with the Detroit market experiencing price declines in negative territory. The lower interest rates on home loans won’t help all current homeowners especially those whose home values have retreated considerably these past few years.

However, the lower rates will help people who have sat out of the market and are still looking to buy. With home prices depressed and home loan interest rates dropping, demand may begin to pick up. This could translate into the market hitting bottom, the place where many buyers will want to jump in before prices rebound.

So what is driving the lower rates? That would be the Federal Reserve Bank which is planning to purchase $500 billion worth of mortgage backed securities by this coming June, a move which should stabilize the mortgage market. The US Treasury has also jumped in, purchasing $50 billion of mortgage bonds.

For consumers who are planning to buy a home in 2009, there are a few things you can do to take advantage of the coming lower rates including the following tips:

Obtain copies of your credit reports – Free copies of your credit reports are available through AnnualCreditReport.com, a website jointly managed by the three major credit reporting agencies – TransUnion, Experian and Equifax. Get copies of your reports and check them closely for errors; follow each company’s instructions for making corrections. In addition, pay the nominal fee to get your credit score from at least one of the companies; the higher your score the better – the more likely you’ll be approved for a home loan and at a favorable interest rate.

Raise your down payment – Few lenders will offer you a loan if your down payment contribution is only 5%. Many are now requiring as much as 20% down, an amount that could be well beyond the reach of many buyers. Still, you may have that money available in the form of bonds, stocks, retirement savings, etc. Now is the time to assess your portfolio and see which funds can be diverted to purchase a home. In any case, shop around for a mortgage; get prequalified for a loan before you begin to shop for a home. Finally, pay off as much debt as possible.

Begin preliminary shopping – Likely, you’re already familiar with the market where you want to purchase a home. However, even over the past few months prices in some areas have plunged considerably. Learn what the current housing market is like and plan accordingly. You don’t want to overpay in this market, but you do want to offer a competitive price to the seller.

Will the drop in home loan rates signal the end of the recession? That’s hard to say. However, it most certainly will open the door to homeownership to new buyers even as foreclosures continue to mount. If you have the funds to buy, 2009 could turn out to be the best opportunity to buy.

Get prepared now in order to be ready for the Spring home selling season. When Spring arrives you’ll be ready to jump in, perhaps finding the deal of a lifetime.


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Inflation Spike Highest In 17 Years

July 22nd, 2008 by Matthew C. Keegan | 1 Comment | Filed in Consumer Financing

You have to go all the way back to 1991 to recall an inflation spike as high as the one we’re going through right now. Last Wednesday, the U.S. Labor Department confirmed what so many Americans already know: inflation is up 5% over the same period in 2007. Leading the way are gasoline and food Money Stock Chartprices which are currently at record levels.

This news comes on top of other findings which reveals that wages are not keeping up, increasing on average 3.4% over the past twelve months. Already hit hard by higher gas and food prices, many consumers are also paying more for their mortgages and finding that many other consumer products are also on the rise due to higher shipping costs.

Energy prices for June 2008 were up 6.6%, fueled by a 10.1% increase in gasoline. All throughout the month of June pump prices climbed on a daily basis sending shockwaves through the auto industry and dropping consumer confidence.

Federal Reserve Bank Chairman Ben Bernanke weighed in on the news by offering a lengthy report to the US Congress in conjunction with the Fed’s semi-annual monetary policy report. Highlights of his speech included the following statement:

“The U.S. economy and financial system have confronted some significant challenges thus far in 2008. The contraction in housing activity that began in 2006 and the associated deterioration in mortgage markets that became evident last year have led to sizable losses at financial institutions and a sharp tightening in overall credit conditions. The effects of the housing contraction and of the financial headwinds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities, which have sapped household purchasing power even as they have boosted inflation. Against this backdrop, economic activity has advanced at a sluggish pace during the first half of this year, while inflation has remained elevated,” said Bernanke.

Though it is within Bernanke’s authority to drop interest rates in a bid to stimulate the economy, the Fed chairman hasn’t indicated that additional decreases are coming. Typically, when inflation creeps up, the Fed responds by raising rates. However, with the housing and consumer lending crunch looming large, Bernanke will likely not increase rates either.

Finally, although the Consumer Price Index (CPI) rose just 0.3% during the same period, annualized it is a 3.6% increase jump, much higher than the Fed’s preferred 1-2% annual increase. The CPI, however, does not include food and energy prices, the two biggest driving points in this lackluster economy.

(Source: CNNMoney.com)

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Plunging Fed Rate & Mortgage Rates

March 27th, 2008 by Matthew C. Keegan | 2 Comments | Filed in Home Financing

Consumers have been keeping close tabs on federal interest rates, witnessing a three-point decline from 5.25% to 2.25% mortgage ratesin a six-month period. For people seeking to refinance their existing loans and for prospective homeowners needing a first mortgage, the lowered interest rates is good news.

However, unlike five to seven years ago when the federal rate dropped to a near historic low of 1%, mortgage interest rates are not likely to go much lower even if the Federal Reserve Bank decides to cut interest rates again. Other factors, namely a slowed economy, is impacting mortgage interest rates which means one thing: now may could be the best time for you to take action.

Mortgage Backed Securities

Another factor determining mortgage interest rates are mortgage backed securities, those funds which finance a large pool of mortgages today. Banks typically sell off home mortgages to secondary markets, but inflation fears and the credit crunch have kept mortgage rates from dropping. Investors are shying away from mortgage backed securities, preferring less-risky financing options.

Wait It Out?

Some financial analysts predict that a further easing of mortgage interest rates could occur this summer as the housing market begins to heat up again. A stronger housing and the easing of the current credit crunch can spur interest in mortgage backed securities, driving down rates across the board.

Further Reading

Dollar Gains on Speculation Fed’s Actions Will Revive Growth

Fed’s bold moves: Band-Aid or breakthrough?

The Fed’s Interest Rate Cut Doesn’t Mean Mortgage Rates Will Fall

Resources

Home Purchase Loans

Home Refinancing


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Fed Rate Cut Opens A Window For Refinancers

January 28th, 2008 by Matthew C. Keegan | 3 Comments | Filed in Consumer Financing, Home Financing

The Federal Reserve Bank cut interest rates by three quarters of a point this week, opening a window for consumers who need to refinance their homes. With hundreds of thousands of adjustable-rate mortgages expected to reset in 2008, the timing of this cut is on the mark for credit-worthy consumers.

The Lowest Mortgage Rate In Four Years

The new rate, at 3.5% will eventually filter down to mortgages, indeed the trend has already started. According to Bankrate, the average rate for a 30-year fixed mortgage now stands at 5.57%, the lowest it has been since March 2004.

The Fed’s Emergency Action

The Fed’s rate cut has been called an “emergency action” as the federal government looks at ways to stem the current mortgage financing crisis. With so many homeowners holding low-rate adjustable mortgages expected to reset at much higher rates over the next few months, politicians are seeing a crisis in the making.

When 2007 began, the subprime mortgage mess unfolded resulting in a higher number of loan defaults leading to a surge in home foreclosures. The U.S. Congress encouraged the relaxing of qualifying standards in the early part of this decade by expanding home ownership to lower-income consumers. Barely able to make mortgage payments many at-risk homeowners weren’t able to meet their higher monthly payments which began to reset in 2006 for some.

Qualifying For Refinancing In 2008

Despite the good news of a rate drop, not every homeowner will qualify for refinancing. Mortgage companies have tightened up lending requirements and are insisting that the following standards be met before lending money:

Consumers must have good credit. Those homeowners who have already defaulted on their loans are not eligible to refinance and many who are behind on their payments and approaching foreclosure will also be left out. A good to excellent credit score is what most mortgage companies are now requiring.

Adequate documentation is required. Those “no-doc” or no documentation loans from just a few years ago have disappeared. Today, consumers must show proof of income, show job stability and they may have to show their federal tax returns dating back as many as the past three years.

Refinance Now or Lose Out

Some homeowners are likely to want to wait and refinance when rates drop further in order to gain the best rate possible. This could be a mistake for two reasons:

  1. There is no guarantee that rates will drop much further, and
  2. Mortgage rates are already below historical averages.

Any delay on seeking refinancing could close that window for some consumers. If your financial picture is stable right now, what will it be in April or in August? Industry experts are advising consumers needing to refinance their loans to act while they can, before the refinancing window closes for good.


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