It’s incredible to think that 16 years ago when I bought my first home with an FHA loan the interest rate was 11.99%. Today the rate for an FHA loan is staying down below 5.5%. Now is such a great time for first time homebuyers to take advantage of the low house prices and these great rates.
Friday, January 30, 2009
Monday, January 26, 2009
Rates heading back up
Market Comment
Mortgage bond prices fell last week pushing rates higher. In an announcement earlier in the month, Fed Chairman Bernanke indicated the timing of a global economic recovery was "highly uncertain." This uncertainty was reinforced last week as the economic turmoil continued across the globe and Spain joined Greece to become the second Euro zone country to have their debt downgraded by Standards and Poor’s. A lower debt rating increases the cost to borrow further aggravating the attempts to fund the massive bailouts. For the second week in a row, interest rates on government and conventional loans rose by about 3/4 of a discount point.
Tuesday, January 13, 2009
Recap for 2008
By The Number$
1. SADLY, HE WAS RIGHT - Stock market talk show host Jim Cramer predicted on 10/06/08 that the US equity market, already down 26.8% YTD (total return) on the S&P 500, could fall another 20%. When the S&P 500 bottomed just over 6 weeks later on 11/20/08, the stock index was down 47.7% YTD. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research, S&P, Denver Post).
2. VERY WRONG - Stock strategist James Finucane predicted on 3/24/08 that the Dow, then at 12,361, would rise to at least 18,000 within a year. The Dow begins today at 8599. Finucane, who correctly called the turn in the market at its October 1987 low, saw an explosive rally coming based upon a huge cash-buildup by investors. The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy (source: Barron’s).
3. DID I SAY UP? - The average year-end 2008 prediction for the S&P 500 made by 9 Wall Street equity strategists on 1/02/08 was 1612, a forecast that called for a gain of +10% for the year. Instead, the S&P 500 finished 2008 at 903, down 37% on a total return basis (source: USA Today).
4. GONE - A 3/10/08 magazine cover story titled “Is Fannie Mae Toast?” suggested a government bailout may be needed. Uncle Sam seized control of Fannie Mae on 9/07/08, committing $100 billion of support (source: Barron’s).
5. MISSED IT - Tom Hoenig, president of the Federal Reserve Bank of KC, said on 1/16/08 that the economy was not in a recession. On 12/01/08, the organization responsible for determining the start and end dates of recessions announced that an official recession began on 12/31/07 (source: NBER, Denver Post).
6. OVER A BARREL - Russian oil executive Alexei Miller predicted in June 2008 that the price of oil would reach $250 a barrel in 2009. Oil closed last Friday at $40.83 a barrel (source: Financial Times).
7. SAY WHAT?! - In a 5/17/07 speech in Chicago, Fed Chairman Ben Bernanke said that Federal Reserve officials “believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system” (source: Federal Reserve).
8. HE MUST HAVE CHANGED HIS MIND - At a symposium in Jackson Hole, WY on 8/31/07, Fed Chairman Ben Bernanke said that “it is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions” (source: Federal Reserve).
9. WHERE’S OBAMA? - A survey of 112 US money managers released on 11/05/07 predicted the outcome of the November 2008 presidential election. 61% of the managers believed Hillary Clinton would win the White House. Taking 2nd place in the poll was Rudy Giuliani with 15% of the vote (source: Barron’s).
10. IT WAS CRUMMY - A 1/18/08 newspaper article quoted Michael Robinet of CSM Worldwide as predicting “it’s going to be a crummy year” for the auto industry (source: USA Today).
11. MUCH BIGGER - On 1/23/08, the nonpartisan Congressional Budget Office (CBO) predicted that the budget deficit for fiscal year 2008 (i.e., the 12 months ending 9/30/08) would be $219 billion. The actual budget deficit for the year was $455 billion, more than twice the CBO forecast (source: Wall Street Journal, Treasury Department).
12. PREMATURE - In a 5/16/08 speech in Washington, Treasury Secretary Henry Paulson said “we are closer to the end of the market turmoil than the beginning. Looking forward, I expect the financial markets will be driven less by the recent turmoil and more by the recovery of the housing sector” (source: Treasury Department).
13. GOOD CALL - A 6/16/08 magazine article titled “Why It’s Worse than You Think” written by Daniel Gross stated that “for months, economic Pollyannas have looked beyond the dismal headlines and promised a quick recovery in the second half (of 2008). They’re dead wrong” (source: Newsweek).
14. SCANDAL - An article questioning Bernie Madoff’s investment strategy (titled “Don’t Ask, Don’t Tell”) appeared in print on 5/07/01, 7 ½ years before his Ponzi scheme was discovered. When asked about the investment policy that he utilized, Madoff replied “it’s a proprietary strategy and I can’t go into it in great detail” (source: Barron’s).
15. A GIANT UPSET - In a 1/28/08 article dated 6 days before last year’s Super Bowl, sports writer Paul Zimmerman predicted a 4-point New York Giants victory over the 12-point favorite New England Patriots. The Giants beat the Patriots, who had an 18-0 record going into the game, by 3 points (source: Sports Illustrated).
Friday, December 19, 2008
Waiting to lock your loan on an assumption is a really BAD idea. You may end up paying more.
Paulson Denies Rumored 4.5 % Mortgage Rate Plan
By DIANA GOLOBAY
December 17, 2008
The U.S. Treasury Department secretary Henry Paulson spoke out Tuesday denying the rumor that he and the Treasury are contemplating a plan to initiate a 4.5 percent mortgage rate for new home loans issued through Fannie Mae (FNM: 0.66 -4.35%) and Freddie Mac (FRE: 0.65 -5.80%), according to a MarketWatch bulletin. “We didn’t float any plan,” Paulson said. “I am always looking at new ideas and I have said from day one that the key thing to get us through this period is getting housing prices down.” Paulson was responding to the discussion circling around the rumor that the Treasury Department would soon encourage Fannie and Freddie to issue mortgages with rates as low as 4.5 percent. Instead, Paulson reinforced his support for a Federal Reserve-initiated plan to buy mortgage-backed securities from Fannie and Freddie as a means of driving down mortgage rates.
In mid-November, Paulson announced he would not use TARP funds to purchase troubled housing-related assets and mortgage-backed securities — the original intent of the emergency relief funds — but instead focus on consumer credit and build up capital in non-banks in a revised strategy to boost up the economy. But apparently it failed to work — or has not worked fast enough — as the Federal Reserve stepped up to the plate earlier on Tuesday and lowered its federal funds and discount rates. The federal funds rate, which has steadily declined through 2008, now stands at a range of zero to 0.25 percent, triggering Wells Fargo & Co. (WFC: 29.36 -0.98%) — along with Wachovia Corp. (WB: 5.69 -1.56%) – to begin lowering prime rates. Both announced Tuesday afternoon they had lowered the prime rate — a benchmark used to set interest rates on corporate and consumer credit — to 3.25 percent from 4 percent.
Interesting to note is Paulson had not commented on the rumors of a mandated 4.5 percent mortgage rate program in the almost two weeks that they had circulated in major news outlets. Ironically, hours after the Fed announcement on the federal funds rate reduction, Paulson walked out into the spotlight and denied the rumors. The peculiar timing of the announcement suggests Paulson may have been waiting for Fed action in reducing the interest rate charged between banks. Or perhaps there was even a bit of a “trial balloon” situation in effect — in which a regulator deliberately leaked news to the media to gauge the public reaction.
On Dec. 4, rumors began circling that the Treasury was considering directly intervening into secondary mortgage markets to help push primary mortgage rates for first-time buyers down to 4.5 percent, according to a report in the Wall Street Journal. News of the potential plan came on the heels of a Nov. 25 announcement that the Federal Reserve would initiate its own program to purchase up to $100 billion GSE direct obligations and $500 billion MBS backed by Fannie, Freddie and Ginnie Mae.
The National Assoc. of Realtors and National Assoc. of Home Builders had been pushing for government-subsidized interest rates to the 4.5 percent level for months, a HousingWire source near Capitol Hill said; the effort has included prominent companies in each field, including home builder Toll Brothers and real estate sales conglomerate Realogy Inc., the owner of the majority of Coldwell Banker and Century 21 offices, said the source, a lobbyist that asked not to be named.
“Our research indicates that an interest rate deduction of just one percentage point could result in as many as 840,000 additional home sales, which would further reduce the inventory of homes by as much as 20 percent,” Lawrence Yun, NAR’s top economist, said at the group’s recent annual conference in Orlando, according to the Sarasota Herald-Tribune.
Monday, December 15, 2008
Thursday, December 11, 2008
Today’s rates are unbelievable, you better believe it!
HOLLY COW! Rates are at 4.875% this morning on a 30 year fixed. If you or anyone you know is looking to refinance you won’t find a better time than right now.
Monday, December 8, 2008
Interesting facts for the week. Or at least someone thinks so.
By The Number$
1. JUST HELPING CLOSE THE DEAL - The Federal Reserve assisted a major Wall Street firm in its 3/16/08 purchase of Bear Stearns by providing up to $29 billion in loans (i.e., a backstop) in the event that the buyer suffered losses on subprime assets acquired in the transaction (source: BusinessWeek).
2. HOUSING RELIEF - President George Bush signed a housing bill on 7/30/08 that will insure up to $300 billion in mortgages. The bill allows up to 400,000 homeowners to refinance their existing mortgages into new 30-year fixed rate mortgages backed by the government. A qualifying homeowner has to be spending more than 31% of his/her monthly income on the mortgage payment and be currently living in the house (source: USA Today).
3. MORE INCENTIVES - The 7/30/08 housing bill had $15 billion in tax cuts, including a first-time home buyer tax credit of up to $7,500 for home purchases between 4/09/08 and 7/01/09. The bill also contained $4 billion for cities to buy and renovate foreclosed properties in hard-hit neighborhoods (source: AP, Denver Post).
4. FANNIE AND FREDDIE - Treasury Secretary Hank Paulson announced a plan on 9/07/08 where the government took control of mortgage giants Fannie Mae and Freddie Mac. The Treasury Department acquired $1 billion of preferred stock in each company, warrants for 80% of their common stock and pledged up to $200 billion of financial support as a result of potential mortgage defaults (source: Wall Street Journal).
5. TARP - The $700 billion “Troubled Assets Relief Program” (TARP) was signed into law by President Bush on 10/03/08. The $700 billion was divided between $250 billion to be allocated by the Treasury Department into bank purchases, another $100 billion to be directed by President George Bush (as needed) and $350 billion to be allocated by our next president (i.e., Barack Obama) in 2009 and beyond (source: Congress, Lincoln Journal Star).
6. SWEETENERS - In order to win Congressional support of the TARP bill, $150 billion of tax incentives were added to the legislation, including changes to the Alternative Minimum Tax law (source: Wall Street Journal).
7. BUYING BANKS - Half of the $250 billion TARP money designated for bank purchases went into 9 banks. This $125 billion bought non-voting preferred bank shares with a 5% dividend. The Treasury also acquired $18.75 billion in warrants (15% of the $125 billion) to buy common stock of the banks (source: BTN Research).
8. MORE BANK PURCHASES - The other $125 billion allocated for bank purchases will be used to take equity positions in smaller US banks, i.e., not the original 9 big banks (source: Financial Times).
9. BUYER OF LAST RESORT - The Fed announced on 10/07/08 (“Commercial Paper Funding Facility”) that it will buy short-term commercial paper through 4/30/09. Eligible issuers of the short-term debt have $1.3 trillion of outstanding commercial paper (source: Federal Reserve).
10. GOVERNMENT-BACKED CORPORATE BONDS - The Federal Deposit Insurance Corporation announced on 10/14/08 the “Temporary Liquidity Guarantee Program.” The plan allows banks and other firms that have been approved to participate and issue up to $1.4 trillion in government-guaranteed bonds with maturities of more than 30 days. The bonds must be issued by 6/30/09. The guarantee lasts no longer than 6/30/12 (source: FDIC).
11. FED HELP - The Fed announced on 10/21/08 that they would lend $540 billion to corporations, a plan (“Money Market Investor Funding Facility”) designed to unclog the commercial paper market (source: WSJ, Barron’s).
12. STRUGGLING INSURER - The original bailout of the nation’s largest insurance company (worked out on 9/16/08) involved an $85 billion loan and warrants that would give the government an 80% ownership in the firm. On 10/08/08, a $38 billion loan was added to the agreement. That deal was reworked on 11/10/08 to a $60 billion loan, a $40 billion purchase of the insurance company’s preferred stock (using some of the $700 billion TARP money), and $52.5 billion to buy other mortgage-backed assets of the firm (source: WSJ, AP, Denver Post).
13. BUYING TROUBLED ASSETS - The Fed announced on 11/25/08 a program (“Government Sponsored Entities Purchase Program”) to buy $600 billion of mortgage-backed securities and debt from Fannie Mae, Freddie Mac, Ginnie Mae and the Federal Home Loan Banks (source: Investment News).
14. CONSUMER CREDIT MARKET - The Fed launched on 11/25/08 a new program (“Term Asset-Backed Securities Loan Facility”) to lend up to $200 billion to private investors who would in turn buy securitized assets that are backed by auto loans, credit card loans, student loans or small business loans (source: USA Today).
15. RUNNING ON EMPTY - The 3 largest auto makers in the USA delivered their request to Congress for $34 billion of loans and lines of credit on 12/02/08 (source: USA Today).
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