Today Ben Bernanke spoke regarding the financial markets long and short-term impacts. The “Home Affordable Refinance Program” is going to be released shortly so prepare for this. The main focus from Bernanke is to maintain low interest rates for as long as possible. This allows as many homeowners as possible to take advantage of the historical low rates under the new Refi program. Long-term low interest rates will bring stability to the market and allows homeowners to secure a rate now versus sitting on the fence waiting. CNBC’s Jim Cramer announced anyone who is above 5.5% on their mortgage should refinance today!! Also for homebuyers, mortgage rates should remain stable for all future purchases.

Federal Reserve is committed to injecting more money to purchase Mortgage Bonds. This will stabilize the market allowing rates to settle through the end of the year. Don’t wait as inflation or other variables can possibly increase interest rates over night.

Post from: The Mortgage Reel - Seattle Real Estate Preferred Correspondent Lender

Fed Chairman Ben Bernanke Provides Confidence To The Markets

Boy does media have it wrong to say the least, they are normally about a week behind the actual news and continually quote national averages. Lets keep it real, what do national averages mean to you, nothing.  What is directly impacting your city/neighborhood/area and how are home loan rates impacted?

There are still many that believe home loan rates will lower….. The real question is, how much lower?   There is definitely a pattern that has been created in the mortgage markets.  The days that Wall Street gets hammered and sells off by 200 to 300 points we see the Mortgage Backed Securities move up slightly translating to a possible .125% improvement in interest rate.  In today’s market these significant sell offs hardly improve home loan rates.  

Let’s dive a little deeper.  Media has not even announced how the Federal Reserve is going to maintain home loan rates.  The initiative began when the Feds announced $500 Billion being allocated to purchase Mortgage Back Securities from January 1, 2009 to June 30, 2009.  With President Obama’s stimulus plan they allocated another $200 Billion, totaling $700 Billion.  WHAT DOES THIS MEAN?

As a simple reference.  You have a product that you manufacture and sell on the open market.  You have guaranteed buyers waiting for your product, would you market your product on sale at a reduced price?  Most likely not, that is business.  

Now going back to the Federal Reserve and Banks.  If the banks know that there is a guaranteed buyer for mortgages that they produce what would make them lower the rates / put it on sale?  HMMMM…. clearly not with a demand.

This creates a floor and ceiling for home loan rates for now.  Locally we have seen rates touch 4.75% (30yr fixed) and then bounce up to 5.375%. Each time we approach the low and high we test a level of resistance that is now difficult to break.  

Traditionally when the Dow Jones deteriorated and lost 200 points, money was invested in Mortgage Backed Securities and Bonds as a “safe haven.”  More money invested into the “safe havens” reduces the yields, creating lower home loan rates.    

So why is this not happening?  This is still true in today’s market but at a different level.  Wall Street is gun shy when purchasing Mortgage Backed Securities.  They buy & sell to the supply & demand of the Federal Reserve which is roughly $4 Billion per trading day.  Keep in mind of the reference we previously used, putting your product for SALE.  When Wall Street rallies for positive gains where does that money come from?  In most cases directly from Mortgage Backed Securities and the bond market, which increases yields, INCREASING home loan rates.  

The Dow Jones is down over 55% since 2007.  Unemployment numbers released on March 5th were at 25 year highs!  With this significant news, home loan rates barely broke 4.75% (30yr fixed).  The question is why rates would go even lower.  Government?  Wall Street?  Strike those ideas!

Clearly the Federal Reserves initiative to keep home loan rates low is working. Maintaining rates where they are is critical to the recovery of real estate and the future of our economy.  

There is a BUT to this, INFLATION!  What happens to home loan rates when the $700 Billion is used up, the Federal Reserve does not allocate more funds and the market still has not turned the corner to recovery? Remember, mortgages are exposed to the supply & demand model. If Wall Street is not purchasing Mortgage Backed Securities to meet the supply then yields of these securities will increase to attract buyers, and will interest rates.  Now if rates go up and housing is still flat…that is just a bad thought, does not need to be written, imagination can take over from here.

Right now is the time to consider what you need to accomplish, based on your own goals, not the market. If cash flow is a concern why wait, increase the cash flow by refinancing and have one less concern. If you are looking to buy, the only question is what your comfort level is?  Yes the market may still be soft, but there is an important balance of low rates and low home prices.  Create a realistic goal to take advantage of today’s market.  There will always be buyers and sellers, real estate values will appreciate regardless of the market.  It all boils down to timing; can you take advantage of low rates and home prices?  

We hope you enjoyed this posting, please feel free to give feedback and if it was valuable to you please pass it along and share it with others.

Committed,

The Mortgage Reel

Post from: The Mortgage Reel - Seattle Real Estate Preferred Correspondent Lender

Will interest rate still go lower? 4.5% or less, fact or fiction?

Here are two quick examples of the plan that you need to know as a home owner looking to take advantage of this opportunity. 

1.    If you purchased a new home for $350,000 and your loan amount is $310,000.  You have paid the monthly payments on time and reduced your balance to $300,000.  Due to the declining market your home value is now $262,000, a reduction of 25%.  The loan would require a max loan to value of 105%.  You would currently be at 115% so $25,000 is required to refinance. 

2.    Under the subprime loan modification, the lender would have to reduce the interest rate until the monthly payment (principle and interest) are equal to 38% of the borrowers pre tax income. 

After reducing the interest rate, the federal government and lender would pay an equal amount to the monthly payments to reduce the 38% ratio above to 31%.  The lower interest rate would remain for 5 years and would rise after.  

Copy of President Barack Obama’s speech from www.cnbc.com

“The plan I’m announcing focuses on rescuing families who have played by the rules and acted responsibly: by refinancing loans for millions of families in traditional mortgages who are underwater or close to it; by modifying loans for families stuck in sub-prime mortgages they can’t afford as a result of skyrocketing interest rates or personal misfortune; and by taking broader steps to keep mortgage rates low so that families can secure loans with affordable monthly payments.  In the end, the home mortgage crisis, the financial crisis, and this broader economic crisis are interconnected. We cannot successfully address any one of them without addressing them all.

“First, we will make it possible for an estimated four to five million currently ineligible homeowners who receive their mortgages through Fannie Mae or Freddie Mac to refinance their mortgages at lower rates.

“Right now, Fannie Mae and Freddie Mac—the institutions that guarantee home loans for millions of middle-class families—are generally not permitted to guarantee refinancing for mortgages valued at more than 80 percent of the home’s worth. So families who are underwater—or close to being underwater—cannot turn to these lending institutions for help.

“My plan changes that by removing this restriction on Fannie and Freddie so that they can refinance mortgages they already own or guarantee. This will allow millions of families stuck with loans at a higher rate to refinance. And the estimated cost to taxpayers would be roughly zero; while Fannie and Freddie would receive less money in payments, this would be balanced out by a reduction in defaults and foreclosures.

“I also want to point out that millions of other households could benefit from historically low interest rates if they refinance, though many don’t know that this opportunity is available to them—an opportunity that could save families hundreds of dollars each month. And the efforts we are taking to stabilize mortgage markets will help these borrowers to secure more affordable terms, too.

“Second, we will create new incentives so that lenders work with borrowers to modify the terms of sub-prime loans at risk of default and foreclosure. Sub-prime loans—loans with high rates and complex terms that often conceal their costs—make up only 12 percent of all mortgages, but account for roughly half of all foreclosures. Right now, when families with these mortgages seek to modify a loan to avoid this fate, they often find themselves navigating a maze of rules and regulations but rarely finding answers. Some sub-prime lenders are willing to renegotiate; many aren’t. Your ability to restructure your loan depends on where you live, the company that owns or manages your loan, or even the agent who happens to answer the phone on the day you call.

“My plan establishes clear guidelines for the entire mortgage industry that will encourage lenders to modify mortgages on primary residences. Any institution that wishes to receive financial assistance from the government, and to modify home mortgages, will have to do so according to these guidelines—which will be in place two weeks from today.

“If lenders and homebuyers work together, and the lender agrees to offer rates that the borrower can afford, we’ll make up part of the gap between what the old payments were and what the new payments will be. And under this plan, lenders who participate will be required to reduce those payments to no more than 31 percent of a borrower’s income. This will enable as many as three to four million homeowners to modify the terms of their mortgages to avoid foreclosure.

“So this part of the plan will require both buyers and lenders to step up and do their part. Lenders will need to lower interest rates and share in the costs of reduced monthly payments in order to prevent another wave of foreclosures. Borrowers will be required to make payments on time in return for this opportunity to reduce those payments.

“I also want to be clear that there will be a cost associated with this plan. But by making these investments in foreclosure-prevention today, we will save ourselves the costs of foreclosure tomorrow—costs borne not just by families with troubled loans, but by their neighbors and communities and by our economy as a whole. Given the magnitude of these costs, it is a price well worth paying.

“Third, we will take major steps to keep mortgage rates low for millions of middle-class families looking to secure new mortgages.

“Today, most new home loans are backed by Fannie Mae and Freddie Mac, which guarantee loans and set standards to keep mortgage rates low and to keep mortgage financing available and predictable for middle-class families. This function is profoundly important, especially now as we grapple with a crisis that would only worsen if we were to allow further disruptions in our mortgage markets.

“Therefore, using the funds already approved by Congress for this purpose, the Treasury Department and the Federal Reserve will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities so that there is stability and liquidity in the marketplace. Through its existing authority Treasury will provide up to $200 billion in capital to ensure that Fannie Mae and Freddie Mac can continue to stabilize markets and hold mortgage rates down.

“We’re also going to work with Fannie and Freddie on other strategies to bolster the mortgage markets, like working with state housing finance agencies to increase their liquidity. And as we seek to ensure that these institutions continue to perform what is a vital function on behalf of middle-class families, we also need to maintain transparency and strong oversight so that they do so in responsible and effective ways.

“Fourth, we will pursue a wide range of reforms designed to help families stay in their homes and avoid foreclosure.

“My administration will continue to support reforming our bankruptcy rules so that we allow judges to reduce home mortgages on primary residences to their fair market value—as long as borrowers pay their debts under a court-ordered plan. That’s the rule for investors who own two, three, and four homes. It should be the rule for ordinary homeowners too, as an alternative to foreclosure.

“In addition, as part of the recovery plan I signed into law yesterday, we are going to award $2 billion in competitive grants to communities that are bringing together stakeholders and testing new and innovative ways to prevent foreclosures. Communities have shown a lot of initiative, taking responsibility for this crisis when many others have not. Supporting these neighborhood efforts is exactly what we should be doing.

“Taken together, the provisions of this plan will help us end this crisis and preserve for millions of families their stake in the American Dream. But we must also acknowledge the limits of this plan.

“Our housing crisis was born of eroding home values, but also of the erosion of our common values. It was brought about by big banks that traded in risky mortgages in return for profits that were literally too good to be true; by lenders who knowingly took advantage of homebuyers; by homebuyers who knowingly borrowed too much from lenders; by speculators who gambled on rising prices; and by leaders in our nation’s capital who failed to act amidst a deepening crisis.

“So solving this crisis will require more than resources—it will require all of us to take responsibility. Government must take responsibility for setting rules of the road that are fair and fairly enforced. Banks and lenders must be held accountable for ending the practices that got us into this crisis in the first place. Individuals must take responsibility for their own actions. And all of us must learn to live within our means again.

“These are the values that have defined this nation. These are values that have given substance to our faith in the American Dream. And these are the values that we must restore now at this defining moment.

“It will not be easy. But if we move forward with purpose and resolve—with a deepened appreciation for how fundamental the American Dream is and how fragile it can be when we fail in our collective responsibilities—then I am confident we will overcome this crisis and once again secure that dream for ourselves and for generations to come.

“Thank you, God bless you, and God bless America.

2009 reuters

Post from: The Mortgage Reel - Seattle Real Estate Preferred Correspondent Lender

President Obama’s Housing Stimulus Plan

Post from: The Mortgage Reel - Seattle Real Estate Preferred Correspondent Lender

Federal Rate Cut