Archive for December, 2008

A year in review

December 31, 2008

What a year it has been! I am sure many people are glad to see 2008 coming to an end. With such a hectic and unprecedented year, I thought it would be a good idea to take a look at what we’ve been through and where we could be headed.

– Tightening guidelines for lenders: 2008 saw the end of many loan programs that quite honestly never should have existed. Lenders didn’t stop there. 100% financing is gone and so too was 97% financing for a better part of the year. There are now rate adjustment for credit scores in the low 700s when “back in the day” any score over 700 (sometimes 680) was considered as good as it gets.

– Inflation appears and disappears: 2008 also witnessed some of the highest inflation figures in the last 10-20 years. Inflation was pressured by several factors including increases in food costs, high gas prices, and cuts to the Federal Funding rate. Inflation put pressure on interest rates and caused them to rise into the mid to high 6% range. Rates looked to continue to climb until…

– Oil prices go crazy: The biggest influence on inflation this year was high oil prices (over $150 a barrel) which created high gas prices (over $4 a gallon). Once the balloon burst on $150 oil, the price per barrel plummeted to its present levels of less than $40. The drop in oil caused the price of gas to go from $4.00+ to $1.61 a gallon (according to AAA) at the time of this post. With the price of gas lower than it has been in several years, inflation numbers decreased easing the pressure put on interest rates allowing them to fall back from their yearly highs.

– Bailouts, bailouts, and more bailouts: 2008, the year of the bailouts. It seemed that almost every company that came asking for a bailout got it in 2008. The taxpayers got a bailout in May, Fannie Mae, Freddie Mac, AIG, an endless number of banks, the big 3 in Detroit, and more got bailouts over the rest of the year. The U.S. government went crazy (Democrats and Republicans alike) offering money to try and stimulate the economy.

– The Federal Reserve: 2008 was a busy year for the Feds as they continued to cut the Federal Funding rate down to its present level, which is virtually at 0%. The Feds main weapon (cutting the Fed rate) for stimulating the economy is now gone since the Federal Funding Rate cannot go any lower. Because of this, the Fed shifted gears to prop up mortgage backed securities. In November, the Federal Reserve bought billions of dollars of mortgaged backed securities causing rates to drop a half point over night. At their most recent meeting, they indicated they would continue to buy more mortgage backed securities, and rates got as low as 4.5% before rebounding higher.

As we end 2008, I could go on-and-on with this post about the details of every bailout, goals of Obama, interest rates setting yearly highs and then historical lows, property values declining at alarming rates in some parts of the country, etc. To sum it all up, 2008 was an exciting, tough, and hard fought year.

Now for the million dollar question, where exactly are we going in 2009? Some are projecting growth in the second half of the year. Other are saying “doom-and-gloom” for all of 2009. A more realistic thought, at least for the time being, would be to expect more of the same – bad economic news, volatility in both stocks and bonds, more attempts by the Federal Reserve and Washington to help stimulate the economy, and endless promises and blame shifting by politicians.

If moving toward a home purchase or refinance in 2009, be sure keep in touch with a mortgage broker who follows the market and is up to date on all the changes taking place. If you are in the state of Georgia, I have a great referral for you :-). Keep reading into the “disclaimer” below for ways to reach me in order to get prequalified to purchase or refinance a home.

Happy New Year!!

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

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Happy Holidays!!

December 24, 2008

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Wishing the best to you and yours this holiday season.

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

nowhere to go for one rate

December 16, 2008

The Federal Reserve lowered the Federal Funding Rate by 0.75% today making its effective trading range from 0.00% – 0.25%.  The Feds also said that the rate would need to remain at this level “for some time.”

With the Fed rate almost at 0%, the Federal Reserve’s main weapon for stimulating the economy is now effectively off the table.  There is no more room for future rate cuts.  The Feds policy heading forward will be to ensure there is ample capital in the markets shifting the focus from the “price of borrowing money” to the “quantity of money available.”  Yes, that is right.  The Fed is going to start (literally) printing money. 

That subject easily deserves its own post (or posts).  For now, let’s focus on where will interest rates go from here?  The answer lies in the market reaction to today’s news. 

– Stocks typically respond favorably to Federal Funding Rate cuts, and today was no exception.  Stocks finished up over 350 points.

– Bonds typically respond negatively to Federal Funding rate cuts, and today was an exception.  Why? The Feds statement also indicated they would be purchasing more mortgage backed securities — the driving force behind interest rates.  With an increasing demand for bonds and no more future rate cuts possible, bond prices rose instantly and ended the day up over 100 points.

So, the questions… will rates get better?  should I lock in my rate today?  As volatile as the market is right now, no one knows for sure.  The answer depends on your own disposition.  If you have the stomach for it, wait it out and see what happens.  You could wind up with the best rate of anyone during this refinance boom OR miss out entirely.  If you prefer a sure thing, go ahead and lock in your rate to ensure you won’t miss out and enjoy all the monthly savings that come with your new mortgage payment.  Which option do you prefer? 

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

nowhere to go?

December 12, 2008

“Will rates go lower? Will rates go lower?”  From the news, I bet you already knew I am hearing that question a lot these days.  The possible answer, it seems, is that rates have nowhere else to go.

Well, rates always have one direction to go – up.  However, interest rates may be as low as they possibly can go, and there are several different factors emerging this trading week that support this statement.

– There is almost no difference between the rates on a 15 year fixed loan and a 30 year fixed loan.  Typically, you will see as much as a half point difference in rate between the two programs. Lenders offer lower rates on a 15 year loan because they loan will be repaid twice as fast as a 30 year loan.  Today, those rates are virtually the same. This shows that the 15 year rate isn’t getting better regardless of how the bond market performs.  If that is the case, how much better will 30 year fixed rates get?

– Inflation will prevent rates from improving too much more.  Why?  For a 30 year fixed loan at 5% or less, year-over-year inflation will consume the profit on the interest rate long before the mortgage is paid off.  Meaning well before 30 years has passed, inflation will exceed the interest rate and the bank will begin losing money on that loan.  Luckily for banks, no one keeps a loan for 30 years anymore, but the principle is the same – banks can’t afford for rates to drop much further and stay in the business of lending money.

– There are technical factors at work too.  See the daily bond movement in the chart below.  For over two weeks, bonds have tried to break through the “R1” barrier and failed.  Even with the terrible job reports, economic news, and losses in stocks, bonds prices can’t seem to push through this line.  This seems to be a technical ceiling that may never be broken*.

 

12-12-08-chart1*on a side note, even on the days where the market did improve, rates didn’t improve much (if at all) and remained at the 4.875%-5.000% range for a 30 year fixed

– Even bad economic news isn’t helping bonds as much as normal.  News released late last night that the bailout for the Big 3 in Detroit failed.  This not only hurt our stock market, but stocks around the world.  Typically, bonds would respond strongly to this kind of news.  The result… bonds still couldn’t push through this R1/R2 barrier.  You see the small tip of the “green candlestick” on the right.  That shows how high bond values reached only to drop down by the end of the trading day.

– Bonds are in a state of “oversold.”  Bond traders are also noticing this possible trading ceiling and figures this may be as good as it gets.  Traders are moving to a “selling” mode to take advantage of the current gains in the market.  As the mood changes from “buying” to “selling”, the value of bonds drops and interest rates rise.

By no means am I predicting the future, but when you consider factors such as the 15 year and 30 year rates being almost identical, inflation, and some technical aspects of trading, this may be as good as it gets for rates. 

Some borrowers out there are still holding out for 4.5%, but that is no guarantee.  Who knows if the government will actually go through with its proposed idea to try and reach 4.5%, and even if they do, the Feds have clearly stated it will be for purchases only.

During the last refinance boom of 2003, some borrowers kept holding out for rates to get better, and the rally finally stopped and turned.  Many missed out on the low rates hoping they would get better.  We are still at historically low rates on a 30 year fixed.  Don’t miss out in 2008!

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

 

 

A theory on the Fed’s rate plan

December 7, 2008

We have all seen the headlines – Fed’s target 4.5% interest rates – but can that actually happen? If so, how will this plan be implemented?  This is what we do know.

The week of Thanksgiving, the Fed’s said they would purchase $600 billion in mortgage backed security bonds.  On this announcement, the value of bonds skyrocketed, and interest rates plummeted a half a point in one day.

Now the Feds want to do it again and are targeting 4.5% for borrowers to buy new homes (not refinance existing homes).  Again, we come back to the same questions.  How will the Feds do this? Can they do this?

I honestly have no idea what the Feds will actually do, but after talking with a few other people in the industry, here is a theory on how this plan may play itself out…

The “4.5% plan” will have a beginning and ending period for new home purchases.  During this time frame, the actual interest rate will not necessarily go down to 4.500% on lender’s rate sheets.  Instead, the Feds will “subsidize” the interest rate to effectively make it 4.500%, but not at the time of the home purchase. 

Instead of having the actual interest rate lowered, the borrower will get an additional tax credit on the difference between the interest they paid from their actual interest rate versus the magical “4.5%” rate the Feds plan promoted.  By doing it this way, a borrower effectively gets the lower rate on the loan, and the Feds don’t shell out any real money. It is all done on paper. 

Think it is far fetched?  It actually isn’t.  There are tax breaks and tax credits given out all the time for this very reason – real money isn’t being exchanged.  It is all on paper.

If you are in the market to buy a home or refinance a home, what should you do? Well, the Feds plan may not even happen.  Even if it does, there could be numerous caveats in it that prevent some borrowers from taking advantage of the lower rate.  My advice… don’t wait on the Feds (especially if you are looking to refinance).  Rates won’t stay low forever and you just might miss out if you do wait.

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

How low will they (rates) go?

December 6, 2008

We have all seen a fair share of nasty headlines for the housing and lending industries in 2008.  Finally, there is some great news coming out in regards to interest rates.  When the Feds announced they would purchase $600 billion dollars in mortgage related assets, interest rates plummeted a half a point in one day.

On a side note, if you are a client of mine and we have not discussed your optimum target refi rate and entered it in to the myRateTrack.com system, then we need to talk as soon as possible.  To start tracking your mortgage refinance options and to set a target refi rate so that you will be alerted when it’s time to take action, use the PROMO code “HSL” to enter the myRateTrack.com system for free.

Back to the post at hand… rates in the low 5’s are good, but how low will they really go?  I know most of you have probably heard by now that the Feds are targeting 4.5%, but can that actually happen?  The answer is a little tricky.

The Feds believe that if they can do it once (week before Thanksgiving they caused rates to drop a half a point to the low 5’s), then they can do it again.  That may be true, but there are a few things to consider.

– Interest rates move with the market, and buying mortgage backed security bonds is not the only thing that impacts the market.  Other factors include economic news, how are stocks trading, and are bonds overbought/overpriced. All of these influence bond pricing.

– Some lenders may be as low as they can afford to go at 5%. Why?  If rates do drop to 4.5%, inflation would eat up any profit margin on that 30 year loan in its first 5-10 years.  Even if the bond market continues to improve, some lenders may not drop their rates too much more because of the inflationary risks.

– If the government does go through with their plan to buy more bonds, they will indeed own a majority of the bond market.  How will the market react if one entity (the US government) owns most of the mortgage backed security bond market?  Honestly, no one really knows.

Lastly, everyone should not get too excited about the possibility of rates at 4.5%. Why?  Well first, our government says lot of things but that doesn’t mean it will actually happen.

Second, it seems this plan pertains only to home purchases and NOT refinances.  This could be seen as a ploy to get people to buy homes.  Right now it seems that the more urgent need is for borrowers to refinance.

For now, anyone sitting on the fence for a refinance should take the low rate now instead of waiting and hoping for 4.5%.  Even if rates get there, 4.5% may not be an option if you are refinancing.

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

It worked!!

December 5, 2008

Those of you using myRateTrack.com with a target rate set below 5.5% already know this, but for those of you who don’t… the system works!!!

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.