Paula Henry

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Making English Out Of Fed-Speak (October 2008)

October 31st, 2008 categories: Indianapolis Real Estate News, Real Estate Financing

The Federal Open Market Committee cut the Fed Funds Rate to 1.000 October 29. 2008

The Federal Open Market Committee voted to cut the Fed Funds Rate by one-half percent today.  The benchmark rate now stands at 1.000 percent.

In its press release, the Fed wasted no time addressing the key issue at-hand, stating that economic activity has “slowed markedly”, pointing to three main causes:

  1. Consumer spending is falling
  2. Business equipment spending is falling
  3. Slowing foreign economies are hurting U.S. businesses

Furthermore, the voting FOMC members are wary of an “intensification” of the current financial market turmoil.

The announcement’s 4th paragraph is noteworthy, too.  It lists the plethora of growth-stimulating steps that the Fed has taken so far this year and concludes that credit conditions should improve in time.  It does notes, however, that if markets don’t improve in good time, the committee will “act as needed”.

In the wake of the announcement, stock markets rallied.  Investors liked what the Fed had to say and it drew funds into the stock market from all corners of Wall Street.  Unfortunately for mortgage rate shoppers, one of those corners happened to be the mortgage bond market.

The exodus from bonds caused mortgage rates to rise.

It’s a common misconception that the Federal Reserve controls mortgage rates and today’s market action should help dispel that myth.  As the Fed Funds Rate falls back near its 50-year low, mortgage rates are bumping up against a 3-year high.

Source
Parsing the Fed Statement
The Wall Street Journal Online
October 29, 2008
https://online.wsj.com/internal/mdc/info-fedparse0810.html

Authored by Paula | Discussion: No Comments »

Is Hope for Homeowners a Plan for You?

October 27th, 2008 categories: Indianapolis Real Estate News, Indy Foreclosures, Real Estate Financing

The Hope for Homeowners (H4H) plan went into effect on October 1st. While, I do believe it is a benefit for some, I don’t think it will help or benefit as many as it should. Many of the homeowners I speak to have to weigh the financial impact of their decision to try and stay in their home. Some can not be helped by this plan.

Let’s look at the details.

To qualify:

  • The home must be your primary residence 
  • You can not have ownership in any other residenial property.
  • Your current mortgage was originated before January 1,2008
  • You must have made at least six payments
  • Your lender must agree to accept 90% of the current market value

The costs:

  • 3% upfront mortgage insurance premium
  • Closing costs for the new loan
  • Your equity, in the form of equity share
  • You can not refinance for five years

If your home is worth $200,000 and the current lender writes off the loan to $180,000, you will have a new FHA loan for $180,000, but FHA owns your equity. Depending on when you sell your home, the equity you receive will be 50% or less.

Sell the first year, you receive none of the equity.

  • Year two, you receive 20%
  • Year three, you receive 30%
  • Year four, your receive 40%
  • Year five and beyond, you receive 50%

This is a great deal for those who owe more than the $200,000 the home currently appraises for, especialy if they have the money for the upfront fees and plan on staying in their home.

My first thought is the plan may be too taxing for many banks, depending on the amount of the original loan versus the current appraised value. If the amount of the original loan for the same $200,000 home is $220,000, the bank will automatically write off $40,000. In Indianapolis, where we did not have huge price increases, this may be a viable option for some homeowners who are facing foreclosure.

See the full guidelines here. 

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Authored by Paula | Discussion: No Comments »

The Impact Of The Federal Reserve’s Emergency Half-Point Rate Cut To 1.500 Percent

October 10th, 2008 categories: Real Estate Financing

The Federal Reserve made an emergency rate cut October 8, 2008, dropping the Fed Funds Rate by one half-percent to1.500 percentThe Federal Reserve made an “emergency rate cut” yesterday morning, dropping the Fed Funds Rate by one half-percent to 1.500 percent.

The move is meant to stimulate the U.S. economy.

When the Federal Reserve changes the Fed Funds Rate, it often takes 9 months for the changes to work their way through the economy. 

On a broad scale, therefore, we won’t know if the cut truly “worked” until Summer 2009.

But, as it relates to Americans in general, the rate cut spurred two immediate changes.

First, because Prime Rate is directly tied to the Fed Funds Rate, Prime Rate fell by 0.500 percent today, too.  That means that interest rates on credit card debt and home equity lines of credit are now lower, reducing monthly interest costs for the majority of American households.

The second change is that mortgage rates are rising today.

The Fed’s actions today sparked optimism in some corners of Wall Street and money is now flowing into the stock market at the expense of bonds.   Because mortgage rates move in the opposite direction from bond demand, mortgage rates are higher this morning.  A client here in Indianapolis saw a increase in their mortgage rate this afternoon from this morning from 6.375 to 6.5%. Granted, it’s not much; but the rates are headed up.

As always, mortgage markets and mortgage rates remain on edge.  Therefore, rates are subject to change.  And quickly.  If you see a rate and payment you like, be ready to commit to it because it likely won’t last long.

(Image courtesy: USA Today)

Authored by Paula | Discussion: 7 Comments »

What Caused the Housing Crisis?

October 3rd, 2008 categories: Indianapolis Real Estate News, Indy Foreclosures, Real Estate Financing

Warning - this post is political in nature!

Not being one to publish political views on my blog, I have been debating for over a week about whether to post this video here. Ultimately - I decided the general public should see the video and make their own conclusions.

Even as a REALTOR, I wonder, how did the climate of the real estate market change so dramatically in such a short period of time. I believe this video answers the question best. The simple answer is, supply and demand. When the supply of “easy” loans were made available, the demand for such loans increased. As more people qualified, homes were quickly purchased, decreasing the supply of inventory, which increased the demand. Everyone seemed to jump on the bandwagon and money was easy to get.

Although Indianapolis did not have the same appreciation as many of the hotspots around the country, we are, nevertheless, experiencing the effects of the changes. We have our share of foreclosures and short sales, just not on a grandiose scale as some areas. We have other issues here such as property taxes, which have affected homeowners. Still, the supply of easy money was the beginning………along with the belief that real estate values would not go down.

Watch the video for the informational value, not the political opinion.

http://www.dailymotion.com/videox6wxmr

Authored by Paula | Discussion: 1 Comment »

If My Mortgage Lender Fails, Are My Payments Still Due?

September 28th, 2008 categories: Real Estate Financing

Last week, federal regulators seized mortgage lender Washington Mutual.   The Seattle-based thrift became the third “big name” lender to close its doors since July, joining IndyMac and Lehman Brothers.

In 2007, these 3 lenders represented about 10 percent of the mortgage market and their subsequent failures are confusing American homeowners.

The most prevalent question:

If my mortgage lender fails, are my payments still due?

And the answer is an unequivocal “yes”. If a mortgage lender is seized, goes bankrupt, or is otherwise closed, it doesn’t change the terms of the bank’s mortgages whatsoever – just maybe the mailing address.

This is because a mortgage (and its corresponding note) is a legal contract between the lender and the lendee, signed on the date of closing. It is binding and cannot be altered by either party.  The only way to “end” the contract is to pay the loan in full. 

This can happen in one of 3 ways:

  1. The home is sold and the mortgage is repaid
  2. The home is refinanced and the mortgage is repaid
  3. The home loan is paid down to $0 balance by the homeowners

So, if a mortgage company fails, its doesn’t cause the loan to be paid-off and, therefore, the mortgage contracts is still valid.  Payments are still due. 

However, because its mortgages are an asset, the failed lender will usually transfer them to a new lender’s servicing department.  This means that homeowners will write the same check for the same mortgage but to a different company.

To reduce confusion around transactions like this, the government puts two safeguards in place.  First, it requires the former lender to send a 15-day advance notice of the change to the homeowner.  And second, it requires the new lender to do the same.

In situations like this, the onus is ultimately on the homeowner to open and read his mail, and make changes accordingly.  It’s especially important for people who pay their bills online as opposed by paying them manually; you likely won’t get notified if you’re sending payments to the wrong place.

Authored by Paula | Discussion: 4 Comments »

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