The Mortgage Manifesto! YOU can still get a mortgage!

Fed Actions...

Here's how the Fed's actions affect you:

1. Fixed mortgage rates: Rate cuts will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee's reach. Any change in the rate has little to do with long-term mortgage rates. The Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very low 5%. The FED reiterated that it was looking at the possibility of buying long-term Treasury bonds. These announcements could work to bring rates even lower.

2. Prime rate loans: The real impact of rate cuts will be felt by consumers with loans that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime and some other short-term instruments. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these loans could see their interest rates decline.

3. Home-equity savings: Home-equity loans that have been averaging around 5.5 percent may or may not drop more now. That's because many of the interest rates on these loans are already at their minimums, and are contractually prohibited to go any lower. So check the terms of your home-equity loan to see if you are eligible to cash in on the decline.

4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks' cost of funding, which allows them to widen profit margins and if so inclined, pass along savings to consumers in the form of lower interest rates. Today's credit conditions have changed all that though. Although the Fed's target rate stood at 1 percent before the latest cut, such funds were actually being traded in the market at much less than that--just 0.18 percent already. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. Any “juice” that you would get from a funds rate cut in a normally functioning market, chances are, you're not really going to get that here. It's not going to lower the banking industry's cost of funds, because the banking industry's cost of funds is already below the target rate anyway. That means that interest rates tied to the federal funds rate won't decline as much as they otherwise would have. (like option ARMs).

5. Now what?  Expect rates to go all the way to zero in a matter of weeks. The Fed has already cut the federal funds rate to below 1 percent and is likely to take it all the way to zero by the end of January. Once the overnight rate is at zero, the Fed may have to engage in 'quantitative easing' [direct purchases of long-term Treasuries]. Even if it doesn't bring rates all the way to zero, the Fed signaled that it's not about to push rates higher anytime soon.

6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

7. Can that help Mortgage Rates? That is yet to be seen. In the “old days” it definitely would. But, now mortgage securities are traded differently due to the poor performance of the last couple years. The rates should decline a bit further (Maybe) but nowhere near as low as they might have in the past considering the current economic conditions.

Just don’t “play” the market too much. You ill most likely never hit the true bottom. If we could all nail that one, we would all be working from the

Bahamas

and be wealthy beyond our dreams. Be careful and don’t be greedy!

 

Fed Action and You...

Here's how the Fed's actions affect you:

1. Fixed mortgage rates: Rate cuts will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee's reach. Any change in the rate has little to do with long-term mortgage rates. The Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very low 5%. The FED reiterated that it was looking at the possibility of buying long-term Treasury bonds. These announcements could work to bring rates even lower.

2. Prime rate loans: The real impact of rate cuts will be felt by consumers with loans that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime and some other short-term instruments. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these loans could see their interest rates decline.

3. Home-equity savings: Home-equity loans that have been averaging around 5.5 percent may or may not drop more now. That's because many of the interest rates on these loans are already at their minimums, and are contractually prohibited to go any lower. So check the terms of your home-equity loan to see if you are eligible to cash in on the decline.

4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks' cost of funding, which allows them to widen profit margins and if so inclined, pass along savings to consumers in the form of lower interest rates. Today's credit conditions have changed all that though. Although the Fed's target rate stood at 1 percent before the latest cut, such funds were actually being traded in the market at much less than that--just 0.18 percent already. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. Any “juice” that you would get from a funds rate cut in a normally functioning market, chances are, you're not really going to get that here. It's not going to lower the banking industry's cost of funds, because the banking industry's cost of funds is already below the target rate anyway. That means that interest rates tied to the federal funds rate won't decline as much as they otherwise would have. (like option ARMs).

5. Now what?  Expect rates to go all the way to zero in a matter of weeks. The Fed has already cut the federal funds rate to below 1 percent and is likely to take it all the way to zero by the end of January. Once the overnight rate is at zero, the Fed may have to engage in 'quantitative easing' [direct purchases of long-term Treasuries]. Even if it doesn't bring rates all the way to zero, the Fed signaled that it's not about to push rates higher anytime soon.

6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

7. Can that help Mortgage Rates? That is yet to be seen. In the “old days” it definitely would. But, now mortgage securities are traded differently due to the poor performance of the last couple years. The rates should decline a bit further (Maybe) but nowhere near as low as they might have in the past considering the current economic conditions.

Just don’t “play” the market too much. You ill most likely never hit the true bottom. If we could all nail that one, we would all be working from the Bahamas and be wealthy beyond our dreams. Be careful and don’t be greedy!

 

Mortgages: What Are The Self-Employed To Do Now?

With the increased delinquency and foreclosure rates, there is a resulting tightening of underwriting standards across the entire mortgage industry. Prior to the mortgage meltdown we are seeing today, the pendulum had swung way to far to the lenient side of credit score and income documentation requirements; so much so that nearly anyone that could simply “fog up a mirror” could qualify for a mortgage loan with little or no down payment.

Now the pendulum has swung way to far to the opposite end and this tightening has caused many programs to literally vanish overnight. Unfortunately, many of these creative programs were abused by the greed of the industry and by dishonest borrowers (yes, unlike the press or the politicians, I said the borrowers are just at fault as the industry….) speculating on the market. The abuse of these “creative” products is a lot of the cause of what we are seeing today.

This is as much the result of the over-reaction from all the press and political hype coming out of the current state of the mortgage industry as it is the result of the true statistical facts from those programs. It makes great sensational news and is quite “politically-correct” (and beneficial) to blast and blame the big-bad mortgage companies and banks and not blame the borrowers that were just as guilty of taking advantage of the low-document loan programs.

One group of borrowers that are suffering from the tightening of underwriting standards is the self-employed. Prior to the current restrictive guidelines, a self-employed borrower with good credit and good cash-flow, but tax returns that didn’t sufficiently document (prove) take-home income to qualify for a conventional loan, could get a loan with what was called a stated-income documentation or no-document loans. Simply, they didn’t have to document or “prove” their income, but could state it on an application and the lender would use what you said as your income to qualify you. In exchange for this lesser-documentation requirement, you had to agree to pay a higher rate, assume some risk of adjustable rates, and your credit scores greatly affected the resulting rate.

Now those programs have all but disappeared for those with little or no down-payment. There are still low document, stated income and no-doc loans, but the tightening of underwriting guidelines force the self-employed borrower to have either a greater down or higher credit scores (or both) to qualify. Of course, they could choose to qualify for the conventional full-documentation loan using the income analysis of their tax returns, but typically, this would cause them to qualify for the lower-priced house.

When it is determined that some sub-prime borrowers are unable or unwilling to manage their credit and therefore are best to simply rent homes rather than purchase… until such time that they make it priority enough to be homeowners and manage their needs and wants enough to limit their use of credit except to buy a home.

So where will it go from here? Read on...

Whos Fault Is It?

Thank you to www.americanmortgageeducatorsinc.com for this article. Tawney Warren is the author and one of the four consumer advocates that anchor this wonderful organization and help borrowers and homeowners nationwide. Thank you for your contribution:

Whose fault is this mortgage mess?  First of all, I don’t think it is a mess, I think it has become a catastrophe.  When one family loses the American Dream, their home, that is almost the most devastating event someone can live through besides the death or illness of a loved one.  Going through foreclosure beats your soul.  You lose all confidence in yourself and it can begin a chain reaction of destruction from loss of job, loss of friends, but loss of confidence is the worst.  If you still had your confidence, you’d feel that you know well enough what went wrong and you could pick yourself up and dust yourself off and do it again, only better this time.

Analysts have written their articles and pointed the finger at this person or that but, let’s look who has blame in this catastrophe.

How about the legislators for not requiring that loan officers in this country be educated and licensed.  After all, they are selling a family the largest debt they will probably have in their lifetime.  Why is it considered acceptable that they only present a consumer with one option?  (More)

Government is getting involved in the Mortgage Meltdown even more!

Thank you from FDIC and the Financial Services Committee:

Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on Recent Events in the Credit and Mortgage Markets and Possible Implications for U.S. Consumers and the Global Economy before the Financial Services Committee, U.S. House of Representatives; 2128 Rayburn House Office Building

Chairman Frank, Ranking Member Bachus, and members of the Committee, I appreciate the opportunity to testify on behalf of the Federal Deposit Insurance Corporation (FDIC) on the credit and mortgage markets. Events in the financial markets over this summer present all of us here today -- regulators, policymakers, and industry -- with serious challenges. The FDIC is committed to working with Congress and others to ensure that the banking system remains sound and that the broader financial system is in position to meet the credit needs of the economy, especially those of creditworthy households currently in distress. In my testimony today, I will discuss the developments that led to the current market disruptions, report on the condition of the banking industry, and describe ways to address some of the lessons we have learned from the events of recent months.

The Roots of the Current Problem (to be continued below...)

Exotic and creative mortgages scare the #@%&* out of the Feds!

Creative and exotic mortgage programs are scaring the H____ out of the feds, Wall Street and consumers alike. Are the lenders themselves liable for the fallout?

Interest-only mortgages, Interest-only adjustable rate loans, Short term one-month and six month ARMS, Optional payment ARMs and negative amortizing mortgages... the list is long and nearly every one of these mortgage programs has a higher risk aspect to them that may prove to be greater than the benefits that are taunted and sold by the lenders.

The federal regulators, Wall Street securities firms and mortgage bankers and brokers know this risk well. Each governing entity has issued guidance concerns to address the risks posed by these residential mortgage products. There are growing concerns with mortgages that allow the borrower to delay, defer  and in some programs, allow the borrower to make payments that don't even pay the amount of  interest due in any given month. read on...