FED to keep Balance sheet (rates) stable.

By Todd Abelson NMLS #180858 on .

On August 10, 2010, the Federal Open Market Committee directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities (agency MBS) in longer-term Treasury securities.  The most recent H.4.1 data release indicates that outright holdings of domestic securities in the System Open Market Account (SOMA) totaled $2.054 trillion as of August 4, 2010. 

In a nutshell, this means that as Treasuries and MBS holdings are sold or reach maturity, the principal will be reinvested into new Treasury Bills and Notes rather than used to pay down the Fed’s balance sheet. This is a good thing (temporarily) as it will act to keep rates stable during what they now expect to be a potential period of DEFLATION.

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A Simple Explanation Of The Federal Reserve Statement (August 10, 2010 Edition)

By Todd Abelson NMLS #180858 on .

Putting the FOMC statement in plain EnglishToday, in its first meeting in 6 weeks, the Federal Open Market Committee voted 9-to-1 to leave the Fed Funds Rate unchanged.

The Fed Fund Rate remains at a historical low, within a prescribed target range of 0.000-0.250 percent.

In its press release, the FOMC said that, since June, the pace of economic recovery “has slowed”. Household spending is increasing but remains restrained because of high levels of unemployment, falling home values, and restrictive credit.

Today’s statement shows less economic optimism as compared to the prior year’s worth of FOMC statements dating back to June 2009. The Fed is looking for growth to be “more modest in the near-term” than its previous expectations.

Weaknesses aside, the Fed highlighted strengths in the economy, too:

  1. Growth is ongoing on a national level
  2. Inflation levels remain exceedingly low
  3. Business spending is rising

As expected, the Fed re-affirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period”.

There were no surprises in the Fed’s statement so, as a result, the mortgage market’s reaction to the release has been neutral. Mortgage rates in Arizona are unchanged this afternoon.

The FOMC’s next meeting is scheduled for September 21, 2010.

The Fed Is Meeting Today. Should You Float Or Lock Your Mortgage Rate?

By Todd Abelson NMLS #180858 on .

Fed Funds Rate June 2007-June 2010The Federal Open Market Committee holds a one-day meeting today, its fifth scheduled meeting of the year, and sixth overall since January.

The FOMC is the government’s monetary policy-setting arm and the group’s primary tool for that purpose is an interest rate called the Fed Funds Rate.

The Fed Funds Rate is the prescribed rate at which banks borrow money from each other and, since December 16, 2008, the Federal Reserve has voted to keep the benchmark rate within a target range of 0.000-0.250 percent.

It’s the lowest Fed Funds Rate in history.

Because the Fed Funds Rate is near zero, it’s accommodative of economic growth, spurring businesses and consumers to borrow money on the cheap. This, in turn, fosters economic growth within a U.S. economy that is somewhat tentative and facing headwinds.

The Fed has said over and again that it will hold the Fed Funds Rate “exceptionally low” for as long as conditions warrant.  It’s expect that the Fed will reiterate that message in today’s post-meeting press release.

However, just because the Fed Funds Rate won’t be changing today, that doesn’t mean that mortgage rates won’t.  Mortgage rates are not set by the Federal Reserve; open markets make mortgage rates.

Mortgage rates in Arizona tend to be volatile when the Fed is meeting. This is because the Fed’s press release highlights strengths and weaknesses in the economy and, depending on how Wall Street views those remarks, bond markets can undulate and mortgage rates are based on the price of mortgage-backed bonds.

When Ben Bernanke & Co. speak, Wall Street listens.

The Fed’s press release today will be dissected and analyzed.  Talk of higher-than-expected inflation, or better-than-expected growth should have a negative effect on rates. Talk of an economic slowdown may help rates to fall.

Either way, we can’t be certain what the Fed will say or do this afternoon so if you’re floating a rate right now and wondering whether the time is right to lock, the safe choice is to lock in before 2:15 PM ET today.

What’s Ahead For Mortgage Rates This Week : August 9, 2010

By Todd Abelson NMLS #180858 on .

Federal Reserve meets August 10 2010Mortgage markets improved again last week on softer-than-expected economic data, punctuated by Friday morning’s weak jobs report. Conforming mortgage rates in Arizona dropped on the news, making new, all-time lows.

Mortgage rates have been on an extended rally dating back to mid-April.

This week, there’s a lot of data and news due for release, the most influential to markets of which is the Federal Open Market Committee’s scheduled policy meeting.

8 times annually, the FOMC meets to discuss the nation’s monetary policy with respect to the current and projected U.S. economic conditions. Sometimes the FOMC takes action on the economy. Other times, it does not.

Either way, Fed meetings are market movers and it’s a gamble to float a mortgage rate ahead of an FOMC get-together.

There’s other’s stories to watch this week, too. Each has the ability to change mortgage rates.

  • Tuesday : FOMC meeting; Consumer Confidence data
  • Thursday : Jobless Claims
  • Friday : Retail Sales; Consumer Price Index

It’s a busy week on Wall Street, to be sure, and rate shoppers would do well to pay attention. Not only can the FOMC meeting change mortgage rates for every product in every market, but it can also change the outlook for mortgage rates going forward.

Rates are at an all-time low and low rates can’t last forever. We’re in the middle of a Refi Boom today and, soon, the boom will be over.

If you haven’t spoken to the Tucson Mortgage Team about refinancing your home, or locking a mortgage rate, your best time to make the call is prior to the FOMC’s Tuesday afternoon adjournment at 2:15 PM ET. Mortgage rates will get jumpy leading up to the meeting, and will most certainly be volatile afterward.

FHA Mortgage Insurance to change FOR THE WORSE?

By Todd Abelson NMLS #180858 on .

In an unbelievably native attempt to prop up the FHA Mutual Mortgage Insurance Fund, effective September 7, 2010 the Up Front Mortgage Insurance Premium (UFMIP) is decreasing from 2.25% to 1.00% and the Monthly Mortgage Insurance Premium is increasing from .50%-.55% to .85%-.90%.

Click here to read the full “Special Addition” letter

Now I can’t begin to see things from there side, but here’s how I see it – the monthly cost of owning a home will increase;  here’s a typical example: Assuming a $125,000 purchase price using a 30-year fixed rate FHA loan at 4.50% under the CURRENT terms (3 1/2% down, 2.25% UFMIP, .55% MMI) the Principle, Interest and MMI portion of the payment will be $680.23. Under the NEW terms (1.0% UFMIP, .90% MMI) the same home will cost $707.77 – $27.54 per month MORE (an increase of 4% in payment).

While this may not be alot to most people, it may be the difference between loan approval and denial. Besides what does this do to help people BUY homes and “mop up” the excessive inventory? PLUS if less people can afford to purchase a home doesn’t that mean LESS moneywill go to into the FHA Mortgage Insurance Fund which defeats the whole purpose? This move is akin to raising taxes to help the economy. It doesn’t a genius to see that it doesn’t work in business world and so it probably won’t work in Real Estate world either.

Good work FHA!!! The addage “we’re with the government and we’re here to help” has never been more true…

Home Values Within 12.5 Percent Of April 2007 Peak, Nationwide

By Todd Abelson NMLS #180858 on .

Home Price Index from April 2007 peak

According the Federal Home Finance Agency’s Home Price Index, home values are now off just 12.5 percent from their April 2007 peak nationwide.  This, after a half-percent monthly increase in prices in May, on average.

Given the state of the market since April 2007, the Home Price Index results are a positive for both the housing market and the economy, but we have to remember that May’s half-point increase is an average, and not specific to a particular area.

In contrast to “national markets”, the real estate markets in which you and I live are decidedly local.  It’s a major difference and the distinction renders the Home Price Index somewhat less important.

After all, the HPI doesn’t account for housing activity in individual neighborhoods like Tucson , nor does it track value across cities like Tucson. Instead, it summarizes data in giant chunks of geography.

A quick look at the HPI regional data proves the point. Of the HPI’s 9 tracked regions, only one was within one-tenth of one percent of the national, half-point average.  The others varied by as much 1.3 percent.

As a sample:

  • Mountain Region : + 1.7 percent
  • New England : + 0.2 percent
  • South Atlantic : +1.0 percent

And this is on a regional basis. The HPI’s applicability to state, city and neighborhood markets is even less appropriate.

Real estate values cannot be captured in a national survey. For home buyers and seller, what matters is the economics of a block, on a street, in a neighborhood.  That type of granularity can’t be tracked in a report like the Home Price Index.

The best place to get that data is from a local Tucson real estate agent that knows the market well. We can recommend some great Realtors® in Tucson. Just give Todd Abelson and Tyler Ford a call at 520-331-LEND

Hey Tucson Nervous About Mortgage Rates Rising? Lock Thursday — Ahead Of Friday’s Jobs Report

By Todd Abelson NMLS #180858 on .

Non-Farm Payrolls July 2008-July 2010Mortgage rates have been falling since April but that momentum could reverse tomorrow.

The Bureau of Labor Statistics releases the July jobs report at 8:30 A.M. ET Friday. With a stronger-than-expected reading, mortgage rates should rise, harming home affordability in Arizona. Jobs are a keystone in economic growth and growth is tied to rates.

Earlier this year, job growth went positive and reached as far north as 431,000 jobs created in May. That figure slipped negative last month, however, as the temporary, decennial census workers left the workforce.

Jobs matter to the U.S. economy. Among other concerns, unemployed Americans spend less on everyday goods and services, and are more likely to stop payments on a mortgage. These effects retard the economy, spur foreclosures, and harm home values.

The reverse is also true. More workers means more disposable dollars and, in theory, a stronger economy.

Analysts expect that a net 65,000 jobs were lost in July. Wall Street — and Main Street — have a big interest in those results.

Poor jobs data would likely result in a stock market sell-off which would, in turn, boost the value of government-backed mortgage bonds. This is because bonds tend to perform well when the economy is sagging and higher bond prices mean lower mortgage rates.

Strong jobs data, however, would likely push stock markets up and bond markets down. This would cause mortgage rates to rise. The stronger the employment figures, the higher mortgage rates should go.

So, if you’re happy with where mortgage rates are today and you’re concerned about what the jobs report may do to them tomorrow, consider talking to your loan officer about locking your rate as soon as possible.

As The Pending Home Sales Index Falls, Home Buyers See Dollar Signs

By Todd Abelson NMLS #180858 on .

Pending Home Sales Dec 2008 to June 2010The Pending Home Sales Index failed to rebound from a cliff-dive in May, falling by another 3 percent more in June.  The index remains at record-low levels.

A “pending home sale” is a home under contract to sell, but not yet closed. The data is culled from local real estate associations and large brokers and accounts for 20 percent of all purchase transactions in a given month nationwide.

The Pending Home Sales Index is a future indicator for the housing market; there is a high correlation between the PHSI and the monthly Existing Home Sales report.  This is because of the relatively large sample set used for the PHSI, and because 80 percent of homes under contract close within 60 days, according to the National Association of Realtors.

June’s Pending Home Sales Index is weak by most measures, but if you’re a home buyer in Tucson , the headlines aren’t so bad. Fewer home sales can push negotiation leverage to the buy-side of a transaction.

Plus, there’s other positives in the market for today’s buyers:

  • Home supplies are up, which creates competition among sellers
  • Builder confidence is down, which leads to “free” upgrades and incentives
  • Mortgage rates are low, which increases cash flow and disposable income

All things equal, the current home buying conditions haven’t been this favorable in years.

The falling figures in June’s Pending Home Sales Index hint that home sales will be down through the rest of the summer and into early-Fall. However, mortgage rates may not and higher mortgage rates can do more to change a monthly payment that a small reduction in home price.

If you’re planning to buy a home later this year, consider moving up your time frame.

It’s an excellent time to be a home buyer in Tucson, Arizona.

What Does It Mean To Escrow Taxes And Insurance?

By Todd Abelson NMLS #180858 on .

Escrow schedulingThe fiscal responsibility of a homeowner — in Tucson and everywhere else — extends beyond the mortgage’s basic principal and interest repayments. Homeowners are also responsible for the real estate taxes on the home and its insurance premiums, too.

Failure to pay taxes can lead to foreclosure, and failure to insure is breach of your mortgage contract.

As a homeowner, you can  pay 1/12 of the annual bill to your mortgage servicer each month, and then let your servicer pay the bills on your behalf when they come due.

Not surprisingly, servicers prefer the latter method — it reduces two major lender risks:

  1. That the home’s real estate taxes go delinquent and are sold to a third-party
  2. That the home endures catastrophic damage during a lapse of insurance coverage

In theory, when the servicer is paying the bills, the home’s taxes are always current and the home’s insurance is always paid. This method of managing taxes and insurance is commonly called “escrowing”.

To calculate a home’s monthly escrow payment is simple. Just take the sum of the annual real estate tax bills and insurance bill, then divide it by 12 months in the year.

As a example, a $4,000 annual tax bill with a $800 insurance policy = $4,800 annually = $400 paid into escrow monthly. These monies are collected as part of the regular mortgage payment along with the mortgage’s scheduled principal + interest payment.

Homeowners choosing to escrow tend to get the lowest rate and lowest fee loans. This is because lenders often charge a premium to “waive escrow” (i.e. pay their own taxes and insurance). To the chagin of many, the charging of a fee to NOT do something like an unpublished telephone number, is just “wrong”. Escrow waiver fees vary between banks, but typically cost 1/4 (.25) points of the amount borrowed. The larger the loan, the stiffer the penalty in dollar terms.

P.S.: Call Todd Abelson & Tyler Ford at Sunstreet Mortgage in Tucson Arizona at (520) 331-LEND for all your mortgage needs!