Posted by Rosemarie Litoff on March 17, 2009 under Uncategorized | 
The Federal Open Market Committee begins a scheduled, 2-day meeting today to discuss the country’s monetary policy. As is custom, the group will issue a press release to the markets upon adjournment.
There are 8 scheduled FOMC get-togethers annually and the post-meeting press releases are among the most powerful market-moving events of the year.
It’s not the Fed’s actual policy changes that causes fortunes to be won or lost, though.
These changes can predicted and traded — and, therefore, hedged — on Wall Street using Fed Funds Rate Futures. For example, Wall Street predicts with 97% certainty that the Federal Reserve will not make a policy change at this time.
As opposed to than policy change, it’s the verbiage of the FOMC’s press release that can really move markets. This is because the press release is a clear-eyed look into what the Federal Reserve thinks of the United States economy — its strengths, its weaknesses, and its threats.
After its January 2009 meeting, the FOMC’s press release said:
- The economy has weakened further
- Employment has declined steeply
- A gradual recovery may come later in 2009
Since that meeting, though, a number of high-profile economists, including Fed Chairman Ben Bernanke, have said the likelihood of economic recovery increased for late-2009.
This is why tomorrow’s FOMC press release is so important. It will contain clues about the Federal Reserve’s next steps and current psyche. Undoubtedly, it will make a significant impact on the mortgage markets.
In general, when the Fed alludes to inflation and stronger growth, mortgage rates rise. Talk of a recovering economy and rising oil prices in tomorrow’s press release, therefore, would likely raise rates from their current low levels towards levels not seen for 6 months.
In the end, it’s what the Fed says that matters more than what the Fed does. The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.
Posted by Rosemarie Litoff on March 16, 2009 under Uncategorized |
Mortgage markets lost a little bit of ground last week, edging mortgage rates higher in a week marked by the largest stock market gains since November.
Once again, mortgage rates couldn’t sustain a rally of more than 5 days. Not since late-2008 have mortgage rates managed to fall two weeks in a row.
Last week’s market was impacted by three distinct factors:
- Bank balance sheets weren’t as bad as feared
- Discussion started on new bank valuation methods
- Traders got optimistic that “the worst is over”
The rally will likely continue into this week, too. This after the 60 Minutes interview with Ben Bernanke in which the Fed Chief said he won’t let big banks fail and that the recovery will likely begin later this year.
It’s the first interview with a sitting Federal Reserve Chairman in history.
Coincidentally, the Federal Reserve will be in the spotlight this week as it concludes a two-day meeting Wednesday after which the Fed will issue its standard, post-meeting press release at 2:15 P.M. Although it’s not expected to make Fed Funds Rate changes, the markets will closely watch the Fed’s language for clues about the next phase of monetary policy.
In general, when the Fed indicates that inflationary pressures may build, mortgage rates rise. Moreover, in the above interview, Bernanke alluded to such inflation and the need to control it in the future.
Despite the small rise in rates last week, mortgage rates remain low and favorable for high-credit scoring borrowers. Volatility is still a factor, however, so if you’re nervous about rates rising, it may be best to lock early in the week — before the Fed’s Wednesday announcement.
Posted by Rosemarie Litoff on March 13, 2009 under Uncategorized |
“Most of the biggest real estate fortunes were not made in good times, but in bad times like this” Barbara Corcoran reminds us in this talk with NBC.
It’s important perspective for Americans wondering how to invest in foreclosed properties without losing their cash or their credit rating.
In the 4-minute interview, Corcoran quips on the basics and the essentials of foreclosure investing,
- “Everyone who loses their shirt loses it somewhere else.”
- “Every big shark started small.”
- “The house on the corner sets the tone for the block.”
She also lends some personal perspective to rent rolls, the cost of losing a tenant, and finding a good business partner.
Banks are anxious to sell their foreclosed homes and that makes this an ideal time for shrewd real estate investors. If you’re new to the game, watch the video and take good notes.
Posted by Rosemarie Litoff on March 12, 2009 under Uncategorized |
You know you’re in the middle of an economic crisis when an accounting issue become Front Page News, and that’s exactly where we’re at today.
Mark-to-market accounting is having its day in the sun and people in need of mortgage sometime soon would do well to pay attention.
If you’ve never heard of mark-to-market accounting, don’t worry. Not many people have. Mark-to-market is a method of valuing an asset based on its what-if-it-was-sold-today value. Mark-to-market is officially known as FASB Statement 157.
Mark-to-market is one reason why bank balance sheets look so awful right now. Banks have to assign firesale-like values to their mortgage-backed assets even if those loans are performing, and even if there’s no plans to sell them. Assigning low values to assets, then, in turn, forces the banks to seek TARP funds and take other measures to solidify their mandated capital requirments.
Wall Street and Washington are taking notice of mark-to-market’s impact on banking and, by extension, the economy. Even Fed Chairman Ben Bernanke has expressed an interest in opening a dialogue about the matter.
So, today, starting at 10:00 AM ET, the House Committee on Financial Services meets with key members of the Securities and Exchange Commission, the Treasury, and the Financial Accounting and Standards Board to talk about mark-to-market accounting and whether it should be modified.
It’s unlikely that change will come immediately, but if enough evidence shows that mark-to-market is unduly damaging to the economy, expect changes to the way we value banks to happen soon.
For homeowners and home buyer, a reversal in mark-to-market rules would be a bad thing. Almost overnight, bank balance sheets would recapitalize and the economy would spring forward. This would reverse most of the pressures that have held mortgage rates low for so many months.
A healthy economy, in other words, may be bad for mortgage rates.
Posted by Rosemarie Litoff on March 11, 2009 under Uncategorized |
The basis of most mortgage lending is credit scoring. In general, the higher a person’s credit score, the lower his offered mortgage interest rate.
Despite the many credit scoring models in use today, however, just 3 are relevant to American homeowners:
- The Equifax BEACON® score
- The Experian Fair Isaac Risk Model
- The TransUnion EMPIRICA®
Generically, these scoring models generate what are commonly known as “FICO” scores.
FICO scores are measurements of probability. The higher a person’s credit score, by definition, the less likely a person is to default on his home loan. This is one reason why credit scoring has added importance lately — mortgage lenders are very careful about what they’re lending and to whom.
Notably, minimum FICO thresholds have been added to all types of mortgage loans.
FICO scoring has 5 main components as listed above. Payment history and credit capacity are two of the largest pieces, but a myriad of other factors contribute to a credit score, too. For example, the longer your reported history of managing credit, the more favorably your credit score will respond.
The myFICO.com website does a terrific job with credit education
, explaining in plain language the ins-and-out of credit scoring and ways to boost your score. It also makes a free, 20-page PDF available for download.
Whether you’re a homeowner or lifetime renter — consider it required reading.
Posted by Rosemarie Litoff on March 10, 2009 under Uncategorized |
USA Today ran this 2008 Foreclosures By State heatmap last week, reminding us of a simple truth: Headline statistics can be misleading.
According to data compiled by RealtyTrac, 1 in 8 U.S. homes were in various stages of default or delinquency at the end of 2008. This is a fact and it was widely reported by the press.
However, as the heatmap plainly shows, in stripping out just 35 of the nation’s 3,232 counties, we can decrease the number of foreclosures nationally by half.
In other words, yes, 1 in 8 U.S. homes face mortgage trouble. In your neighborhood, though, the ratio is likely much, much lower. Real estate is a local phenomenon. National statistics rarely apply.
Posted by Rosemarie Litoff on March 9, 2009 under Uncategorized |
Mortgage markets improved last week with investors’ renewed aversion to risk. To the benefit of home buyers, as major stock indices touch 12-year lows, investors are moving investible cash to the bond market.
For only second time this year, mortgage rates ended the week lower than where they opened.
Some of the bigger stories that caused mortgage rates to fall last week included:
In addition, US Bank and Wells Fargo cut dividends by roughly 85 percent each. Both banks are considered well-run and positioned their respective cuts as a way to bolster balance sheets. Markets took it as a negative instead.
This week, there isn’t much economic news upon which to trade, save for Thursday Retail Sales data. Therefore, markets will look for other clues about the future of the U.S. economy.
Tuesday, Fed Chairman Ben Bernanke has a scheduled speech on financial reform and then Thursday Congress takes up mark-to-market accounting. It sounds like a dry topic, but mark-to-market is the accounting rule that makes banks take losses on assets they’ve yet to sell.
Some experts think mark-to-market accounting makes the financial system appear weaker than it is so this is why Congress is starting a debate.
If mark-to-market rules are loosened, it would likely spell good news for the stock market and bad news for mortgage rates. In effect, money would flow in the opposite direction as it did last week.
For now, though, mortgage rates are low. If you’re currently floating a mortgage rate with your lender, consider locking in. If there’s even a whisper that mark-to-market accounting rules will change near-term, mortgage rates should rise.
Posted by Rosemarie Litoff on March 6, 2009 under Uncategorized |
If you asked an economist why home prices have broadly fallen over the past 2 years, you’d get a short lesson in Supply and Demand.
Too many homes for sale and not enough people to buy them pushed values lower until a balance point can be reached. Looking at the chart at right, that balance point may be fast approaching.
According to data compiled by ZipRealty, the total number of homes listed for sale fell in February 2009 in 23 of 24 major housing markets.
This is an especially important data point because home inventories typically rise in February, ahead of the Spring Home-Shopping Season.
Since 1982, February home inventory has been up 3 percent on average. Last month, it fell.
So, in support of the Supply and Demand Theory, we shouldn’t be surprised that the rate of price decline as shown by the Case-Shiller Home Price Index is easing in a lot of markets, too.
We may not have reached the housing market bottom yet, but if we haven’t, the data shows us we’re likely very close.
Source
Home Listings for February Stayed Steady
James Hagerty
The Wall Street Journal, March 5, 2009
http://online.wsj.com/article/SB123620588396833321.html
Posted by Rosemarie Litoff on March 5, 2009 under Uncategorized |
When the White House first introduced the Making Home Affordable program in February, it was positioned as a mortgage program with two goals:
- To help financially-needy homeowners get mortgage relief
- To help homeowners who’ve lose equity qualify for today’s low rates
Wednesday, in a much-anticipated announcement, the U.S. Treasury introduced new details about Making Home Affordable.
It also created an “Am I Eligible For Making Home Affordable” form on its website.
In the press release, the Treasury detailed the President’s original blueprint. Namely, it provided explicit loan modification instructions that will assist up to 4 million delinquent homeowners and their respective mortgage servicers.
The modification guidelines are a thorough 17 pages long and leave little question about the loan modification process, and how it must be carried out.
But for as much ink committed to helping delinquent homeowners, the Treasury gave surprisingly little guidance to the estimated 5 million homeowners for whom deteriorating home equity has rendered refinancing impossible.
For these Americans, the Treasury instead offers a basic Q&A and directs homeowners to call Fannie Mae and/or Freddie Mac to confirm their eligibility. The “refinance plan”, in summary, says that a homeowner who has paid his mortgage as agreed and whose home value is “about the same or less” as the amount owed on his first mortgage may be eligible.
That’s about as much as the Treasury could say.
If after browsing the website, you still have questions about the Making Home Affordable program, call your mortgage lender with specific questions.
Posted by Rosemarie Litoff on March 4, 2009 under Uncategorized |
As part of the American Recovery and Reinvestment Act of 2009, the IRS has officially released Form 5405 — better known as the First-Time Homebuyer Credit Form.
True to tax code standards, the 10-field form is accompanied by 3 pages of instructions.
Form 5405 is a helpful, go-to resource for home buyers with questions about the tax credit.
For example, the form distinguishes tax consequences for homes bought in 2008 versus 2009, and clearly defines the term “first-time home buyer”.
In addition, Form 5405 highlights the math behind the tax credit. In general, the First-Time Homebuyer Credit is equal to the lesser of:
- $8,000 for homes bought in 2009
- 10 percent of the home’s purchase price
Married couples filing separately are entitled to half of the expected credit, and homes sold within 3 years are subject to a credit repayment in the year the home ceases to be the “main home”.
Form 5405 is a comprehensive reference. However, be sure to check with your accountant for specific questions about your personal returns and how the First-Time Homebuyer Credit may impact your finances. There is no substitute for professional, paid advice.
