Home Loan Focus

Archive for February, 2008

Wall Street finally figured out what most Americans already know.  Inflation is back.  The Consumer Price Index rose in January and that hints at inflation being on the rise.

Its small wonder that inflation is hear as milk hits $4 a gallon, gas hits $3.10 and oil keeps hovering over $100 dollars a barrel.  What is amazing is that the Fed has managed to keep its basket of goods that is used to calculate the CPI shielded from reality for so long!

This explains quite a few things, one of which is why home interest rates are still fairly high and even more so why all other loan rates are high.  When inflation is present banks tack it on to their interest rates to cover  . . . . the cost of inflation.

The Fed can lower rates all day long, but there is only so far down they can go, while inflation can keep going up, especially if the country keeps spending money on a war that we can no longer financially afford.  Things have to change and they have to change for the better quick or they are going to get ugly for the long haul.  If you can lock in a low interest rate loan, now is definitely the time to do it.  If inflation hits the banks, you will not see a rate drop.

In the meantime, get out and gets some exercise, take a yoga class or something, if its too cold out, hit the elliptical machine (keep your knees safe) and burn off some of that stress.  All of us are going to need to keep our disposition in check while we simultaneously keep our noses to the grindstone.

In the meantime, if you can not sell your house, start thinking about how you can rent it out.  If double digit rates hit the country in the next few years, not too many people will be able to afford to buy and rental demand will increase.  This could be an investment or it could be a necessity of financial survival depending on your situation.

Investors around Wall Street were acting positive yesterday.  Many of them rallied because they thought they could see the bottom in the housing market.

Investors have a unique perspective about things when they are at their worst that is a little refreshing.  They see ‘the worst’ or ‘the bottom’  as the beginning of improving times.  If we are at the bottom, there is no where to go but up!

Investors found a sliver of hope to line the dark clouds of the housing slump on Monday.

Investors latched onto the National Association of Realtors’ upbeat tone Monday, sending the U.S. stock market higher in direct contrast to the stark data in the report, which said that sales of single-family homes and condominiums dropped by 0.4% in January to a seasonally-adjusted annual rate of 4.89 million units, the slowest pace on record since 1999. Despite this dire news investors seemed optimistic that the housing market may be bottoming out and that the increase in loan limits could lead to a rally in home sales toward the end of 2008.

Surprise! Home Sales Spark Hope

I personally do not know if we have hit bottom yet, and I suspect that we have not.  California, Florida and other places such as that may have found bottom, but I suspect that many places that were less inflated, have not yet begun to correct.

Until they do correct or at least get real about home values the bottom of the pit may not quite be in site, but at least we can hear the pebbles hitting the bottom from our current perspective.

So who wants to invest in a tankless water heater first to raise the value of their home so that they can flip it?

That’s what I thought!

So last week the President and Congress did a fine job of congratulating each other on passing a stimulus package.  That package include provisions to enable the FHA to start securing home loans with greater limits.  It also makes it possible for people that have not missed a house payment yet to refinance their home before things get too bad.

But if you meet that requirement, will you actually get a better financing deal from a bank?

The unfortunate answer is no.

The legislation in many regards is like an unfunded mandate.  It enables companies to act, but does not force them to act.

They can offer you the same mortgage that has you in bad shape already.  They can offer you something worse.  If your credit is good, you might be able to get something better.

In this regard, recent interest rate reductions will help you the most, but its going to take the FHA at least 30 days to figure out what they are doing and it could take the industry even longer after that.  So in the end, Congress and the President seem to have helped very few people with this.  It does add an option for people that are running out of options.  It just may not be a better option. 

Kind of like giving discounts on travel health insurance to people that do not travel.  That is your government at work.  If they worked any harder, we would really be in trouble!

We are going to be working to build out our website with some new services.  We will be adding sections to our site to cover available mortgage offerings, credit counseling services and reviews, credit card refinancing options, and information on realtors from the perspective of the home buyer and the home seller.

As we add these services we will gladly accept the input, feedback, suggestions, experiences or reviews from our readers.  If you have direct experience with any of the companies or services that we cover, please feel free to share them with us.  We may even publish your insights online to share with our readers.  Our readers especially treasure information that helps them navigate the process or achieve a particular result.  It does help sometimes to know if a company provided great services or if they dropped the ball, but it can be much more useful to know how to achieve a positive result regardless of which service you worked with.

Example of a less helpful comment – Some Super Bank.com gives out free coffee makers to the first 100 people that apply for a mortgage refinance.

Example of a very helpful comment – Bank XYZ may offer to provide you a paperless financing option, but do not take it.  This will slot you into an interest rate option that is 0.5 – 3.5% higher than their best rates. 

In the meantime, if you have any suggestions, requests or topical suggestions please feel free to submit your input here as a comment at any time.

Voting Your Pocket Book on Super Tuesday was never More Difficult

It’s kind of amazing, but none of the major presidential candidates going into Super Tuesday are doing anything, or offering anything to solve the Mortgage and real estate crisis that is driving the country into a recession with about $150 billion is bad debt by the mortgage companies, and at least $150 billion in lost home owner asset value and foreclosures across the country ($15-$20 billion in California alone).  None of the candidates do much more than pay lip service to people facing mortgage problems.

Heck, now that the Florida primary is over with no one is even talking about home insurance problems for the people on the coast either.

No one is demanding a clean up of the mortgage industry.  No one is demanding an investigation into banks or mortgage brokers that engaged in illegal or deceptive practices.  No one is offering a bail out to cover either the big banks or the home owners.  The candidates are all leaving the country and its citizens to hang in the wind and dry up or dry out on their own.  So if you are hoping to vote your pocket book today in the Super Tuesday primary, you might be better off casting a primary vote for none of the above and sending a donation to a third party candidate. 

Hillary’s Position

1. Wants a 90 day foreclosure moratorium
2. Freeze Interest Rates for 5 years (allowing people to work out of adjustable rate mortgages)

 

Obama’s Position

1. $10 billion for foreclosure prevention aid program
2. Mortgage Tax Credits
3. Homeowner Counseling

 

Republicans Position

1. No Government Bailout

 

John McCain

1. Does want to leave the option open for limited Government Assistance if the President’s current plan fails.

 

Mitt Romney

1. Reduce the FHA requirements to get more people covered or protected by the FHA
2. He then also wants to fix the economy in general so to help the mortgage market by extension

The Federal Reserve has moved interest rates down 1.25 percent or 125 basis points within 2 moves of .75 and .50.  Many people now feel that the Federal Reserve is likely to move yet another .50 percent the next time they convene maybe even sooner if some bad news comes our way first.

Planning to Refinance – Target July

Now for rate cuts to work their way through the banking and mortgage system, it usually takes about 6 months.  The banks have the technology to make decisions and actions faster.  They often times choose not to do so and only move under competitive pressure from their rivals.  In the mean time they will benefit themselves from arbitrage (getting their own better interest rate deal via the Fed and NOT passing that on to consumers).  Essentially for a few months, as long as they can hold out, they will pocket all the profits from the rate cut. 

Banks will not move their own interest rates down until their greedier volume hunting rivals start trying to take some of their business away with lower rates and offerings.  So the race to the bottom probably won’t kick off for another month or two and then it historically takes about 6 months to work its way through the system.  So if you are in a hurry to refinance, but you can hold out safely until summer, you could end up getting a better rate.

You will need to compare the potential savings then versus the savings that you forego in refinancing now. If you are financially strapped you should also consider whether or not you can keep paying your bills as is.  If waiting 5 months might put you in the danger zone, then consider refinancing now and maybe again in a year.  This might enable you to stair step your way down to the lowest rate possible.

In a future article we are going to talk about the importance of performing a Phase I Environmental assessment on certain types of properties before you buy.