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Archive for the 'Mortgage & Finance reVIEWS' Category
At the start of the year, the “experts” made a lot of predictions about the U.S. economy and what to expect in 2009.
- Some said housing would rise
- Some said housing would fall
- Some said mortgage rates would rise
- Some said mortgage rates would fall
And nobody predicted just how big the government’s stimulus package would be.
Now, on June 30, with the year officially half-over, it’s as good a time as any to remember that people are much better at interpreting the past than predicting the future. Economists can make educated guesses about the future, but they’re guesses nonetheless.
It’s like watching the Weather Channel. A meterologist can look at the data and say it’s going to rain next week, but the forecast is never 100%.
So far this year, mortgage rates have been up and down, credit availability has been higher and lower, and home prices have varied immensely from neighborhood to neighborhood.
There’s another 6 months until 2010 and there’s no reason to expect the current volatility and uncertainty to change.
The world is unpredictable and so is the U.S. economy. Therefore, consider making your personal finance decisions based on the information at hand today instead of on an educated guess about the future.
After all, the weatherman’s been wrong before.
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The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent.
The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.
In its press release, the FOMC noted that the U.S. economy is not slowing with the same speed versus just two months ago and that financial markets, in general, are improving.
These are two signs that the country may be emerging from recession, if it hasn’t already.
The news isn’t all good, however. The Fed made a point to highlight the potential hazards the nations faces on its path to economic recovery:
- The prices of energy and commodities have been rising
- Job losses are still mounting nationally
- Businesses are reducing capital expenditures
Also in its statement, the Fed acknowledged a plan to hold the Fed Funds Rate near zero percent “for an extended period” and a re-commitment to the U.S. Treasury and Mortgage Bond markets.
Market reaction to the Fed’s press release has been muted.
With no new stimulus and no new “tools” to spur the economy unveiled, Wall Street is business as usual. Mortgage rates are unchanged post-FOMC today.
The FOMC’s next scheduled meeting is August 11-12, 2009.
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Since Memorial Day, conforming mortgage rates have jumped by more than 1.125 percent, adding thousands of dollars to the annual cost of homeownership.
To the casual observer, the moves may seem random. There’s a reason this is happening, however.
It starts with inflation.
As an economic force, inflation erodes the value of the U.S. Dollar. Left unchecked, it drives up the Cost of Living as each dollar “buys less” at the supermarket, gas station, or anywhere else.
But with respect to mortgage rates, inflation’s impact is more immediate. Because inflation devalues the dollar over the long-term, it renders long-term mortgage bonds a less attractive investment for traders.
If bond investors are repaid in U.S. Dollars, after all, it would make the investment worth less if the dollar is in an inflationary freefall.
Therefore, in situations when inflation is likely to present, we find that traders often sell out of their mortgage bond positions which, in turn, drives down the bond prices. Then, because bond yields move in the opposite direction of bond prices, rising rates are the inevitable result.
Lately, Wall Street is fearing inflation for a number of reasons:
1. Job losses are slowing, adding to consumer spending expectations
2. Gas prices have risen 41 days in a row
3. The federal government is increasing the money supply
These 3 factors — plus a few others — are all coming to a head around the same time and traders are getting defensive with their portfolios. As a result, they’re selling their mortgage bond positions and it’s driving mortgage rates higher.
Rates may continue to trek toward 7 percent through July and August, or they may retreat toward 5 percent. We can’t know for sure. What we can know, though, is that volatility in rates should continue until the economic picture gets more clear. That could be next week, or next year.
For now, be ready to lock at a moment’s notice. Mortgage rates are changing quickly.
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Tighter mortgage guidelines since late-2008 are forcing home buyers to make bigger downpayments. Anecdotally, the change has led to a surge in buyers taking gifts of cash from family members.
If you’re among those accepting a cash gift from family, it’s important to know that you can’t just deposit the money in your bank account.
There is a proper way to accept a cash gift and it requires 3 distinct steps:
1. Complete and sign an acceptable gift letter
2. Document the gifter’s withdrawal of funds with teller receipts
3. Document the giftee’s deposit of funds with teller receipts
See, mortgage lenders pay close attention to gifts-for-downpayments. For one, lenders have to make sure that downpayment cash is “clean” (i.e. not laundered). And, secondly, they want the gift to really be a gift and not a loan-in-disguise.
This is why lenders will often require that a signed, dated letter accompany the home loan application.
As an example:
I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].
This is a gift — not a loan — and there is no expectation of repayment.
Signed,
[Signature of gifter]
To further appease lenders, gift recipients should make sure that gift funds are not commingled at the time of deposit. If the gift is for $12,000, for example, the bank’s deposit slip should indicate that a $12,000 deposit was made — nothing more, nothing less.
Don’t add a random $50 check to the deposit, in other words. If you have a separate deposit to make, make it as a subsequent transaction with its own receipt.
It’s also worth noting that gifting funds between family members can create both legal and tax liabilities. If you’re unsure about how donating or receiving a gift may impact you, call or email me directly. If I can’t help you with your questions, I can refer you to somebody that can.
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Visit msnbc.com for Breaking News, World News, and News about the Economy
Suze Orman recently appeared on The Today Show and gave 5 minutes of practical money management advice. Not everyone’s a fan of Ms. Orman, but this is an interview worth watching.
The segment’s theme is “What should you do first?“, pitting real-life financial scenarios against each other, including:
1. Pay off credit card debt, or save for an emergency?
2. Pay off student loan debt, or pay off credit card debt?
3. Save for retirement, or save for a child’s college tuition?
The advice is practical and relevant to most homeowners’ lives and, although financial tips are never one-size-fits-all, there’s some real gems in the segment.
Watch the entire interview at The NBC Today Show website.
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Most often referred to as just-plain “points”, discount points are an up-front fee charged by a mortgage lender in exchange for a lower mortgage rate.
The dollar value of one point is one percent on the loan size. Discount points appear on Good Faith Estimates and HUD-1 Settlement Statements on Line 802.
Historically, each 1 point paid by a borrower lowers an offered interest rate by a quarter-percent. Since the late-2008, however, this relationship is skewed.
Depending on market conditions, 1 point paid by a borrower can lower a mortgage rate by up to 0.875 percent.
As an example of how points work, a $200,000 home loan may be offered at 5.500 percent with 0 points. With 1 discount point paid at closing — $2,000 – the mortgage rate may lower to 5.125 percent.
In addition to lowering your interest rate, discount points may be tax-deductible, too. Therefore, be sure to provide your home settlement statements from the previous calendar year to your accountant during Tax Season.
I recommend calling Tracie Griffith with First Community Mortgage located in Blue Ridge, GA. Tracie has always taken very good care of my customers and clients lending needs. So, if you have any questions about a Home Loan, or further information on Discount Points, please give her a call at 706.632.5800. Please let her know you found her on “The Porch!” Oh by the way, if you haven’t found that North Georgia Mountain Cabin, please Contact Me or give me a call at 706.994.8686 for all your Blue Ridge, Blairsville, Ellijay, or Hiawassee Real Estate needs. I would greatly appreciate it.
Make it a GREAT day!
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Rates go up, rates go down. Catch them while you can.
After Wednesday’s mortgage market rally drove rates down by a bunch, Thursday’s sell-off pushed them right back up.
This has been a common pattern in the skittish world of mortgage rates this year.
With the U.S. economy still teetering between recession and growth, markets are looking for signals anywhere it can find them. Thursday’s clue came from a government report showing that more Americans are collecting unemployment benefits than at any point in history.
Strangely, mortgage rates rose on the news.
I call it “strange” because weak economic data has tended to draw mortgage rates lower lately to the benefit of prospective home buyers and would-be refinancers. Lower rates make homes more affordable.
Thursday, though, the pattern broke.
The main reason why mortgage rates rose Thursday isn’t because of the employment report or any other piece of data. Rates rose Thursday for the same reason that they had dropped the day prior — the Federal Reserve.
On Wednesday, the released minutes from the Fed’s last meeting suggested that the group might make a larger mortgage market intervention. On Thursday, in the face of worsening jobs data, markets bet the Fed wouldn’t.
Mortgage rate shoppers, unfortunately, got caught in the crosshairs.
Rates can — and do — change quickly, without warning. And, thus far this year, the changes have been extra sudden. This is one reason why it’s often prudent to lock a mortgage rate as soon as you find one that’s agreeable. Wait too long, and it could be gone.
Expect more volatility today with traders leaving early for Memorial Day Weekend. Less volume means more chances for rates to change.
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Both mortgage guidelines and the economy have tightened since 2006, bringing more attention to “joint homeowners” — non-spousal partners that buy and share a home as roommates.
The practice is not new, but, anecdotally, co-purchasing is becoming more common.
In the video above – filmed two years ago but still on-target today – real estate expert Barbara Corcoran provides good advice for co-purchasing partners. Like any business relationship, it’s important to plan ahead.
- Hire an attorney to draft contracts and agreements
- Have a plan for when one or both parties wants to move or sell
- Consider life insurance policies on each other
The over-riding theme for co-purchasing arrangements is to be prepared. Done right, however, they can create two proud homeowners where there would have otherwise been none.
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The retail price of gasoline is rising nationwide, now up 30 percent since the New Year.
It’s a similar run-up to what we’ve seen for retail gas prices in each of the last 5 Spring Seasons.
For people trying to time the mortgage markets bottom, clues about the future of mortgage rates may be at the local gas station.
Rising gas prices are indicative of the rising cost of energy and, indeed, crude oil is closing in on its 2009 high point. As these energy costs grow, so do inflationary pressures on the U.S. economy.
Inflation, of course, is awful for mortgage rates. When it’s present, mortgage markets deteriorate and rates tend to rise — often sharply and with little advance warning.
So, for today’s home buyers-in-process and would-be refinancers, prices at the pump may fore shadow bad news for the future of housing affordability. Even a modest, quarter-percent increase would have a palpable effect on payments, adding $372 in annual costs to a $200,000 home loan.
Since last week, gas prices are already up by 10 cents per gallon.
Here in the North Georgia Mountains, this unfortunately has a huge impact on the number of Home Buyer’s we have coming to the area. Since we are primarily a destination point and a Second Home Real Estate Market, when Gas Prices Rise I suppose folks are not as quick to jump in the car for a nice get-a-way to the Mountains. All we have to do is get you here, these North Georgia Mountains do all the selling for us!
If these Gas Prices don’t rise too much and you find yourself on I-75 heading North, please drop in and see me here at Blairsville Realty when you get into town. If you are just needing some information on the area, or you want to know a great place to eat, or just want to chat, I would be glad to assist you with any need you may have. We usually are solving the world’s problems in the foyer of the office anyway, so you might as well drop in and give us your two cents!
Make it a GREAT day!
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Monday, mortgage markets improved with news of new Swine Flu cases.
It’s a classic example of Safe Haven buying and today’s rate shoppers will see the benefits.
Mortgage rates improved about 0.125 percent Monday.
It’s not an official term, but “Safe Haven buying” describes the trading patterns in which large numbers of investors move money away from risky investments and toward safer ones. As a general rule in Safe Haven buying, stocks sell off and bonds make gains, including mortgage-backed bonds.
Fears that a global Swine Flu outbreak would slow the global recovery is a major reason why mortgage rates improved Monday.
Dumping risk is a common reaction on Wall Street when unexpected events occur. Because the future is uncertain, traders prefer to play it safe. Hence the jargon-like term, “Safe Haven buying”.
If nothing else, Monday’s mortgage rate action reminds us that the biggest influences on the market are often not the events we can prepare for. It’s the events we never saw coming.
This morning, with known Swine Flu cases spreading to Asia and a Phase 4 Alert from the World Health Organization, Safe Haven buying is continuing. However, with the Federal Reserve meeting today and tomorrow, markets could be ripe for a correction.
(Image courtesy: Niman and Google Maps)
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