FED Cuts Key Rate by Quarter Point

Scrambling to shore up the faltering economy, the Federal Reserve cut interest rates to the lowest point in nearly four years at 2 percent. The Fed move will only affect the Prime Rate, which in turn will hit Home Equity Line of Credit Rates. Some of those are starting to bounce along interest rate "floors" already. Since the FED cuts only affect short term lending rates, the only thing which would cause a meaningful downturn in mortgage rates would be a sudden demand by investors. This may not be the case at the present time and lenders are busy building up their loan-loss reserves. We would also take a splurge in investment by Fannie or Freddie, both of which have the cash to buy loans and a place to park them.

The key to near term mortgage rates is inflation. From today's FOMC FED statement "Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook remains high. It will be necessary to continue to monitor inflation developments carefully." I guess this says it all...LOL.

The economy crawled ahead at a pace of just 0.6 percent from January through March as housing and credit problems forced people and businesses to hunker down. Job losses for the first three months of the year neared the staggering quarter-million mark, and a government report on Friday is expected to show that employers shed jobs again in April.

Amidst all the doom and gloom in the economy, the fact remains that mortgage rates are still near all time lows, so there is something to smile about. I don't think we will see dramatic economic improvement this quarter, but hopefully the previous FED cuts, coupled with the economic stimulus program will help nudge the economy toward recovery in the 3rd and 4th quarters. As the lenders are stockpiling loan loss reserves, all will be ready to jump into the housing and refinance markets once home values level out. Cheers!

Refinance Tool Box

Mortgage Rates Up Modestly on Week

Mortgage rates went up slightly this week but it could have been much worse. The benchmark 30-year fixed-rate mortgage rose 8 basis points, to 6.11 percent. The 10 Year Treasury Yield was up on the week by .127% which per recent action would suggest a higher bump up in mortgage rates. Again, as in the previous week, it appears that the mortgage spread is tightening up a bit. It seems that the bond market was filled with new supply this past week and coupled with relative economic data out on the week, was not enough to derail the better risk assessment and rotation out of treasuries.

FHA refinance programs continue to gain in popularity among those with less than perfect credit and those with the need to finance the majority of the equity in their homes. I can understand why, as FHA mortgage rates are almost as good, and sometimes better than prime conventional refinance loans on high LTV scenarios.

In the coming week, Consumer Confidence, GDP, and Unemployment numbers will be released, along with another slew of earnings reports. We'll have to wait and see which way the economic wind blows, and keep an eye on the bond market. If the week is break-even again on the economic front coupled with a flow of investment back in the 10 year treasuries, we could see a dip in mortgage rates this week. But remember, don't predict, just react. Have a great week!

Refinance Tool Box.

Housing Prices UP? What's With That

Yes you read the title correctly, housing prices are up. Well, not exactly overall prices, but in some housing markets, homes are not only retaining their value, but they're gaining! Let's face it, challenging real estate markets can be found nationwide as home prices fall, sales decline, and high foreclosure rates continue.

In the fourth quarter of 2007, 73 out of 150 metropolitan areas showed an increase in the median existing single-family home price compared with the same quarter in 2006, according to statistics from the National Realtors Group. In metropolitan areas, including San Francisco, Washington and New York, homes are typically retaining more of their value the closer they are to the city's core.

The places where homes seem to be holding the most value are those where prices didn't surge during the boom years and where economies are staying strong. Single-digit appreciation may have looked meager in the years of the boom, when red-hot markets experienced bidding wars and high investor interest. Now, as some markets experience steep price drops, those rates aren't looking so bad after all.

So what's so important about your home's value if you are only refinancing and not selling? A whole lot!

For example, if you need to refinance $170,000 and your home appraises for $200,000, your Loan-to-Value (LTV) ratio is 85%. When LTV is over 80%, three things result if you are financing with a conventional prime mortgage. 1) Your interest rate goes up 2) You are required to escrow your taxes and insurance (escrow deposits can be quite substantial) 3) You will be required to pay monthly mortgage insurance (typically averages .7% of your total loan amount per year on a monthly basis, or $99.17 in this example).

With the same example, if your home appraises for $212,500 (just 6.25% more), you would have an 80% LTV. This results in a significantly lower interest rate, no escrow requirement, and eliminates an additional $99.17 a month in mortgage insrance.

Now I didn't even mention those that need to refinance and can't because they are upside-down with their current mortgage (home value has decreased to the point where it is less than the principal balance of the mortgage).

So yes, those looking to refinance can be strongly affected by the home sales in the region and even neighborhood in which they reside. You can get a general idea of the value of your home by visiting Zillow.com. May the home sales be with you!

Refinance Tool Box

Existing Home Sales Fall In March

The housing slump continues as today's report of Exisiting Home Sales indicates. This is the seventh drop in the past eight months. The median price of a home was also down for the month of March. The National Association of Realtors reported that home sales were down 2.0% for March and the median price of a home sold last month was $200,700 (a 7.7% decline from one year ago). Some economists predict that home prices could keep falling for many more months given the severe credit crunch and continued high foreclosure rate.

Rates have actually been pretty stable so far this week after the late run-up last week on Thursday and Friday. We have eeked out about an 1/8 pt cut in rate so far... let it roll!!

Today's action followed last weeks theme, where it appears that investors are moving out of bonds and into other safe haven investments. We dropped 104 pts on the DOW today, which is usually drives Wall Street to bonds, yet it didn't happen today. The 10 year treasury yield actually went up slightly by .008%. What's more, is that we had a drop in mortgage rates today, which tells me that the spread got a teenie bit thinner.

We'll have to keep an eye on that mortgage spread and bond market to see if investors are feeling sassy again. As I've been saying all year, rates are still great, so things are still looking good for those looking to buy a home or refinance. Selling your home still might be a cahallenge though, depending on your market. Cheers!

Refinance Tool Box.

Mortgage Rates Up on Week- Why?

Quite an interesting week in mortgage rates with big earnings and inflation numbers being reported. Overall, we saw a jump in rates to an average of about 1/4 pt, and the treasury yields soared.

We had much negative economic news this week, which will normally send investors to the safety of treasuries and bring the yield and moartgage rates down. Instead, the treasury yield and home loan interest rates went up....why? Well it seems that with the treasury yields being at all-time lows, investors are looking to other higher yielding safe assests such as safe mortgage backed securities and gold. There, investors are not really stepping up risk, but getting a larger yield on their money.

On the stock market side of the equation, we saw a big up week. Investors were taking an optimistic look at reports that maybe the worst of the credit crisis is over. Another explanation might be that the market was simply oversold and bounced up off support. Never the less, the bounce in the stock market aided the rise in mortgage rates this week.

Friday opened again with a flight out of treasuries, but it seems the bonds were also oversold on a short term basis and nearly recovered to even by the day's end. Fortunately, the mortgage spread tightened a bit and we recovered some of the week's interest rate jump.

It's easy to get caught up in the short term view of rates and the markets, but the bigger picture is yet to play out. On the rosy side of things, mortgage rates are still at awesome historical levels. On the bleak end, we still don't know when the housing and credit crisis will bottom, and the extent to which it will affect the overall economy. The glass half full tells me that we are near the bottom of this crisis, but I will not predict, only react.

Refinance Tool Box

Rates Up on Earnings and Inflation

Well, the bad news is that interest rates have climbed by a 1/4 point this week. The good news is....hmmm...can't think of any at the moment. Rates went up for a couple reasons. One, the stock market went gangbusters today because of positive earnings from Intel, JP Morgan Chase, and Coca Cola. This caused money to flow out of bonds and into the stock market, raising the yield on treasuries. Secondly, the key inflation reports (PPI and CPI) were released this week for the month of March and showed a higher than anticipated inflationary number. Both reasons are bad for mortgage rates.

Maybe, just maybe, the good news is that Wall Street has stared at some bad numbers this week and sentiment appears positive. Let's see... bad PPI and CPI numbers, record oil prices, more bank writedowns, and dismal housing numbers. The equites markets would have tanked on these numbers just a couple weeks ago, so maybe we are seeing a bottom.

Hey, I'm working here to see the glass half-full. On that note, I'm off to a full glass of vino...Cheers!

Refinance Tool Box.

Slow and Steady

The stock market and the mortgage markets are normally quiet before big reports come out and today was no exception. Wachovia Bank reported a bad loss for quarterly earnings and even that was not enough to get the stock market selling and the bond market buying. Just a slow and steady day ahead of the PPI and CPI inflation numbers coming out this week.

As I always say, I try not to predict, but to react. That being said, we could certainly use some good news on the inflation front. This could trigger future Fed rate cuts and help the overall economic sentiment in the investment community.

The action will be tomorrow and Wednesday, so you better get ready... just until then it'll be slow and steady. hehehe- wow that is lame! I need a break :-)

Refinance Tool Box.

This Week In Refinance

In the previous week, we finally saw a consolidation after months of significant up and down movement in mortgage interest rates. Overall there was a decrease in rates on average of a1/8th point or better....not bad! I noticed an odd movement (or I should say, lack of movement) in rates relative to the treasury yield from last thursday through friday. The treasury yields gapped down at .05% on open Friday and ended the day down by .061%, yet there was little or no reduction in rate from Thursday's rate close. This could either mean a good day for rates on Monday, or that the mortgage spread widened once again.

The biggest news of the week actually came on Friday when NYSE bellweather GE reported less than anticipated profits and reduced it's 2008 profit outlook, mainly due to it's financing division. This caused quite a downward movement in the stock market and in the sentiment on Wall Street. We still need the investment community to feel confident before we experience a true bottoming and recovery in the housing markets. The second quarter of this year may still be an up and down cycle until the bad credit news and mortgage writedowns subside.

As for the coming week, we have some key inflationary numbers coming out. The PPI (producer price index) numbers will be reported on Tuesday and the CPI (consumer price index) on Wednesday. These numbers will really influence mortgage rates if they are reported at significantly lower or higher than economists expectations. We'll have to wait and see. I try not to predict what will happen, only move on the best behalf of my clients. If inflation reports are positive, then I will advise my clients on the fence to lock rates on the dips.

Jim is a contributing mortgage consultant with the popular Refinance Tool Box.

Good Day For Rates

Nice action today on the interest rate front. 10 year treasury yields took a nice dip and rates are following, though not as much as anticipated. This sometimes happens when there's a relative large move in yield intra-day. We'll take the 1/8th point and run though!!

I'm still thinking about the NAR February pending home sales report from yesterday. I really feel that we may be at or near the bottom of housing declines. Spring is here and homebuyers will be coming out to buy. The timing could be perfect to set up a nice second half of the real improvement in home sales.

Remember that increased home sales are nice for those looking to refinance. Increased demand brings up sales prices and appraised values for those in the midst of a refi. Home value security will bring the investors out of the woodwork to increase thier investment yields from safe-haven investments. This will decrease the mortgage spread and be icing on the cake for mortgage rates.

We'll take the good day for rates today, and look foward to a continued rebuilding of the housing and credit markets.

The author is a contributing mortgage consultant with the popular Refinance Tool Box. Visit today for free information and tools provided to help you learn about mortgage refinance.

Pending Home Sales and Refinance

Today's pending home sales of existing homes fell to a new low in February per this morning's issued report by the National Association of Realtors. The index reading of 84.6 marks the lowest reading since the index began. How does this affect refinance?

Answer: Property values, not to mention the negative economic sentiment created. Continued negative sentiment in the housing markets will continue to restrict capital infusion by banks and investors into the mortgage market. Money will stay on the sidelines or head to the safety of bonds, among other safe-haven investments. Investors would rather have a relative smaller return on their money than to bear the risk of higher yields in the mortgage market, when property values are decreasing.

Simply put, housing values are based on supply and demand. When sales are low, it means that supply is outweighing demand. The home that would have had a buyer for $350,000 in 2005, now has no buyers at $330,000. This leads to a lower apprasied value for homes because the largest determing factor of a home's worth is what similar properties in that same area recently sold for. A lower appraised home value can lead to higher interest rates, additional mortgage insurance, or outright denial of a home refinance, depending on the particulars of the loan.

An important note. It's important to keep in mind that just because the average home value is decreasing nationwide, does not mean that your home has decreased in value. Depending on what region of the country you live, or even the neighborhood where you reside, can make a huge difference. There are still many homeowners that have not experienced a decrease in home value. Some have even had increases in market value during the past year.

Although home sales continue to get worse, we may be witnessing the capitulation that we need to form a bottom in the market. Once this occurs, I feel that the economy will finally reach recovery mode and the economic good times will roll again.

The author is a contributing mortgage consultant with the popular Refinance Tool Box. Visit today for free information and tools provided to help you learn about mortgage refinance.

This Week in Refinance

If Monday is any indication, the week ahead might be one of consolidation for the markets. I am sensing that the financial institutions might be feeling a little more optimistic about the economy, now we just need them to become more active in the mortgage-backed securities market (MBS) to allow mortgage interest rate dips to hold for more than half a day.

The spread to treasury yield is actually getting tighter, which is one good sign for your refinance shoppers and home buyers. Today, bonds were being dumped, lifting the all important 10 year treasury yield, yet the rate corrections on such a move were much lighter compared to similar yield moves in the previous months. Yes, this could be a good sign for mortgage rates.

Economic reports are relatively light this week, so unless we get some big surprise economic news, I wouldn't be shocked if we stay within a tight and steady range for refinance rates. Hey, we are still at very low rates, so it's just icing on the cake if we get further cuts.

Another good sign for the mortgage market occurred this morning when it was reported that Washington Mutual (Large, large lender), was to get an additional 5 billion dollars in capital infusion. With each successive vote of confidence for the large banks and investment firms, the quicker we will see a bottoming in the housing markets, and this will benefit everyone.

The author is a contributing mortgage consultant with the popular Refinance Tool Box. Visit today for free information and tools provided to help you learn about mortgage refinance.

Bad Employment Numbers Good For Mortgage Rates

Today we saw the first real drop in mortgage rates this week. Employment numbers reported this morning showed weakness for the economy as the unemployment rate moved to 5.1% from a prior reading of 4.8%. The lablr department's report showed a net loss of 80,000 jobs last month. This news caused a rush to treasuries, which in turn brought down the 10 year yield to drop -0.1100 to a level of 3.4810%.

Its ironic how bad news in the economy relates to better mortgage rates. We saw a dip in rates today by up to 1/4% in response to the drop in treasury yield. I spoke with many clients today, advising to move on these dips. Mortgage rates are still near historic lows, but many people looking to refinance want to wait for better rates still. I can't tell you the number of times that I've had fantastic refi programs ready to go for clients that decided to wait, and missed out as rates rose significantly. The mortgage market has been moving back and forth in swift moves the entire year and those who waited out the January lows are still on the sidelines, wishing that they locked the low rates while they were available. Just as in the stock market, if you try to get in at the absolute bottom, you will never pull the trigger. If a refinance brings a significantly positive impact to an individual, waiting for months for rates to hit rock bottom can cost yo uin the long run. Figure the accrued savings never realized until you are able to (if you are able to) refinance. This can add up to thousands of dollars lost, so even if you do get a better rate by waiting, it may take years just to break even. I sometimes advise my clients that by waiting for another 1/8% t o1/4% drop in rates from an already solid low rate is not worth the risk as compared to the potential loss of benefit. Forgive my ranting, I'm off for the night to play a little guitar and get geared up for the Final Four games this weekend!

Rates 04-03-08

Rates were little changed today as the stock market and 10 year treasury yield took a bit of a breather today. This is typical after the big run up we saw yesterday. Unemployment figures reached a 2 year high, but no other significant economic news today. I am advising my clients to make a move on market dips as rates are still near all-time lows. My fear at this point is that the big money will move out of bonds and back into the stock market and drive rates up significantly. The mortgage spread to treasury yield is still very high at 2.8 to 3.0 depending on your benchmark 30 year rate source. On the flip side of the coin, when and if the investment banks start dipping their toes back into the mortgage backed securities market, we could see a big decrease in the spread, coupled with a low treasury yield will lead to further drops in refinance rates across the board.

RefinanceToolBox

As a founding member of the Refinance ToolBox, I wanted to start this blog to give readers an idea of current happenings in the world of home refinance. Hopefully, readers will gain a better understanding of current market conditions, industry change, and other beneficial tidbits of information. This should be fun!