At its Tuesday meeting, the Federal Reserve reaffirmed its pledge to keep interest rates low and opted to not take any new measures to bolster the economy, saying the economy has already been showing signs of “expanding moderately.” The economy has shown some improvement in employment and consumer spending in recent weeks. However, the Fed cautioned at Tuesday’s meeting that the "housing sector remains depressed."
In reaffirming a pledge it first issued in August, the Fed said the federal funds rate -- which serves as a benchmark rate for many types of loans, including mortgages -- will remain near zero until mid-2013. The Fed said it will continue with plans to move $400 billion of its bond portfolio into longer-term securities, which ultimately could send long-term interest rates even lower.
Overall, the Fed said the economy has steadily been showing signs of improvement and is on track to post its strongest gains of the year in the final months of 2011. But the Fed said that the European debt crisis will continue to pose a major threat to recovery with “strains in global financial markets continue to pose significant downside risks."
Source: “U.S. Fed Leaves Rate Unchanged, Says Economy Expanding Moderately,” Bloomberg News (Dec. 13, 2011)
Wednesday, December 14, 2011
Fed Chair Takes Advantage of Low Rates Too
Fed Chair Ben Bernanke knows a good interest rate when he sees it. The Fed chair has refinanced the mortgage on his three-bedroom, attached town home in Washington, D.C. twice since 2009.
Most recently Bernanke refinanced on his home in September shortly after the Fed announced “Operation Twist,” which was a rare move by the Fed to publicly vow to keep long-term interest rates low for the next two years.
Bernanke lives in a town house near the Capitol in Washington, D.C., which he paid $839,000 for it in 2004, according to an article in The Wall Street Journal. The home’s appraised value is about $850,000. Bernanke owes $672,000 on his 30-year mortgage, according to the article.
Meanwhile, mortgage rates continue to hover around record lows. The 30-year fixed-rate mortgage fell under 4 percent once again this past week--30-year rates below 4 percent were unheard of until this year. The 30-year fixed-rate mortgage averaged 3.99 percent for the week ending Dec. 8, according to Freddie Mac’s national mortgage market survey. Low rates, mixed with low home prices, are pushing housing affordability to record highs this year, Freddie Mac reports.
Source: “Bernanke Joins Bargain Hunters Who Refinance,” The Wall Street Journal (Dec. 12, 2011)
Most recently Bernanke refinanced on his home in September shortly after the Fed announced “Operation Twist,” which was a rare move by the Fed to publicly vow to keep long-term interest rates low for the next two years.
Bernanke lives in a town house near the Capitol in Washington, D.C., which he paid $839,000 for it in 2004, according to an article in The Wall Street Journal. The home’s appraised value is about $850,000. Bernanke owes $672,000 on his 30-year mortgage, according to the article.
Meanwhile, mortgage rates continue to hover around record lows. The 30-year fixed-rate mortgage fell under 4 percent once again this past week--30-year rates below 4 percent were unheard of until this year. The 30-year fixed-rate mortgage averaged 3.99 percent for the week ending Dec. 8, according to Freddie Mac’s national mortgage market survey. Low rates, mixed with low home prices, are pushing housing affordability to record highs this year, Freddie Mac reports.
Source: “Bernanke Joins Bargain Hunters Who Refinance,” The Wall Street Journal (Dec. 12, 2011)
Principal Reductions Outpace Short Sales?
Some lenders may be more willing to reduce the mortgage principal than grant a short sale for borrowers under the Home Affordable Modification Program (HAMP). The principal reduction can mean big savings for home owners too — the average amount reduced on a principal reduction is more than $65,000, or 31 percent of the unpaid balance on the mortgage, according to new Treasury Department data.
Principal reductions under HAMP began in October 2010, serving as an alternative to a short sale or deed-in-lieu of foreclosure for cash-strapped home owners. Only loans not guaranteed by Fannie Mae and Freddie Mac are eligible for a principal reduction.
“The median loan-to-value ratio on modifications that went through principal reduction was 158 percent,” HousingWire reports in a recent article. “After the workout was complete, the borrower held an LTV of 115 percent, meaning he or she owed 15 percent more on the mortgage than the home was worth rather than being 58 percent underwater.”
Banks may find a principal reduction is better for them financially too. Banks report an average loss rate of 60 percent whenever borrowers complete a short sale, and an average 70 percent loss for homes in the foreclosure or REO process, according to Moody’s Investors Service.
Source: “Principal Reduction Outpaces Short Sales Under HAMP,” HousingWire (Dec. 12, 2011)
Principal reductions under HAMP began in October 2010, serving as an alternative to a short sale or deed-in-lieu of foreclosure for cash-strapped home owners. Only loans not guaranteed by Fannie Mae and Freddie Mac are eligible for a principal reduction.
“The median loan-to-value ratio on modifications that went through principal reduction was 158 percent,” HousingWire reports in a recent article. “After the workout was complete, the borrower held an LTV of 115 percent, meaning he or she owed 15 percent more on the mortgage than the home was worth rather than being 58 percent underwater.”
Banks may find a principal reduction is better for them financially too. Banks report an average loss rate of 60 percent whenever borrowers complete a short sale, and an average 70 percent loss for homes in the foreclosure or REO process, according to Moody’s Investors Service.
Source: “Principal Reduction Outpaces Short Sales Under HAMP,” HousingWire (Dec. 12, 2011)
4 Tips to Help Your Buyers Refine Their Home Search
Are your buyers having a tough time wading through the inventories of homes to find the right home? Kelly O’Ryan, an office manager with Coldwell Banker in Lexington, Mass., offered some of the following tips in a recent article at RISMedia to help your home buyers narrow their search when looking for properties:
1. Have your home buyers make a list of all the must-haves for their future home, such as the number of bedrooms and school district they must have.
2. Make sure your buyers get pre-approved for a mortgage by a lender. This will help ensure they don’t look for homes that are only within their budget.
3. Encourage your buyers to research available homes on the Internet so they get a feel for what’s available. You can help them sort for properties within their price range and locate homes that fit their criteria. But have them review photos and videos of multiple homes on the Internet to help them narrow their search before you take them to view homes in-person.
4. Remind your home buyers to not get sidetracked when viewing homes at aesthetics that can be changed out easily, such as paint colors and light fixtures. Help them to see past any bad decor and focus in on items in the home that can’t easily be changed, such as the home’s location and lot size.
Source: “How to Lead a Refined Real Estate Search,” RISMedia (Dec. 12, 2011)
1. Have your home buyers make a list of all the must-haves for their future home, such as the number of bedrooms and school district they must have.
2. Make sure your buyers get pre-approved for a mortgage by a lender. This will help ensure they don’t look for homes that are only within their budget.
3. Encourage your buyers to research available homes on the Internet so they get a feel for what’s available. You can help them sort for properties within their price range and locate homes that fit their criteria. But have them review photos and videos of multiple homes on the Internet to help them narrow their search before you take them to view homes in-person.
4. Remind your home buyers to not get sidetracked when viewing homes at aesthetics that can be changed out easily, such as paint colors and light fixtures. Help them to see past any bad decor and focus in on items in the home that can’t easily be changed, such as the home’s location and lot size.
Source: “How to Lead a Refined Real Estate Search,” RISMedia (Dec. 12, 2011)
FHFA Sues Chicago Over Vacant Home Upkeep Law
In Chicago, lenders are required to maintain vacant homes in foreclosure, such as by keeping lawns mowed and tidy and attending to maintenance issues inside. Lenders found in violation can face daily fines up to $1,000. But the Federal Housing Finance Agency (FHFA) is suing the city of Chicago for its new ordinance, saying the city is overstepping its authority with the mandate.
FHFA, which oversees Fannie Mae and Freddie Mac, says the ordinance is unfair because it “imposes all the costs of home ownership without any of the benefits, such as the right to sell or lease the property,” according to an article in The Wall Street Journal.
The Chicago ordinance has been controversial from the beginning. Lenders have argued that it’s not fair for them to be held liable for upkeeping a property in the middle of the foreclosure process--property, which they say, they haven’t even officially taken ownership of yet.
One research firm estimates that about 1,900 homes are vacant in Chicago, residing in foreclosure limbo, and cost an estimated $36 million in maintenance costs.
"In many cases, by ignoring these properties you're doing a disservice to the community and a disservice to the investor," Tom Feltner, vice president of the Woodstock Institute, told The Wall Street Journal.
Last week, Las Vegas passed a similar ordinance that requires banks to register any homes with a defaulted mortgage and pay a $200 registration fee. Lenders who do not properly maintain the properties then may even face jail time.
Source: “Chicago Sued Over Vacant-Properties Upkeep Fee,” The Wall Street Journal (Dec. 13, 2011)
FHFA, which oversees Fannie Mae and Freddie Mac, says the ordinance is unfair because it “imposes all the costs of home ownership without any of the benefits, such as the right to sell or lease the property,” according to an article in The Wall Street Journal.
The Chicago ordinance has been controversial from the beginning. Lenders have argued that it’s not fair for them to be held liable for upkeeping a property in the middle of the foreclosure process--property, which they say, they haven’t even officially taken ownership of yet.
One research firm estimates that about 1,900 homes are vacant in Chicago, residing in foreclosure limbo, and cost an estimated $36 million in maintenance costs.
"In many cases, by ignoring these properties you're doing a disservice to the community and a disservice to the investor," Tom Feltner, vice president of the Woodstock Institute, told The Wall Street Journal.
Last week, Las Vegas passed a similar ordinance that requires banks to register any homes with a defaulted mortgage and pay a $200 registration fee. Lenders who do not properly maintain the properties then may even face jail time.
Source: “Chicago Sued Over Vacant-Properties Upkeep Fee,” The Wall Street Journal (Dec. 13, 2011)
House Flippers to Blame for Housing Downturn?
House flippers — made up of investors who bought up homes during the housing boom, possibly made a few upgrades to the home, and quickly resold the homes for high-dollar profit — played a larger role in causing the housing bubble than previously thought, according to a new federal report out by the Federal Reserve Bank of New York. The impact that speculative real estate investors played in driving the housing downturn has mostly been overlooked until now, the researchers note.
The speculative investors used low downpayments and subprime credit in buying up multiple homes at once, the report says. Their actions attributed to home prices in some areas being inflated, researchers say.
"This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family," researchers note in the report.
House flippers made up a big piece of the real estate market during the housing boom. According to the report, more than one-third of all home mortgages from 2006 were to people who already owned at least one home. What’s more, “in Arizona, California, Florida and Nevada, where average home prices more than doubled from 2000 to 2006, investors made up nearly half of all mortgage-backed purchases during the housing bubble,” the Associated Press reports. “Buyers owning three or more properties represented the fastest-growing segment of home owners during that time.”
When home values began to fall in 2006, investors defaulted on their loans in large numbers, accounting for more than 25 percent of seriously delinquent mortgage balances, according to the report. In investor hot-spots like Arizona, California, Florida, and Nevada, investors accounted for more than a third of seriously delinquent mortgage balances from 2007 to 2009.
The report urges lenders and regulators to take action to limit speculative borrowing in order to avoid a future housing downturn.
Source: “Flippers’ Housing Bust Role Larger than Thought,” The Associated Press (Dec. 12, 2011
The speculative investors used low downpayments and subprime credit in buying up multiple homes at once, the report says. Their actions attributed to home prices in some areas being inflated, researchers say.
"This may have allowed the bubble to inflate further, which caused millions of owner-occupants to pay more if they wanted to buy a home for their family," researchers note in the report.
House flippers made up a big piece of the real estate market during the housing boom. According to the report, more than one-third of all home mortgages from 2006 were to people who already owned at least one home. What’s more, “in Arizona, California, Florida and Nevada, where average home prices more than doubled from 2000 to 2006, investors made up nearly half of all mortgage-backed purchases during the housing bubble,” the Associated Press reports. “Buyers owning three or more properties represented the fastest-growing segment of home owners during that time.”
When home values began to fall in 2006, investors defaulted on their loans in large numbers, accounting for more than 25 percent of seriously delinquent mortgage balances, according to the report. In investor hot-spots like Arizona, California, Florida, and Nevada, investors accounted for more than a third of seriously delinquent mortgage balances from 2007 to 2009.
The report urges lenders and regulators to take action to limit speculative borrowing in order to avoid a future housing downturn.
Source: “Flippers’ Housing Bust Role Larger than Thought,” The Associated Press (Dec. 12, 2011
Fed Offers Nothing New
Those keeping tabs on the Federal Reserve’s movements were looking for a change in the central bank’s communication strategy when officials emerged from their final policy meeting of the year on Tuesday. Some analysts were even anticipating the Fed to launch a third round of ‘Quantitative Easing’ measures.
All expectations went unfulfilled, as the nation’s central bankers announced no new policies or economic stimulus programs, and stuck to their traditional messaging surrounding forecasts for short-term interest rates.
In its policy statement issued following the meeting, the Fed reiterated that it will keep the federal funds rate – the rate at which banks lend to one another – in the range of 0 to 0.25 percent at least through the middle of 2013. The benchmark rate has not budged in over three years.
Analysts were hoping for more definitive guidance that tied expectations for the rate increase to specific targets for indicators such as inflation and unemployment.
Fed officials said they are prepared to employ the tools in the central bank’s arsenal to promote a stronger economic recovery should it be determined that additional stimulus is needed, but at this time, no new policy actions were enacted.
The Federal Reserve’s policy committee said information received since it last met in November suggests “the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.”
The Fed’s statement cited “some improvement in overall labor market conditions” but stressed that the unemployment rate “remains elevated.” The committee said it continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually.
According to the committee, household spending has continued to advance, and longer-term inflation expectations have remained stable. The housing sector, however was described still “depressed.”
Dan Green, whose daily blog covers mortgage rates and market trends, notes that Wall Street wasn’t expecting no policy change and no QE3, and in response, mortgage rates dipped to new lows following the Fed’s (non) announcement.
The Fed said it will continue to extend the average maturity of its securities holdings as announced in September, and will maintain its existing policy of reinvesting principal payments from its holdings of GSE debt and agency mortgage-backed securities into new mortgage bonds
All expectations went unfulfilled, as the nation’s central bankers announced no new policies or economic stimulus programs, and stuck to their traditional messaging surrounding forecasts for short-term interest rates.
In its policy statement issued following the meeting, the Fed reiterated that it will keep the federal funds rate – the rate at which banks lend to one another – in the range of 0 to 0.25 percent at least through the middle of 2013. The benchmark rate has not budged in over three years.
Analysts were hoping for more definitive guidance that tied expectations for the rate increase to specific targets for indicators such as inflation and unemployment.
Fed officials said they are prepared to employ the tools in the central bank’s arsenal to promote a stronger economic recovery should it be determined that additional stimulus is needed, but at this time, no new policy actions were enacted.
The Federal Reserve’s policy committee said information received since it last met in November suggests “the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.”
The Fed’s statement cited “some improvement in overall labor market conditions” but stressed that the unemployment rate “remains elevated.” The committee said it continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually.
According to the committee, household spending has continued to advance, and longer-term inflation expectations have remained stable. The housing sector, however was described still “depressed.”
Dan Green, whose daily blog covers mortgage rates and market trends, notes that Wall Street wasn’t expecting no policy change and no QE3, and in response, mortgage rates dipped to new lows following the Fed’s (non) announcement.
The Fed said it will continue to extend the average maturity of its securities holdings as announced in September, and will maintain its existing policy of reinvesting principal payments from its holdings of GSE debt and agency mortgage-backed securities into new mortgage bonds
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