My New Blog

When the Federal Government first took over Fannie and Freddie, rates dropped immediately and stayed low until the Market Crash(s) in October.  Interest Rates have moved up and down so fast, it has been difficult for consumers to make decisions in time to lock in advantageous rates throughout this month. 

A few reasons for the relative increase in rates:

• The level of foreclosures is weighing heavily on the Mortgage Giants.  Even with government backing, there is a premium from the market for mortgage debt making interest rates more expensive.
• International buyers are shedding Mortgage Securities off their books.  These were the primary buyers before the melt down and that demand was making rates cheap.
• Decreases in the Federal Funds rate has traditionally made for higher mortgage rates.

Overall, investors have pulled a ton of capital off the table and have yet to come back in.  Market investors are likely waiting for all of the changes and interference by governments around the globe to play out before coming back.  It is anybody's guess where all of this is going...  I will try to keep you updated as a direction emerges.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and Securities and Exchange Commission Chairman Christopher Cox met with congressional leaders in Washington on Thursday night to create a plan to try and calm the roiling financial markets. Their announcement on Friday morning is changing the financial markets around the world. Here’s what they did:

Additional Steps:

SEC temporarily bans investors from short-selling 799 financial companies.
Short selling is a common trading method in which investors bet that the stocks will go down by "borrowing" shares at a higher price and selling them in the open market at a lower price. The SEC said short sellers "add liquidity to the markets during normal conditions, but recent unbridled short selling has contributed to the recent tailspin in the stock market." The SEC has banned this practice for 10 days, which can be extended for 30-day increments.

On Wednesday, the SEC also banned "naked" short-selling, in which investors short the stock without actually borrowing it first.

On Thursday, Britain's Financial Services Authority also temporarily banned short-selling for financial companies.

Hopefully, this will add another level of calm to the current financial crisis.

*The media is finally catching up with story regarding the elimination of the up-tick rule -- the extreme volatility in the market was clearly linked to this decision.

US Government guarantees money market funds.
The US Treasury said its decision to provide guarantees "should enhance market confidence and alleviate investors' concerns about the ability for money market mutual funds to absorb a loss." According to Treasury Secretary Henry Paulson, "Nearly $2 trillion in money market mutual fund assets will be covered by the guarantees."

European Central Bank, Swiss National Bank and Bank of England also offered up more cash Friday – a combined $90 billion into money markets.

It should be noted that this does not include high-yield, enhanced type, or riskier money market funds.

A plan to remove devalued mortgage assets from companies' balance sheets.
"Illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions," said Treasury Secretary Paulson. "As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted."

To restore confidence in our markets and our financial institutions, the federal government will create a new vehicle to purchase this mortgage debt and provide a liquid marketplace.

These three steps will not fix everything, but it's a major step in the right direction for the overall health of our financial systems.

The seizure of Fannie Mae and Freddie Mac by the U.S. Government will produce lower interest rates.  The Mortgage-Backed Securities Market is already seeing major gains this morning.

I will follow-up with more detailed information as the market digests this historic move...

The Federal Reserve held the line on Tuesday–leaving the Fed Funds Rate at 2.00% for the third straight meeting. The decision, however, was anything but cut-and-dry.

Earlier in the week, the Personal Consumption Expenditure data indicated that inflation climbed 0.8% overall in June, which is the highest inflation jump in 27 years. In addition, the report indicated that inflation now sits at 2.3%–above the Fed's desired range of 1-2%.

Although the Fed ultimately left interest rates unchanged, inflation obviously remains a concern and the recent rise may lead to an interest rate hike by the Fed in the near future.

What Does This Mean to You?
Many experts believe the housing market is nearing the bottom and may even be set to bounce back up. For now, home prices remain low, personal incomes are high, and interest rates are still very attractive.

If you've been weighing your options and waiting to see how things shake out, this is the ideal time to act–especially when you consider the new Housing and Economic Recovery Act benefits for home buyers:

Tax credits. First-time home buyers who purchase their primary residence between April 9, 2008 and July 1, 2009 are eligible for up to $7,500 in tax credit, as long as they haven't owned a home in the last three years. The credit is actually a generous interest-free loan, so we'll have to talk about some income parameters and payback terms. But if you're a new home buyer – or know someone who is renting or in the market to buy – this is a huge benefit that we should discuss.

Lower rates for larger loans. In the past, mortgages of $417,000 or more have been considered "jumbo" loans that were more expensive to finance. Thanks to recent provisions, however, those jumbo loans were able to qualify for better financing rates in some parts of the country. Although those provisions were set to expire, they are being extended–with a minor change to the maximum amount eligible. This is great news that may save you a ton of cash, so call me to find out how this impacts our area, and if it could help you.

Down Payment Assistance...going, going, not gone yet. Another provision of the legislation eliminates some down payment assistance programs later this year...but they are still available right now, and depending on your circumstances, we may be able to take advantage of them to double your benefit as a home buyer.

Bottom line...now may be the ideal time to put together a purchase strategy based on your unique situation.

Call today to discuss your situation and set up a time to talk.