Gabe's Blog

Today the Federal Open Market Committee (FOMC) cut key interest rates by 0.25%. This will have a direct impact on your Home Equity Line of Credit, credit card rates and auto loans. However, as we have seen in the past it does not have a direct impact on mortgage rates. However, since the FOMC has signaled that this might be the last rate cut for a while, this means that inflation might now be under control and therefore we might see a positive reaction in the bond markets which will have a direct effect on mortgage rates. If the bond markets react positively, we will see mortgage rates come down slightly in the next few days.  If you are interested in reading more about the rate cuts, you can certainly read more below.

WASHINGTON (MarketWatch) - The Federal Reserve chose to cut short term interest rates on Wednesday for the fourth time this year, saying it remains troubled by the economic outlook, but signaling that it now may leave rates steady for a while.

The Fed lowered its benchmark federal funds rate by a quarter percentage point, to 2%.

Rates stood at 4.25% at the start of the year. Two Fed officials, Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser, dissented from today's decision in favor of no rate cut.

In its statement, the Fed seemed comfortable where rates are now.

"The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity," the statement said. Read Fed press statement.

The FOMC did tweak the statement to add slightly more emphasis that it was worried about inflationary pressures and less worried about further weakening, a signal that the committee may leave rates steady at the next meeting.

But this was not a strong hint that the Fed would hold rates steady going forward.

Steve Gallagher, chief economist at Societe General in New York, called the statement a "soft non-binding pause."

James Glassman, economist at J.P. Morgan/Chase had said before the statement was released that the Fed didn't need to strongly hint about the future course of policy. He said the Fed was comfortable with market expectations so didn't want to shake them any.

The rate cut was expected by investors. See full story.

They were pleased that there was no surprise. Stocks soared after the announcement. Read Market Snapshot.

It is important not to lose sight of the fact that the Fed has slowed the pace of rate cuts, economists said. The last move was a three-quarter of a percentage point cut on March 18. This is the seventh rate cut since last September. The central bank has reduced overnight lending rates by 3.25 percentage points over that time span.

But the central bank decided not to pause altogether in order to bolster the economy and provide insurance against risk that the credit crunch will set off a downward spiral of growth.

The economy is treading water, managing to avoid slipping into recession. The Commerce Department reported earlier Wednesday that growth remained at an anemic 0.6% rate for the second straight quarter. See full story.

But many analysts say the economy can't keep treading water forever and that a recession is likely. Treasury Secretary Henry Paulson is hoping that the fiscal stimulus package will act as a life-preserver and rescue the economy.

The money from the government may strengthen consumer spending but will also make it difficult to judge the underlying fundamentals, economists say.

The labor market has been weakening along with consumer spending as the housing market continues to sink to depression-era lows. In addition, gasoline prices have sky-rocketed.

But the export sector is strong and businesses appear to have inventory levels under control.

A pause now?

Many economists believe the Fed signaled in its statement that it will now pause from its aggressive interest rate cutting to assess whether the government economic stimulus checks can help turn the economy around.

Some economists believe the next interest rate move will be a rate hike at the end of the year.

"Our own forecast has been and remains for the Fed funds target to hold at 2.00% for as long as the eye can reasonably see," said Josh Shapiro, chief U.S. economist at MFR Inc.

Others believe the Fed will be forced to trim rates further to help the economy recover from the credit crunch.

Some Fed officials have argued that rate cuts alone cannot repair financial markets. In addition, they remain alarmed about inflation. The dollar has steadily eroded in recent months, putting upward pressure on import prices.

In the end, Ian Shepherdson, North American economist at High Frequency Economics, said that the Fed's intentions are not as important as the upcoming data.

"If the data deteriorate further, as we expect, the Fed will ease again. Today's statement is important - today. Tomorrow, the numbers are back in charge," Shepherdson said in note to clients.

Investors won't have to wait long for key economic reports. The Institute for Supply Management will release Thursday its key survey of conditions from inventory managers at manufacturers located around the country. And Friday, the Labor Department will release the April unemployment report.

Greg Robb is a senior reporter for MarketWatch in Washington.

As you might be aware of, getting a mortgage today is not as easy as it used to be.  I came across a very good article that discusses what lenders are doing and why which is demanding more from people who are attempting to get a mortgage.  Today it requires a very skilled mortgage professional more than ever to help structure your home financing versus a year ago when anyone could have gotten a loan.  Please read below and let me know if you have any questions at all.

Leery Lenders Demand More From Borrowers By ALAN ZIBEL and J.W. ELPHINSTONE,

AP Posted: 2008-03-20 18:12:54

WASHINGTON (AP) - Just when consumers and the U.S. economy need banks to lend more freely, the mortgage industry is making it harder to borrow - even for those with good credit.

Mortgage insurers, whose backing is required for borrowers who can't afford the traditional 20 percent down payment on a home, have already flagged nearly a quarter of the nation's ZIP codes where they refuse to insure some home loans.

That encompasses a wide variety of neighborhoods: McMansions in Scottsdale, Ariz.; luxury Miami condos; 1960 ranch houses in Flint, Mich.; and early 20th century kit homes in Metuchen, N.J.

The entire states of California, Florida, Arizona, Michigan, Ohio and Nevada - which have seen the highest foreclosure rates and the worst price declines - are blackballed on some mortgage insurers' lists.

Banks that have lost billions because of bad bets during the housing boom are now reverting to strict lending standards not seen in nearly 20 years, according to industry data and interviews with lenders.

For new home buyers and those seeking to refinance, it can mean higher down payments and a higher bar for credit scores, among other requirements. The toughest restrictions are in markets where home prices are falling, though regions where property values are rising are not immune.

"We're in the midst of an epic, broad, sweeping change in the mortgage industry," said Chris Sipe, a loan officer with America East Mortgage in Frederick, Md.

The reluctance to extend credit comes despite a flurry of government initiatives, including steady interest rate cuts by the Federal Reserve, intended to make it easier for would-be borrowers and those facing interest-rate resets on their mortgages.

Lenders' growing leeriness threatens to dampen sellers' already soggy prospects for the spring home-buying season - and that means more pain for the already battered housing sector and the broader economy.

In recent weeks, mortgage insurers have flagged more than 9,600 ZIP codes in at least 34 states where they won't insure certain types of home loans - those for investment properties or second homes, those with riskier adjustable-rate or interest-only mortgages, or for buyers making down payments of less than 3 percent.

With banks and mortgage insurers pulling back, state and federal programs for first-time buyers and people with poor credit are attempting to fill the void.

Don Brekke, an equipment operator from Colorado Springs, Colo., tried to buy a bank-owned 1950s ranch home for $113,000. At first he couldn't get a loan because the house was in a potentially declining market, and lenders required a 10 percent down payment, more than he could afford.

Ultimately, he was able to qualify for a 100 percent loan from Colorado's state financing authority, and he plans to close in the coming days.

"It was a bunch of headaches - going around and around to get this done," Brekke said.

The combination of sinking home prices and tighter lending standards has been a major aggravation for Ron Broussard, a 38-year-old sales representative for a home builder.

Broussard took advantage of soaring Southern California property prices three years ago to refinance a loan on a house he had owned since the late 1990s. Today he's still stuck with a $720,000 mortgage and has been renting it out since moving with his family to Texas a year ago. Once appraised for $1.1 million, Broussard's lender now says it's worth about $300,000 less.

He does not yet owe more than the property is worth, but Broussard worries that is a possibility.

"The way the market's going, you know, who knows?" he said.

Broussard has found little sympathy from his lender, Countrywide Financial Corp. While Broussard accepts responsibility for taking out a mortgage whose monthly payments are due to skyrocket once the unpaid principal exceeds the home's value by 15 percent, he feels betrayed by the lender's unwillingness to negotiate better terms.

The stinginess of banks is showing up in home loan statistics: The value of all new mortgages plummeted to $450 billion in the fourth quarter of 2007, down 38 percent from a year earlier, according to trade publication Inside Mortgage Finance.

Subprime loans, made to borrowers with poor credit, virtually disappeared from the market, plummeting 90 percent to $13.5 billion in the October-December quarter.

There is a silver lining: The Federal Reserve has repeatedly cut interest rates, helping borrowers whose mortgages were just about to reset to higher rates and people with student loans. Reflecting the Fed's efforts, rates on 30-year mortgages dropped below 6 percent this week for the first time in more than a month.

But the long-term impact of the Fed's move is far from certain, and the central bank's actions could end up feeding inflation and pushing up long-term rates.

"The credit crunch is much like the movie villain that refuses to die," said Greg McBride, a senior financial analyst at Bankrate.com. "The effects are spilling out, far beyond what was originally seen."

Amid the turmoil, the mortgage industry is playing hardball with borrowers.

Wells Fargo & Co. now requires a 25 percent down payment in the most distressed markets, according to a document sent to mortgage brokers last month. A company spokesman said in an e-mail message that Wells Fargo is "focused, as we've always been, on fair and responsible lending and sound credit risk management."

Some borrowers who took out home-equity loans or second mortgages are being blocked from refinancing. The problem is most common among consumers using two different lenders.

Companies that made second mortgages are now denying requests - common in a refinancing transaction - to take secondary status in the event of a foreclosure. Especially in markets where prices are declining, holders of those loans want to be paid off before a loan is refinanced rather than take on the risk of default, industry experts say.

Lenders' changes have removed 30 to 40 percent of the borrowers who could have qualified in recent years, estimated Tom LaMalfa, managing director at Wholesale Access, a Columbia, Md.-based mortgage research firm.

Lenders and mortgage insurers are also requiring proof of income and employment, something they didn't always do during the housing boom.

"It's no longer people buying pools of loans, strictly written by a computer, and no one knowing what's in a pool," said Marc Schwaber, chief executive of Preferred Empire Mortgage Co. in New York. "The loan is going to have to make sense."

Many in the real estate industry hope that the economic stimulus legislation signed by President Bush earlier this year allowing Fannie and Freddie to back loans larger than their former limit of $417,000 will kick-start the housing market.

And while this week's interest rate cut by the Federal Reserve could tempt banks to lend more, experts say they are likely to remain skittish for months to come.

"It's going to take time for banks to tiptoe back into the water," said Jefferson Harralson, a banking industry analyst with Keefe, Bruyette & Woods Inc.

Copyright 2008 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. All active hyperlinks have been inserted by AOL.

2008-03-20 18:12:54

A few weeks ago I posted some information regarding lenders freezing existing HELOCs and not allowing customers to take additional draws in the future.  Well, I just received an e-mail from Citi Home Equity (aka Citimortgage HELOCs) stating that they are going to "limit new draw activity upon these loans".  Please see the news release below.  If you have a Citi HELOC and you have questions, it says that you will be getting a letter which will have a customer service number to call and it also says that they will not speak to me so I am sorry that I will not be able to call on your behalf. 

This is one more change that is a sign of the times given the current lending environment.  Lenders are very cautious today in their current lending practices.  Many lenders are not even doing HELOCs or second mortgage at all anymore.  There are also many lenders who are requiring anywhere from 20%-25% as a down payment on a new home (or 20% equity in order to refinance).  We still have access to lenders who are offering "more aggressive" financing but even a client with perfect credit will be facing challenges of getting home financing with less than a 10% down payment today.  Please see the news release below and let me know if you have any questions at all! 

"Citi Home Equity has recently reviewed certain existing Home Equity Lines of
Credit (HELOC) in light of recent real estate market conditions. In accordance
with the terms of these loans, Citi Home Equity has taken steps to limit new
draw activity upon these loans. These actions limit new draw activity, and do
not impact existing balances. Borrowers are expected to pay their current
balances per the terms of their loan, and will receive a letter with the details
on their specific line if it has been impacted.

A customer service phone number is provided to the borrower in their letter.
If you are contacted by a borrower who has been impacted by these events,
we ask that you have the borrower call our customer service line if they have questions or concerns. Please remember that due to financial privacy
requirements, Citi Home Equity will only speak to the consumer about their
account. Citi Home Equity is unable to discuss the borrower's account with you.”