Our columnist advises a reader on things to do to make a listing more appealing in the winter
By JUNE FLETCHER
Q: I live in Bethesda, Md. Most people around here put their homes on the market in the spring, when everything is in bloom. But I need to sell my home now. What can I do to make it more marketable?
A: Although winter is the most challenging time to put your house on the market, you can turn the season to your advantage if you emphasize the qualities that make your house more inviting than the competition.
[Selling a home in winter House Talk] Associated Press
While a log cabin in Alaska may be cozy, many homes aren't as appealing to buyers during the winter months.
Here are some tips:
* Keep up with maintenance. In their rush to get their homes ready to show, many sellers forget to button up their homes for the winter. But buyers will notice the icicles that form when gutters aren't cleaned, and will feel the drafts from windows that haven't been weather-stripped. If you need to move out before your house is sold, don't forget to turn off the valves to outside spigots and drain them so pipes don't freeze and burst. Also, if your house is vacant, hire someone to make sure tree branches felled by ice are hauled away, your walks, steps and driveway are always kept free from snow, and floors aren't dirty with tracked-in salt and sand.
* Take down holiday decorations. Although some agents think holiday lights and Christmas trees make a house festive, they can be a turn-off to buyers who don't share your religious beliefs -- particularly in an area like yours, which has a diverse population. It's better simply to stick to hot cider and a roaring fire during your open houses.
* Emphasize energy efficiency. Buyers are always interested in knowing a home's operating costs, but these concerns naturally come to the fore during winter. List everything you have done to your home to make it more energy efficient, from beefing up insulation and wrapping pipes with foam sleeves to replacing windows and appliances. You might want to copy utility bills and leave them out for showings as well. (To foil potential identity thieves, black out your account number.)
Getting the Best Price
What's the best way to determine if a home is priced competitively? Join a discussion on Journal Community.
* Lighten up. Everyone wants more light in the winter, so make your house is as bright as possible. Window screens block an amazing amount of sunshine, so put them in storage (don't toss them, though -- home inspectors will note if there are any missing). Have your windows cleaned and take down heavy draperies. If your house is unoccupied, put some lights on timers so it will look inviting from the street at night. Also, consider putting motion detectors on walk-in closet lights, so they'll turn on when buyers open the door.
* Show other seasons. Even though buyers can't see your azaleas in bloom under the snow, you can help them visualize other times of year. Hang or arrange photos of your house with the maple tree in full glory on the mantel, or buy a digital picture frame and upload photos you may have taken of the flower beds in different seasons. Put it on the kitchen table, next to the stacks of brochures, so buyers can't miss it. Also, use landscaping software to create a diagram of your yard. Mark what's planted in beds and identify the types of trees and shrubs, as well as any water features or statuary that might be covered up by snow. (A hint: If your family is in the pictures, crop or Photoshop them out; you want buyers to project themselves mentally into the scene.)
* Update Web photos regularly. These days, homes can spend weeks on the market -- though agents sometimes try to hide that fact by withdrawing and then relisting houses. But buyers can immediately spot a stale listing if the photo is out of season. I hope your house sells quickly, but if it doesn't, please make sure that you or your agent updates photos on Web sites and marketing materials as soon as the trees leaf out and the daffodils start to bloom.
Write to June Fletcher at fletcher.june@wsj.com
Monday, December 29, 2008
Wednesday, December 24, 2008
Some Loan Modifications Are Better Than Others
Do borrowers have any say over the type of loan modification they get? What kind of modification should they look for?"
Mortgage modifications are changes in the terms of a mortgage loan designed to make it more affordable to the borrower. Generally, modifications are available only to borrowers in default or in imminent danger of default. The purpose is to cure or avoid the default, thereby averting foreclosure.
In general, borrowers must take the modification they are offered, since they have very little bargaining power. Their only card -- the implicit threat that, if they don't receive an adequate modification, they will default -- is one they can't play, at least not explicitly. However, borrowers can indicate what they can afford to pay without it being perceived as a threat.
The major types of modifications are discussed below.
Capitalization of arrears: The past due payments -- and perhaps late fees and other charges arising out of past delinquencies -- are added to the loan balance. A new payment, which will be a little higher than the previous payment, is then calculated.
This is the most common type of modification because it has very little cost to the investor. Its only value to the borrower is that it provides a new start by making him current. It works for a borrower who has hit a temporary rough patch and is now back on track, but not for a borrower who needs a lower payment.
Extension of the term: A term extension is the payment reduction modification that is least costly to the investor. However, if a loan was originally for 30 or 40 years and is now only a few years old, the payment can't be reduced very much this way. If the loan was originally for 10 or 15 years, a term extension to 30 years will reduce the payment materially, but 10- and 15-year loans make up a very small share of loans in distress.
Reduction in interest rate: This is a more effective way to get the payment down. Cutting the interest rate on a 30-year loan from 6 percent to 3 percent will reduce the payment by about 30 percent, whereas extending the term to 40 years reduces it by only 8 percent. Rate reductions are flexible, since they can be adjusted to the needs of each individual borrower. They are more costly to the investor than a term extension, and correspondingly they are more valuable to the borrower.
To minimize the cost, rate reductions in some cases are made temporary. The modification may call for the original rate to be phased back over, say, five years. This presumes that the borrower's payment capacity will grow over the same period.
Freezing the interest rate: On adjustable-rate mortgages that are close to a rate reset date, where the new rate and payment will be well above the one the borrower is now paying, a modification can freeze the rate and payment at the current level. Many subprime loans have been modified in this way because they carried margins of 5 percent to 7 percent, which, when added to the current value of the rate index, would have resulted in substantial increases in rates and payments.
Reduction in loan balance: The mortgage payment declines in tandem with the balance. A 20 percent drop in the balance, for example, results in a 20 percent drop in the payment. Unlike a cut in the interest rate, however, a cut in the balance can't be temporary, which makes it the most costly modification for investors and the best modification for borrowers.
Balance reductions do have one major advantage for investors: They reduce the borrower's negative equity, which increases the borrower's incentive to do everything possible to keep the house. It is very plausible that re-default rates on loans that are modified with a balance reduction are materially lower than on other types of modifications.
New data compiled by the Office of the Comptroller of the Currency show that about half of all modified loans re-default within six months. I am told that breakdowns of re-default rates by type of modification will soon be available.
Modification decisions are made not by investors but by servicing agents under contract with investors, and the agents generally view balance reductions as a last resort. It is not in their own financial interest to cut balances because their servicing fees are based on the loan balance. A 20 percent cut in the balance also means a 20 percent cut in the fee.
Probably more important to their decision process, the initial cost of balance reductions is higher than that of rate reductions, which imposes a burden of proof on servicing agents to justify balance reductions to investors. Their argument has to be that a balance reduction has a materially lower probability of re-default, but so far only sketchy data have been available to support it. Hopefully, this will soon change.
Mortgage modifications are changes in the terms of a mortgage loan designed to make it more affordable to the borrower. Generally, modifications are available only to borrowers in default or in imminent danger of default. The purpose is to cure or avoid the default, thereby averting foreclosure.
In general, borrowers must take the modification they are offered, since they have very little bargaining power. Their only card -- the implicit threat that, if they don't receive an adequate modification, they will default -- is one they can't play, at least not explicitly. However, borrowers can indicate what they can afford to pay without it being perceived as a threat.
The major types of modifications are discussed below.
Capitalization of arrears: The past due payments -- and perhaps late fees and other charges arising out of past delinquencies -- are added to the loan balance. A new payment, which will be a little higher than the previous payment, is then calculated.
This is the most common type of modification because it has very little cost to the investor. Its only value to the borrower is that it provides a new start by making him current. It works for a borrower who has hit a temporary rough patch and is now back on track, but not for a borrower who needs a lower payment.
Extension of the term: A term extension is the payment reduction modification that is least costly to the investor. However, if a loan was originally for 30 or 40 years and is now only a few years old, the payment can't be reduced very much this way. If the loan was originally for 10 or 15 years, a term extension to 30 years will reduce the payment materially, but 10- and 15-year loans make up a very small share of loans in distress.
Reduction in interest rate: This is a more effective way to get the payment down. Cutting the interest rate on a 30-year loan from 6 percent to 3 percent will reduce the payment by about 30 percent, whereas extending the term to 40 years reduces it by only 8 percent. Rate reductions are flexible, since they can be adjusted to the needs of each individual borrower. They are more costly to the investor than a term extension, and correspondingly they are more valuable to the borrower.
To minimize the cost, rate reductions in some cases are made temporary. The modification may call for the original rate to be phased back over, say, five years. This presumes that the borrower's payment capacity will grow over the same period.
Freezing the interest rate: On adjustable-rate mortgages that are close to a rate reset date, where the new rate and payment will be well above the one the borrower is now paying, a modification can freeze the rate and payment at the current level. Many subprime loans have been modified in this way because they carried margins of 5 percent to 7 percent, which, when added to the current value of the rate index, would have resulted in substantial increases in rates and payments.
Reduction in loan balance: The mortgage payment declines in tandem with the balance. A 20 percent drop in the balance, for example, results in a 20 percent drop in the payment. Unlike a cut in the interest rate, however, a cut in the balance can't be temporary, which makes it the most costly modification for investors and the best modification for borrowers.
Balance reductions do have one major advantage for investors: They reduce the borrower's negative equity, which increases the borrower's incentive to do everything possible to keep the house. It is very plausible that re-default rates on loans that are modified with a balance reduction are materially lower than on other types of modifications.
New data compiled by the Office of the Comptroller of the Currency show that about half of all modified loans re-default within six months. I am told that breakdowns of re-default rates by type of modification will soon be available.
Modification decisions are made not by investors but by servicing agents under contract with investors, and the agents generally view balance reductions as a last resort. It is not in their own financial interest to cut balances because their servicing fees are based on the loan balance. A 20 percent cut in the balance also means a 20 percent cut in the fee.
Probably more important to their decision process, the initial cost of balance reductions is higher than that of rate reductions, which imposes a burden of proof on servicing agents to justify balance reductions to investors. Their argument has to be that a balance reduction has a materially lower probability of re-default, but so far only sketchy data have been available to support it. Hopefully, this will soon change.
Tuesday, December 23, 2008
Fed rate cut sparks a rush of refinancing
Some mortgages to be had for 4.5 percent for very qualified borrowers
WASHINGTON - Homeowners across the United States on Wednesday took advantage of the Federal Reserve's extraordinary decision to lower interest rates, refinancing their homes to lower their monthly mortgage payments amid an economic downturn.
Mortgage brokers reported a surge of calls from borrowers seeking to take advantage of the Tuesday decision to cut the federal funds rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.
Some brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments.
The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates — the lowest since the 1960s and down from 5.3 percent Tuesday.
"This is beautiful, oh my gosh!" said Patti Mazzara, a mortgage broker in Minnesota, who was surprised when she looked up rates and found them well below 5 percent, down at least three-quarters of a percentage point from earlier in the week. "This is a whole new game now. Hopefully it's going to give people some relief."
It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage.
"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "Unfortunately, it's not an equal-opportunity party."
Even Wall Street, which pushed the Dow industrials up 360 points after the Fed announcement Tuesday, tempered its enthusiasm on Wednesday. The Dow finished down about 100 points.
An estimated 12 million Americans owe more on their home loans than their houses' current value, unemployment is still rising quickly, and foreclosures are soaring.
For people whose home values have plunged, "I could have a 1 percent interest rate, but it wouldn't help them," said Michael Maynard, a mortgage broker in Connecticut.
"People losing their homes aren't losing their homes because they can't get a 6 percent mortgage," Maynard said. "They're not qualifying at all."
In Charlotte, Jabon's mortgage broker, Will Mullinix, said that while rates that low are "pretty unprecedented," the best deals are available only to borrowers with pristine credit who are taking out loans for under 80 percent of their house's current value.
"All the stars have to align," Mullinix said.
And economists expect falling rates to provide only a modest boost to home sales, especially as unemployment worsens amid what could be the longest economic downturn since the Great Depression of the 1930s.
"People tend to be more inclined to buy a house when they're confident about their employment and income prospects," said Wachovia Corp. economist Mark Vitner.
Besides lowering the interest on fixed-rate mortgages, rates should come down on adjustable-rate home equity loans. Those are tied to the prime rate, and prime rates came down immediately after the Fed move Tuesday.
The Federal Reserve also plans to buy up mortgage debt and is considering buying long-term Treasury bonds that are closely tied to mortgage rates, so analysts expect rates to drop even further.
"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers, or about one in five Americans with a mortgage, could wind up refinancing.
Senate Majority Leader Harry Reid said Wednesday that some of the $700 billion financial bailout should spent to aid borrowers in danger of losing their homes.
"We've given enough big checks to these banks. Let's do something to help foreclosures," he said in a conference call with reporters.
President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $850 billion over two years. Though they had not settled on a final figure, it was bound to be bigger than the $600 billion that Obama's team initially envisioned.
President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $1 trillion over two years. The figure is far bigger than the $600 billion that Obama's team initially envisioned.
Mortgage applications rose about 3 percent last week, but are still below highs for the year reached in early February, the last time rates were attractive enough to cause refinancings to surge.
For homeowners who haven't been able to sell their houses, the lower rates represent an opportunity to at least save some money. And if they have enough equity in their homes, they can still pull out money to make improvements — albeit at a higher interest rate.
Lisa Wallwork, 37, and her husband, Shawn, are in the process of refinancing the mortgage on the house they've owned for five years in Connecticut. They pulled it off the market in September after their house didn't sell for more than a year.
"We wanted to move up to a bigger and better house," she said.
Instead, the couple are refinancing their $185,000 mortgage, pulling out equity to remodel their kitchen and getting a new front door. And they still expect to save up to $300 a month in the process.
WASHINGTON - Homeowners across the United States on Wednesday took advantage of the Federal Reserve's extraordinary decision to lower interest rates, refinancing their homes to lower their monthly mortgage payments amid an economic downturn.
Mortgage brokers reported a surge of calls from borrowers seeking to take advantage of the Tuesday decision to cut the federal funds rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.
Some brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments.
The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates — the lowest since the 1960s and down from 5.3 percent Tuesday.
"This is beautiful, oh my gosh!" said Patti Mazzara, a mortgage broker in Minnesota, who was surprised when she looked up rates and found them well below 5 percent, down at least three-quarters of a percentage point from earlier in the week. "This is a whole new game now. Hopefully it's going to give people some relief."
It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage.
"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "Unfortunately, it's not an equal-opportunity party."
Even Wall Street, which pushed the Dow industrials up 360 points after the Fed announcement Tuesday, tempered its enthusiasm on Wednesday. The Dow finished down about 100 points.
An estimated 12 million Americans owe more on their home loans than their houses' current value, unemployment is still rising quickly, and foreclosures are soaring.
For people whose home values have plunged, "I could have a 1 percent interest rate, but it wouldn't help them," said Michael Maynard, a mortgage broker in Connecticut.
"People losing their homes aren't losing their homes because they can't get a 6 percent mortgage," Maynard said. "They're not qualifying at all."
In Charlotte, Jabon's mortgage broker, Will Mullinix, said that while rates that low are "pretty unprecedented," the best deals are available only to borrowers with pristine credit who are taking out loans for under 80 percent of their house's current value.
"All the stars have to align," Mullinix said.
And economists expect falling rates to provide only a modest boost to home sales, especially as unemployment worsens amid what could be the longest economic downturn since the Great Depression of the 1930s.
"People tend to be more inclined to buy a house when they're confident about their employment and income prospects," said Wachovia Corp. economist Mark Vitner.
Besides lowering the interest on fixed-rate mortgages, rates should come down on adjustable-rate home equity loans. Those are tied to the prime rate, and prime rates came down immediately after the Fed move Tuesday.
The Federal Reserve also plans to buy up mortgage debt and is considering buying long-term Treasury bonds that are closely tied to mortgage rates, so analysts expect rates to drop even further.
"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers, or about one in five Americans with a mortgage, could wind up refinancing.
Senate Majority Leader Harry Reid said Wednesday that some of the $700 billion financial bailout should spent to aid borrowers in danger of losing their homes.
"We've given enough big checks to these banks. Let's do something to help foreclosures," he said in a conference call with reporters.
President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $850 billion over two years. Though they had not settled on a final figure, it was bound to be bigger than the $600 billion that Obama's team initially envisioned.
President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $1 trillion over two years. The figure is far bigger than the $600 billion that Obama's team initially envisioned.
Mortgage applications rose about 3 percent last week, but are still below highs for the year reached in early February, the last time rates were attractive enough to cause refinancings to surge.
For homeowners who haven't been able to sell their houses, the lower rates represent an opportunity to at least save some money. And if they have enough equity in their homes, they can still pull out money to make improvements — albeit at a higher interest rate.
Lisa Wallwork, 37, and her husband, Shawn, are in the process of refinancing the mortgage on the house they've owned for five years in Connecticut. They pulled it off the market in September after their house didn't sell for more than a year.
"We wanted to move up to a bigger and better house," she said.
Instead, the couple are refinancing their $185,000 mortgage, pulling out equity to remodel their kitchen and getting a new front door. And they still expect to save up to $300 a month in the process.
Monday, December 22, 2008
NAR Urges Financial Regulators and Industry to Make Mortgages More Attainable
The National Association of Realtors® applauds recent actions by the Federal Reserve and the Treasury making mortgage interest rates more affordable. However, further action is needed to help the thousands of people trying to buy a home or to stem off foreclosure to get a mortgage easily and quickly.
“Our members tell us that families are once again looking to enter the housing market only to find that delays, process and bureaucracy are getting in the way,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “The federal government and the mortgage lending industry must address continuing problems that are impeding the delivery of mortgage credit to home buyers and those trying to avoid foreclosure.”
In a letter to the Treasury Department, the Federal Reserve Board and the Federal Housing Finance Agency, and copied to President-elect Barack Obama’s transition team, NAR notes that in addition to lowering interest rates, the federal government must work with mortgage lenders and credit reporting agencies to eliminate processes that are making it difficult to close on a mortgage loan so that the housing market and the nation’s economy can have a robust recovery.
“Now really is a great time to buy a home. Inventory is high, prices are down and mortgage rates are near 50-year lows. We have to unclog the system and let people achieve and hold on to the dream of homeownership,” McMillan said.
NAR is recommending that the Treasury Department provide additional TARP funds for the sole purposes of making additional loans and modifying mortgages to help prevent foreclosures.
“The housing market is clogged with short-sales that take frustratingly too long to clear. Though lax underwriting standards should never return, many lenders’ credit score requirements have become overly stringent. Good people with good credit scores are finding it difficult to qualify for loans despite the historically low mortgage rates,” said McMillan.
NAR is asking mortgage lenders and mortgage insurers to make sure they have not over-corrected their underwriting standards and added unnecessarily strict underwriting standards, such as excessively high credit scores to qualify for a mortgage. In addition, credit reporting bureaus should improve compliance with the Fair Credit Reporting Act, including providing prompt responses to consumers who want to correct errors in their file.
Lastly, NAR is calling on all mortgage lenders, their servicers, Fannie Mae and Freddie Mac, and investors in mortgage assets to implement aggressive policies that result in more loan modifications to prevent as many foreclosures as possible, expedited processes for short-sales, and added liquidity to the nonconforming mortgage market.
“If rates stay low at near 5 percent or lower, home sales could rise nationally by 10 to 15 percent in 2009 and stabilize prices in many parts of the country,” said NAR Chief Economist Lawrence Yun. “That, in turn, will help reduce foreclosure pressures and lower the rate of re-defaults on recently modified distressed loans. Improved loan modification tools are also necessary. Everyone needs to work together so this can become a reality.”
NAR continues to advocate for other measures that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation, including making the higher loan limits passed in the economic stimulus bill earlier this year permanent and extending the temporary $7,500 tax credit for first-time home buyers to all home buyers and eliminating the repayment requirement.
“The work is not yet finished, and NAR is committed to continuing its efforts with policy makers and the new Congress and administration to get the real estate market back on track – the nation’s economy depends on it,” McMillan said.
“Our members tell us that families are once again looking to enter the housing market only to find that delays, process and bureaucracy are getting in the way,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “The federal government and the mortgage lending industry must address continuing problems that are impeding the delivery of mortgage credit to home buyers and those trying to avoid foreclosure.”
In a letter to the Treasury Department, the Federal Reserve Board and the Federal Housing Finance Agency, and copied to President-elect Barack Obama’s transition team, NAR notes that in addition to lowering interest rates, the federal government must work with mortgage lenders and credit reporting agencies to eliminate processes that are making it difficult to close on a mortgage loan so that the housing market and the nation’s economy can have a robust recovery.
“Now really is a great time to buy a home. Inventory is high, prices are down and mortgage rates are near 50-year lows. We have to unclog the system and let people achieve and hold on to the dream of homeownership,” McMillan said.
NAR is recommending that the Treasury Department provide additional TARP funds for the sole purposes of making additional loans and modifying mortgages to help prevent foreclosures.
“The housing market is clogged with short-sales that take frustratingly too long to clear. Though lax underwriting standards should never return, many lenders’ credit score requirements have become overly stringent. Good people with good credit scores are finding it difficult to qualify for loans despite the historically low mortgage rates,” said McMillan.
NAR is asking mortgage lenders and mortgage insurers to make sure they have not over-corrected their underwriting standards and added unnecessarily strict underwriting standards, such as excessively high credit scores to qualify for a mortgage. In addition, credit reporting bureaus should improve compliance with the Fair Credit Reporting Act, including providing prompt responses to consumers who want to correct errors in their file.
Lastly, NAR is calling on all mortgage lenders, their servicers, Fannie Mae and Freddie Mac, and investors in mortgage assets to implement aggressive policies that result in more loan modifications to prevent as many foreclosures as possible, expedited processes for short-sales, and added liquidity to the nonconforming mortgage market.
“If rates stay low at near 5 percent or lower, home sales could rise nationally by 10 to 15 percent in 2009 and stabilize prices in many parts of the country,” said NAR Chief Economist Lawrence Yun. “That, in turn, will help reduce foreclosure pressures and lower the rate of re-defaults on recently modified distressed loans. Improved loan modification tools are also necessary. Everyone needs to work together so this can become a reality.”
NAR continues to advocate for other measures that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation, including making the higher loan limits passed in the economic stimulus bill earlier this year permanent and extending the temporary $7,500 tax credit for first-time home buyers to all home buyers and eliminating the repayment requirement.
“The work is not yet finished, and NAR is committed to continuing its efforts with policy makers and the new Congress and administration to get the real estate market back on track – the nation’s economy depends on it,” McMillan said.
Friday, December 19, 2008
Fed Action Creates Best Interest Rates in 50 Years, Realtors® Report
The National Association of Realtors® applauds the actions of the Federal Reserve Board in lowering interest rates for home buyers and homeowners who need to refinance. This will significantly impact housing sales, home valuations, and the nation’s overall economy.
The Federal Reserve is purchasing large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets.
“NAR has been aggressively calling for mortgage rate reductions, and the Fed’s action to slash interest rates, coupled with the actions by the Federal Housing Finance Agency and the Department of the Treasury, has driven down interest rates to make the dream of homeownership once again attainable for thousands of Americans,” said NAR President Charles McMillan.
Mortgage rates, which had averaged 6.3 percent in the third quarter, have recently fallen into the 4 percent range in some parts of the country. “That is the lowest rate in nearly 50 years and will bring buyers back to the market,” McMillan said. “We are pleased that the government heard our message and responded to our call for action.”
NAR has estimated that a one percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes. “To boost the economy, it is critical to stem the rising tide of foreclosures and boost home buyer confidence in the housing market.” McMillan said. “Lower interest rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership.”
NAR continues to call on the federal government to maintain the higher loan limits passed in the economic stimulus bill earlier this year and to expand the $7,500 tax credit for first-time home buyers to all buyers and to eliminate the credit repayment requirement. “Together, all of these actions will stimulate and stabilize the housing market and begin an overall economic recovery,” McMillan said.
The Federal Reserve is purchasing large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets.
“NAR has been aggressively calling for mortgage rate reductions, and the Fed’s action to slash interest rates, coupled with the actions by the Federal Housing Finance Agency and the Department of the Treasury, has driven down interest rates to make the dream of homeownership once again attainable for thousands of Americans,” said NAR President Charles McMillan.
Mortgage rates, which had averaged 6.3 percent in the third quarter, have recently fallen into the 4 percent range in some parts of the country. “That is the lowest rate in nearly 50 years and will bring buyers back to the market,” McMillan said. “We are pleased that the government heard our message and responded to our call for action.”
NAR has estimated that a one percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes. “To boost the economy, it is critical to stem the rising tide of foreclosures and boost home buyer confidence in the housing market.” McMillan said. “Lower interest rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership.”
NAR continues to call on the federal government to maintain the higher loan limits passed in the economic stimulus bill earlier this year and to expand the $7,500 tax credit for first-time home buyers to all buyers and to eliminate the credit repayment requirement. “Together, all of these actions will stimulate and stabilize the housing market and begin an overall economic recovery,” McMillan said.
Wednesday, December 17, 2008
6 Things to Know About the Fed Rate Cut
By Luke Mullins
The Federal Reserve on Tuesday cut its federal funds target rate by more than three-quarters of a percentage point to a range of between 0 and .25 percent. The decision signals that Fed Chief Ben Bernanke is more concerned with the rapidly deteriorating economy--which has been mired in a recession since December of last year--that the prospect of stoking inflation. "Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined," the rate-setting Federal Open Market Committee said in its statement. "Financial markets remain quite strained and credit conditions tight."
Here's how the Fed's actions affect you:
1. Fixed mortgage rates: Today's rate cut will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee's reach, says Keith Gumbinger of HSH Associates. "Any change in the rate has little to do with long-term mortgage rates," he says. But in its statement the Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very attractive 5.28 percent, according to HSH Associates. It also reiterated that it was looking at the possibility of buying long-term Treasury bonds. Both of these announcements could work to bring rates even lower.
2. Prime rate loans: The real impact of today's cut will be felt by consumers with loans that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. "The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime," says Mike Larson, a real estate analyst at Weiss Research. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these loans could see their interest rates decline.
3. Home-equity savings: Home-equity loans averaged 5.5 percent in October but dropped to 5.26 percent in November following the Fed's half-point cut. Gumbinger says he expects average rates on home-equity lines of credit to experience similar declines this time around--but not everyone will be able to take advantage of them. That's because many of the interest rates on these loans are already at their minimums, and are contractually prohibited to go any lower. So check the terms of your home-equity loan to see if you are eligible to cash in on the decline.
4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks' cost of funding, which allows them to widen profit margins and pass along savings to consumers in the form of lower interest rates. But today's credit conditions have changed all that. Although the Fed's target rate stood at 1 percent before today's cut, such funds were actually being traded in the market at much less than that--just 0.18 percent as of yesterday before the Fed's action. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. "Any juice that you would get from a funds rate cut in a normally functioning market, you're not really going to get that here," Larson says. "It's not going to lower the banking industry's cost of funds, because the banking industry's cost of funds is already below the target rate anyway." That means that interest rates tied to the federal funds rate won't decline as much as they otherwise would have.
5. Now what? Nariman Behravesh, chief economist at IHS Global Insight, expects rates to go all the way to zero in a matter of weeks. "The Fed has already cut the federal funds rate to 1 percent and is likely to take it all the way to zero by the end of January," Behravesh said in a recent report, issued before today's announcement. "Once the overnight rate is at zero, the Fed may have to engage in 'quantitative easing' [direct purchases of long-term Treasuries]." Even if it doesn't bring rates all the way to zero, the Fed signaled Tuesday that it's not about to push rates higher anytime soon. "The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time," the Fed said in the statement.
6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. "The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said in the statement.
The Federal Reserve on Tuesday cut its federal funds target rate by more than three-quarters of a percentage point to a range of between 0 and .25 percent. The decision signals that Fed Chief Ben Bernanke is more concerned with the rapidly deteriorating economy--which has been mired in a recession since December of last year--that the prospect of stoking inflation. "Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined," the rate-setting Federal Open Market Committee said in its statement. "Financial markets remain quite strained and credit conditions tight."
Here's how the Fed's actions affect you:
1. Fixed mortgage rates: Today's rate cut will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee's reach, says Keith Gumbinger of HSH Associates. "Any change in the rate has little to do with long-term mortgage rates," he says. But in its statement the Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very attractive 5.28 percent, according to HSH Associates. It also reiterated that it was looking at the possibility of buying long-term Treasury bonds. Both of these announcements could work to bring rates even lower.
2. Prime rate loans: The real impact of today's cut will be felt by consumers with loans that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. "The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime," says Mike Larson, a real estate analyst at Weiss Research. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these loans could see their interest rates decline.
3. Home-equity savings: Home-equity loans averaged 5.5 percent in October but dropped to 5.26 percent in November following the Fed's half-point cut. Gumbinger says he expects average rates on home-equity lines of credit to experience similar declines this time around--but not everyone will be able to take advantage of them. That's because many of the interest rates on these loans are already at their minimums, and are contractually prohibited to go any lower. So check the terms of your home-equity loan to see if you are eligible to cash in on the decline.
4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks' cost of funding, which allows them to widen profit margins and pass along savings to consumers in the form of lower interest rates. But today's credit conditions have changed all that. Although the Fed's target rate stood at 1 percent before today's cut, such funds were actually being traded in the market at much less than that--just 0.18 percent as of yesterday before the Fed's action. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. "Any juice that you would get from a funds rate cut in a normally functioning market, you're not really going to get that here," Larson says. "It's not going to lower the banking industry's cost of funds, because the banking industry's cost of funds is already below the target rate anyway." That means that interest rates tied to the federal funds rate won't decline as much as they otherwise would have.
5. Now what? Nariman Behravesh, chief economist at IHS Global Insight, expects rates to go all the way to zero in a matter of weeks. "The Fed has already cut the federal funds rate to 1 percent and is likely to take it all the way to zero by the end of January," Behravesh said in a recent report, issued before today's announcement. "Once the overnight rate is at zero, the Fed may have to engage in 'quantitative easing' [direct purchases of long-term Treasuries]." Even if it doesn't bring rates all the way to zero, the Fed signaled Tuesday that it's not about to push rates higher anytime soon. "The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time," the Fed said in the statement.
6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. "The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said in the statement.
Tuesday, December 16, 2008
Realtors® Push for 4.5 Percent Interest Rate Buy-Down
Washington, December 15, 2008
A federal mortgage interest buy-down program would help spark the housing market, the National Association of Realtors® said in a letter sent today to James B. Lockhart, chairman of the Oversight Board of the Federal Housing Finance Agency. NAR seeks a 4.5 percent mortgage interest rate buy-down program financed through the U.S. Treasury Department’s Troubled Asset Relief Program.
In the letter to FHFA, NAR shared three potential implementation procedures for a federal buy-down plan:
* TARP would fund the payment of points at the individual level.
* The Federal Home Loan Banks would raise funds by selling below-market-rate bonds to the Treasury Department for them to make the 4.5 percent interest rates available to lenders.
* Fannie Mae and Freddie Mac would purchase mortgages at the 4.5 percent interest rate but pay lenders the market rate.
“The buy-down program would complement other initiatives and help stabilize, stimulate and revitalize the housing market,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “We must address the foreclosure crisis and increase housing demand. Lower interest rates and foreclosure mitigation are two sides of the same coin. Together they represent the key ingredients to stabilizing the housing market and preserving communities and homeownership.”
NAR has calculated that a 1 percentage-point decrease in mortgage rates would result in an additional 500,000 home sales.
In addition to suggesting that TARP assets be used to buy-down mortgage interest rates, NAR has recommended other principles that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation:
* The higher loan limits passed in the economic stimulus bill earlier this year should be made permanent.
* The federal government should ensure sufficient capital to support mortgage lending in every type of market.
* The temporary $7,500 tax credit for first-time home buyers should be extended to all home buyers and the repayment requirement eliminated.
A federal mortgage interest buy-down program would help spark the housing market, the National Association of Realtors® said in a letter sent today to James B. Lockhart, chairman of the Oversight Board of the Federal Housing Finance Agency. NAR seeks a 4.5 percent mortgage interest rate buy-down program financed through the U.S. Treasury Department’s Troubled Asset Relief Program.
In the letter to FHFA, NAR shared three potential implementation procedures for a federal buy-down plan:
* TARP would fund the payment of points at the individual level.
* The Federal Home Loan Banks would raise funds by selling below-market-rate bonds to the Treasury Department for them to make the 4.5 percent interest rates available to lenders.
* Fannie Mae and Freddie Mac would purchase mortgages at the 4.5 percent interest rate but pay lenders the market rate.
“The buy-down program would complement other initiatives and help stabilize, stimulate and revitalize the housing market,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “We must address the foreclosure crisis and increase housing demand. Lower interest rates and foreclosure mitigation are two sides of the same coin. Together they represent the key ingredients to stabilizing the housing market and preserving communities and homeownership.”
NAR has calculated that a 1 percentage-point decrease in mortgage rates would result in an additional 500,000 home sales.
In addition to suggesting that TARP assets be used to buy-down mortgage interest rates, NAR has recommended other principles that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation:
* The higher loan limits passed in the economic stimulus bill earlier this year should be made permanent.
* The federal government should ensure sufficient capital to support mortgage lending in every type of market.
* The temporary $7,500 tax credit for first-time home buyers should be extended to all home buyers and the repayment requirement eliminated.
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