The Federal Open Market Committee voted to leave the Fed Funds Rate unchanged today within its target range of 0.000-0.250 percent. The Fed also reiterated its plan to support the mortgage market to the tune of $1.5 trillion.

In its press release, the FOMC noted that the economy may still be contracting, but that it’s not happening with the same speed as in prior months. Household spending is stabilizing and financial markets are “easing”.

Nevertheless, threats to the recovery are everywhere with the following items on the Fed’s short list:

• The growing ranks of unemployed workers
• The reduction of housing wealth nationally
• Reduced inventories and investment from business

Furthermore, the FOMC fingered today’s inflation levels as too low to support economic growth. This justifies the Fed’s plan to hold the Fed Funds Rate near zero percent “for an extended period”.

For home buyers and refinancing homeowners, today’s press release was not favorable.

After the Fed’s announcement, stock markets rallied on the idea that the worst of the economy really is over and that led to a broad bond market sell-off. Mortgage rates spiked in response, adding as much as 0.125 percent, in some cases.

The FOMC’s next scheduled meeting is June 23-24, 2009.

Source
Parsing the Fed Statement
The Wall Street Journal Online
April 29, 2009
http://online.wsj.com/public/resources/documents/info-fedparse0904.html

The Federal Reserve adjourns from its two-day meeting this afternoon. It’s one of 8 scheduled meetings each year for the Federal Open Market Committee.

Like all FOMC get-togethers, the purpose of the meeting is to discuss financial and economic conditions in the U.S., and to make new policy to stimulate or retard economic growth, when necessary.

The Federal Reserve’s main tool for reaching this goal is the Fed Funds Rate.

When the Fed lowers the Fed Funds Rate, growth is stimulated. When the Fed raises it, growth is slowed. The Fed has other tools at its disposal, of course, but the Fed Funds Rate is the most common and most well-known.

Fed meetings are highly anticipated events to markets because the central bank’s can change the course of the U.S. economy with just a statement. As a result, traders tend to get jittery in advance of a Fed press release which often leads to erratic trading patterns.

With the economy continuing to teeter between growth and recession, the Fed has pledged to hold the Fed Funds Rate steady for as long as necessary. Therefore, it won’t be what the Fed does that could move mortgage rates this afternoon; it’ll be what the Fed says.

Post-meeting, the Federal Reserve will publish a press release summarizing the current economic conditions and the biggest longer-term risks that exist. If growth and inflation are identified as threats for late-2009 and 2010, mortgage rates will rise. This is because inflation is linked to higher mortgage rates.

The Fed’s press release hits the wires at 2:15 PM ET today. If you’re the cautious type, consider locking your mortgage rate prior to the release.

Monday, mortgage markets improved with news of new Swine Flu cases.

It’s a classic example of Safe Haven buying and today’s rate shoppers will see the benefits.

Mortgage rates improved about 0.125 percent Monday.

It’s not an official term, but “Safe Haven buying” describes the trading patterns in which large numbers of investors move money away from risky investments and toward safer ones. As a general rule in Safe Haven buying, stocks sell off and bonds make gains, including mortgage-backed bonds.

Fears that a global Swine Flu outbreak would slow the global recovery is a major reason why mortgage rates improved Monday.

Dumping risk is a common reaction on Wall Street when unexpected events occur. Because the future is uncertain, traders prefer to play it safe. Hence the jargon-like term, “Safe Haven buying”.

If nothing else, Monday’s mortgage rate action reminds us that the biggest influences on the market are often not the events we can prepare for. It’s the events we never saw coming.

This morning, with known Swine Flu cases spreading to Asia and a Phase 4 Alert from the World Health Organization, Safe Haven buying is continuing. However, with the Federal Reserve meeting today and tomorrow, markets could be ripe for a correction.

(Image courtesy: Niman and Google Maps)

There’s a right way and a wrong way to transfer a home posthumously. The right way requires having a documented plan. The wrong way could stick your loved ones with a tax bill so large they may have to sell the home just to cover it.

With just 4 minutes for the segment, The Today Show rushes through some very important estate planning considerations, but that doesn’t make the points any less relevant.

Among the estate planning tips:

1. Even a simple will can big protection
2. For multiple beneficiaries, consider a trust agreement
3. Avoid taxes by “selling” your home to heirs while you’re still living

Estate plans are simple, are cheap, and affords protection from the state and the IRS. Every homeowner should have one.

The days of rock-bottom housing prices may be reaching an end.

According to the National Association of REALTORS, the number of Existing Home Sales fell by a modest 140,000 units last month. It’s the fifth straight month in which home sales straddled the 4.5 million mark.

The national housing inventory is down 900,000 from its July 2008 peak.

These are two encouraging signs.

Meanwhile, in a separate report, the Commerce Department said the supply of newly-built homes for sale is at a 7-year low. This, too, is a positive signal for housing.

Home values are based on supply and demand. If the number of homes for sales falls while the number of buyers stays constant, home prices will rise. This is because the same number of buyers are competing for fewer properties. It’s basic economics and that may be what we’re seeing right now in the marketplace.

But the balance could shift further. Remember: the March housing data doesn’t account for first-time home buyers that used the $8,000 First-Time Homebuyer Tax Credit. Because the stimulus package didn’t pass until February, buyers on the program likely hadn’t closed on their respective homes before March data was released.

There’s a big piece of the demand side of the equation unaccounted for, in other words, and if you’re an active home buyer now, you’re probably hearing a lot about multiple-offer situations and seeing this action first-hand.

Data from the housing market hasn’t been outstanding, but it’s definitely not looking worse. Sales levels, inventories and home prices appear to be leveling off nationally and the number of active seems to rising.

Overall, it points to higher home values ahead.

If falling home values is what prompted Fannie Mae and Freddie Mac to tighten mortgage guidelines in 2007 and 2008, America’s mortgage applicants may get their long-awaiting loosening within the next 18 months.

According to a government report, the values of homes financed with conforming mortgages rose for the third straight month in February.

This is an important piece of data because as values rise on the homes against which conforming mortgages are made, Fannie Mae and Freddie Mac’s respective loan portfolios get less risky.

With less risk related to home values, there’s an opening for the agencies to assume more risk on individual borrowers.

A guideline loosening would help home loan applicants that currently find themselves ineligible for conforming mortgage financing — often the least costly source for mortgage money.

Pressed for profitability, it’s unlikely that Fannie Mae or Freddie Mac will loosen their respective guidelines prior to 2010, but if the Home Price Index continues to show improvement, it’s good news for the agencies which, in turn, is good news for people in want of a home loan.

HPI shows February 2009 home values on par with the values of April 2005.

National real estate data helps economists identify trends in the housing market. It shapes policy and influences markets.

For active home buyers and home sellers, though, national real estate data is irrevelant. This is because national data says nothing for the factors determining home prices in any given zip code.

See, national real estate news is mash-up of data. It’s 128,203,000 homes from all 50 states. Each of these states has its own economy and there are different factors that drive home values in each

Most Americans understand this.

But, if we dig deeper, we see that within those states, there are more than 19,000 incorporated cities — plus thousands of unincorporated ones. And like the 50 states, city-to-city home values vary by economy, too.

Furthermore, each city is comprised of areas, and those areas can be broken down into neighborhoods and then sub-divided again into streets, with blocks.

It’s apparent that a random home in Alabama can’t be compared to a random home in California. Yet, that comparison is exactly what you’re getting with national real estate data and why we can’t rely on it to say “values are up” or “values are down”.

Values depend on what’s happening locally.

For buyers and sellers, the underlying goal is to meet at “the right price”. To reach that sort of price discovery, you have to look local.

It’s not as easy as it sounds.

Local real estate trends is a topic that’s too narrow to be covered by the national press. It’s even too narrow for local papers. Therefore, buyers and sellers have two places to turn:

1. A general real estate website
2. A practicing real estate agent

Using both sources for local data is common among today’s buyers and sellers.

National real estate news offers little value with respect to home price negotiation. Because all real estate is local, your real estate data should be, too.

The Federal Reserve meets next week for a policy-setting meeting.

It’s one of 8 scheduled Fed meetings this year in which the Federal Open Market Committee votes on whether to raise, lower, or leave unchanged the Fed Funds Rate.

Based on data compiled by the Federal Reserve Bank of Cleveland, Wall Street’s expectations of the Fed Funds Rate post-meeting are as follows:

• 97 percent probability that the Fed Funds Rate holds at 0.000 to 0.250%
• 3 percent probability that the Fed Funds Rate is raised to 0.750%.

There is no expectation for a 0.500% Fed Funds Rate.

The Fed Funds Rate influences the economy by changing borrowing costs for banks, businesses, and consumers. When the Fed Funds Rate is lowered, “cheaper money” is meant to speed the economy forward. When the Fed Funds Rate is raised, by contrast, costly borrowing tends to slow the economy down.

Changes to the Fed Funds Rate do not directly correlate to changes in mortgage rates.

Because Wall Street is nearly unanimous in its Fed Funds Rate prediction, though, expect the market’s FOMC focus to be on what the Fed says rather than what it does.

If Ben Bernanke & Co. express concerns about long-term inflation and the need to contain growth, mortgage rates will rise in response. On the other hand, if the Fed says that growth is expected to be within a tolerable range, mortgage rates should idle.

In other words, there’s little benefit in waiting for the Fed’s meeting to make your “Float or Lock” mortgage rate decision. In a worst-case scenario, mortgage rates rise. In a best-case scenario, they likely stay the same.

The Fed’s two-day meeting adjourns Tuesday, April 29 at 2:15 PM ET.

Sure, you’ve got a fire extinguisher at home, but if you ever had a fire, would you know what to do with it?

Like any tool, reading the directions can only get you so far. If you’ve never “pulled the pin” and discharged a fire extinguisher before, fighting an actual fire can be a frightening intiation.

For non-firefighters, there’s an alternative. It’s an aerosol spray from the First Alert company called the Tundra Fire Extinguishing Spray and it’s billed as an intuitive fire safety product.

According to a First Alert product fact sheet, aside from its ease-of-use, the Tundra product boasts several advantages over traditional fire extinguishers:

1. Tundra sprays for 32 seconds — double a traditional fire extinguisher
2. Tundra spray covers 3 times more surface area than a traditional extinguisher
3. Tundra cleans up with a damp sponge

The Tundra Fire Extinguishing Spray is recommended for cooking fires, electrical fires and household fires involving wood, paper and fabrics. You can buy it at most hardware stores or for cheap at Amazon.com.

With respect to housing data, news is rarely positive or negative on a universal level. There’s always two perspectives to consider, after all.

1. The home buyer’s perspective
2. The home seller’s perspective

Usually, when data is beneficial to one group, it’s less beneficial to the other. This is true for rising home prices, average days on market and so forth.

Today, the group that gets the most benefit from data is the home seller group.

Published Thursday, a government report showed that Housing Starts fell 11 percent nationwide in March and also fell short of analyst expectations. A “Housing Start” is a new housing unit on which construction has started.

The press is calling this a stumbling block for the economy, but that’s not exactly true.

Fewer Housing Starts last month means that fewer new homes will come on the market later this year. This is not necessarily bad news. Especially if you’re planning to sell your home in the latter half of the year. With fewer homes for sale, the supply-and-demand curve should shift in favor of home sellers. This helps stabilize home prices at a time when they might otherwise be prone to fall.

If it’s true that stable housing markets are key in an economic recovery, then fewer Housing Starts is actually a push in the right direction.

But there’s more to the story (as always).

As footnoted in the Commerce Department’s report, a statistical disclaimer states that the Housing Starts data’s Margin of Error was so high that the report’s conclusion is just a guess. Technically, the entire report is invalid anyway

So, the government won’t issue its final March 2009 Housing Starts data for months, but if the initial figures stick, home sellers may be in position to command higher sale prices later this year to the detriment of home buyers. It’s basic economics.

And from a home seller’s perspective, that news is good.

Since 2007, foreclosures have dominated real estate news. You can’t turn on the news or open a paper without some foreclosure-related story.

But for all of the discussion, foreclosures continue to be geographically concentrated.

Adding up the latest stats from RealtyTrac.com, more than half of the country’s foreclosure actions from March occurred in just 3 states — California, Florida and Nevada.

Those 3 states represent just 19 percent of the nation’s population.

Despite the local concentration of foreclosures, however, they remain a national problem. This is because mortgage lenders lend in all 50 states — not just 3 of them — so the impact of mortgage defaults in one region can quickly spread to others.

In part because of foreclosures are higher, the following has happened:

• Mortgage guidelines have tightened
• Downpayment requirements have increased
• Private mortgage insurance has become more expensive

That’s an important set of changes for a would-be borrower. In some cases, it can keep a person from qualifying.

Search the March 2009 foreclosure report for yourself on RealtyTrac.com’s website.

It’s Tax Day today and who among us doesn’t love a legitimate tax deduction?

The IRS expects to process 138 million tax returns this year and accompanying those returns will be a melange of tax deduction requests.

Most will be run-of-the-mill including such staples as mortgage interest, vehicle mileage, and child care deductions. Others, however, will be less ordinary.

On its website, TurboTax pays homage to some of the most off-the-wall, offbeat tax deductions through the years permitted by the IRS.

Among the “weirdest deductions allowed“:

• A bodybuilder’s body oil so his muscles would glisten in competition
• A private airplane for owners of investment properties
• Landscaping for a sole proprietor that meets clients at home
• A swimming pool for a man with emphysema

Tax deductions are prized by U.S. taxpayers. Hopefully, your 2008 tax returns included some good ones, too.

Shopping for low mortgage rates is a game of luck.

Some days, mortgage rates are favorable. Other days, they’re not. And while you can sometimes make an educated guess about where rates might be headed, you’re not always going to guess right.

Even the experts get it wrong more often than they’d like.

But some parts of the rate shopping process can be predicted and one of them is the future of mortgage guidelines.

In general, the more often homeowners default on their respective mortgages, the harder it is for future mortgage applicants to be approved.

This is why “now” may be the best time to apply for a FHA mortgage. Defaults are climbing, suggesting that FHA underwriting guidelines are about to tighten.

Indeed, the FHA has implemented two major changes since last summer:

1. The minimum downpayment requirement was raised by a half-percent to 3.5%.
2. Cash out refinances are now limited to 85 percent, down from 95 percent.

These changes create barriers to entry for potential FHA borrowers, improving the overall quality of the FHA loan pool.

For a taxpayer-funded agency like FHA, loan performance is an important goal. Therefore, as the number of defaults grows, expect FHA guideline to get tighter.

The problem is, though, we can’t predict just where the FHA will tighten. Maybe the FHA raises its minimum FICO score requirement, or maybe it gets tough on seller-paid closing costs. A hike in loan fees isn’t out of the question, either — that’s the path Fannie Mae took, after all.

Whatever the FHA does, fewer people will qualify for FHA mortgages once it’s done. So, if you’re planning to buy a home and your downpayment is limited, or your credit scores are suspect, or there’s some other “red flag” in your profile, consider moving up your timeframe to act.

Mortgage rates may rise or mortgage rates may fall, but neither is going to matter if you can’t get qualified for a home loan. And, for FHA mortgage applicants, tougher mortgage guidelines are only a matter of time.

In 2003, the Department of Homeland Security launched Ready.gov, a government website aimed at family, business and community disaster readiness.

Now, when the Ready.gov website talks about disaster readiness, it’s referring to more than just physical attacks on the county — it’s talking about natural disasters, too. This includes hurricanes, tornados, earthquakes and floods and these weather-related events impact the different parts of country each year.

The Ready.gov website is loaded with tips, notes and checklists, including the 3-minute “It Takes Just Three Steps To Get Ready For An Emergency” video featured above.

If you’ve never watched it, take the time to watch it today. Then, test your home’s disaster readiness, take this 10-question quiz. There’s no “passing grade”, per se, but with your own answers, you’ll see where there’s room for improvement.

Disasters can’t be predicted and most of us will face them at least once in our lives. When disaster strikes, therefore, make sure you prepared for it in advance. Protecting your household is a matter of just 3 simple steps.

When conforming mortgages adjust, they’re often tied to an interest rate index called LIBOR.

LIBOR is an acronym for London Interbank Offered Rate. But what LIBOR stands for isn’t as important as the role it plays.

LIBOR is an interest rate at which banks borrow money from each other. Therefore, when banks feel the banking system as a whole is unsafe, LIBOR rises to compensate.

It’s why LIBOR spiked last October after Lehman Brothers failed. Financial institutions wondered what other institutions would fail and that added risk to the system.

Since October, however, and because of massive government interventions worldwide, LIBOR has been on a steady retreat. Moreover, with close to $30 billion in conforming mortgages scheduled to adjust by Labor Day, the timing couldn’t be better for homeowners with conforming ARMs.

Typically, a Fannie Mae- or Freddie Mac-backed mortgage adjusts once annually. The adjusted interest rate is always equal to some constant — usually 2.250 percent — plus the rate of LIBOR on the date of adjustment.

As a math formula, the ARM formula might like this:

New Mortgage Rate = LIBOR + 2.250 percent

In October, when LIBOR was above 4 percent, a homeowner’s ARM may have adjusted to 6 1/2 percent. Today, that same ARM would move to four-and-a-quarter.

As a strategy play, it might make sense to let your ARM adjust because the rate will remain low, but with fixed rate mortgages hovering near 5 percent, locking up a long-term rate may be smart, too.

Talk to your loan officer to review all of your choices.