Stimulus Plan 2009

What’s Ahead for Mortgage Rates This Week: March 2nd

Mortgage markets worsened last week, taking interest rates with them.

A steady drip of sour economic news plus concerns about the banking system outmuscled Fed Chairman Ben Bernanke’s congressional testimony in which he said the recession would likely end later this year.

Overall, mortgage rates have risen in 9 of the last 12 trading days.

This week, it’s unclear in what direction mortgage rates will go. However, it won’t be because of a lack of action.
The week starts with the 8:30 A.M. ET release of the Personal Spending report, a closely-monitored report that should make a broad market impact. Economists expect that spending increased in February, providing key support for economy.

If economists are wrong, though, and spending fell, it will cast doubt on the speed at which an economic recovery will occur. Consumer spending, after all, makes up two-thirds of the economy. No spending means no recovery.

Next, on Wednesday, the White House is expected to release the details of the Homeowner Affordability and Stability Plan. Again, markets are watching for the broader impact of the news. If analysts and traders deem the plan effective, watch for stock markets to improve and bond markets to weaken.

This would cause mortgage rates to rise.

Then, Friday, we’ll get to see February’s official jobs number. Job loss is expected to exceed 600,000 for the month and unemployment may reach 8 percent. On many levels, if the jobs data meets the expectations, it would be okay with respect to mortgage rates.

As always, it’s recommended that you float your mortgage rate cautiously. Wall Street is nervous for its turf and hyper-sensitive to Beltway influence. Markets can change in an instant and when they do, they usually change for the worse.

This week, have a game plan. It’ll be easier to take advantage of daily mortgage rate movement.

(Image courtesy: USA Today)

Stimulus Plan 2009

Obama Unveils Homeowner Affordability and Stability Plan

President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes.

The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. In addition, the plan includes a third initiative to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

Many of the plan’s details are still being worked out and will not be announced until March 4, here is an overview of the plan’s main components.

Refinancing Initiative
Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. Therefore, the refinancing initiative in the new plan provides refinancing help for homeowners with less than 20% equity in their homes or who owe more than their home is worth. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

According to the plan, “credit-worthy” or “responsible” homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date—including what, if any, credit score requirements will be included.

Stability Initiative
This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.

The goal of this initiative is simple: “reduce the amount homeowners owe per month to sustainable levels.” To accomplish this, lenders are encouraged to lower homeowners’ payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify. This initiative also includes a number of additional elements and incentives that benefit homeowners and lenders alike, including:

• Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
• Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

Supporting Low Mortgage Rates
As part of the Homeowner Affordability and Stability Plan, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. This portion of the plan will use using funds already authorized in 2008 by Congress for this purpose.

The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.

Again, the government plans to unveil the final details of the plan on March 4, 2009. For now, you can download a sheet of common Questions and Answers produced by the government at: www.treas.gov/initiatives/eesa/homeowner-affordability-plan/ConsumerQA.pdf

I will continue monitoring the plan as new information becomes available. If you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.

Stimulus Plan 2009

What’s Ahead for Mortgage Rates This Week: February 23, 2009

Traders brushed off Tuesday and Wednesday’s passage of the American Recovery and Reinvestment Act and the President’s mortgage relief plan, respectively.

It showed how unsure markets remain about the stimulus package and its probable impact on the economy.

As a result, mortgage markets worsened last week, albeit slightly. It marked the 4th week out of five in which mortgage rates rose.

However, there were a few notable new items for American homeowners and home buyers last week:

1. The signed-into-law stimulus package includes a first-time home buyer tax credit
2. Additional banks joined the “no foreclosure” movement
3. Fannie Mae re-opened guidelines so that real estate investors can own and finance 10 properties, up from 4

Taken separately, these points aren’t especially noteworthy. Together, however, they’re very important.

In reducing the number of homes for sale while, in turn, spurring demand for them, last week’s policy shifts should provide key support against falling home values nationwide. More buyers competing for fewer homes tend to make prices go up, after all.

This week, we’ll see if buyers are responding. Two housing-related data points are released.

On Wednesday, it’s January’s Existing Homes Sales report. After soaring 6-plus percent in December, economists expect another big increase. This makes sense because falling prices make homes more affordable and banks are getting more efficient with selling foreclosed properties.

Then, on Thursday, the New Home Sales report hits the wires. It’s expected to show little or no change.

As for mortgage rates, expect the same unpredictability we’ve seen since the start of the year. As Wall Street comes to terms with the various stimulus plans and the fate of our nation’s largest financial companies, money will flow in and out of securities markets with fluidity and speed and that includes mortgage-backed bonds.

Rates should carve out a wide range this week. If you’re not currently floating, consider locking in to avoid the risk of higher monthly payments.

(Image courtesy: Wall Street Journal)

Stimulus Plan 2009

What the Homeowner Affordability and Stability Plan Doesn’t Mean to Homeowners

In Mesa, Arizona, Wednesday, the President presented the Homeowner Affordability and Stability plan, a multi-pronged effort to support the housing market.

The story made the front page of nearly every newspaper in the country.

The president’s plan is sweeping:

• Incent mortgage servicers to work with at-risk homeowners before delinquency starts
• Let homeowners with good credit but little equity refinance to today’s low rates
• Fund Fannie Mae and Freddie Mac to support mortgage markets

It’s a broad plan with many positive angles, but for now, we can’t forget that it’s just a plan. Although the White House shapes and influences housing policy, Congress, Loan Servicers, and the Federal Agencies must still implement and execute it. Until that implementation occurs, these reforms exist only on paper.

It’s a key aspect of the speech that’s not getting coverage.

One thing we learned during the stimulus package debate was that just because the President wants something to happen doesn’t mean that it will. There are always details to be worked out and that’s one reason why the Homeowner Affordability and Stability Plan couldn’t go into effect immediately. There are still loose ends to tie and details to define.

According to its website, the White House lists March 4, 2009 as the plan’s effective date. Until March 4, therefore, nothing in Wednesday’s speech is guaranteed.

(Image courtesy: Birmingham News)

Stimulus Plan 2009

How Long Will the Stimulus Bill Indirectly Lower Mortgage Rates

The American Recovery and Reinvestment Act of 2009 was signed into law Tuesday in Denver, Colorado. Also Tuesday, stock markets fell near their November 2008 lows.

The two moves are related.

With each new stimulus; with each potential jumpstart of the economy, Wall Street questions whether the federal push will be enough to make an impact.

Traders ended undecided on that issue today, but resolute in something else — that whatever change the stimulus bill will bring, it’s not going to come fast enough to help.

The sell-off in equities was a boon to home buyers. For the first time since early-December, mortgage markets gave a sustained rally, extending gains from the 8:30 AM market open through the 4:00 PM market close.

Conforming mortgage rates were down on the day. Longer-term, though, this pattern won’t likely last. Not only will the stock market regain its balance and draw dollars back, but, more importantly, the stimulus bill contained verbiage increasing the national debt ceiling by 53.4 percent. Government debt is often financed by printing more money and this leads to inflation, the enemy of mortgage rates.

For now, the stimulus plan is helping mortgage markets, albeit indirectly. If you’re shopping for home loan, consider locking quickly. When markets flip — and they always do — it figures to be sudden.

(Image courtesy: Recovery.gov)