Archive for January, 2008

Comments Off on What The Bank of America-Countrywide Merger DOESN’T Mean For Homeowners

What The Bank of America-Countrywide Merger DOESN’T Mean For Homeowners


2008
01.15

For all that’s been said about the proposed Bank of America-Countrywide merger, what’s not getting talked about is how the merger will impact existing Countrywide customers.

The short answer is that it won’t.

A mortgage (and its corresponding note) is a legal contract between the lender and the lendee, signed on the date of closing. It is binding and cannot be altered by either party, even if the mortgage is transferred between lenders.

As a homeowner, the only way to “end” the contract is to satisfy the home loan with a full repayment. That can happen one of three ways:

  1. The home is sold and the mortgage is repaid
  2. The home is refinanced and the mortgage is repaid
  3. The home loan is paid down to $0 balance by the homeowners

Mortgage payment servicers commonly transfer home loans between each other. This happens on an everyday-basis — not just when there’s a merger, or a closure.

When mortgages are transferred, HUD requires the former lender to send a 15-day advance notice to its lendee; the new lender is required to send a similar notice.

So, for homeowners that write their mortgage checks to Countrywide every month, it’s possible that the address to which you mail your payment may change, but the terms of your mortgage cannot.

Comments Off on The Week In Review (January 14, 2008) : What To Watch For

The Week In Review (January 14, 2008) : What To Watch For


2008
01.14

Markets are welcoming the return of cold, hard data this week.

Most of last week was spent making sense of Fed speakers, recessionary fears, and a takeover of the nation’s largest lender.

This week, we’ll find out if the recent fears of recession are on target, or overblown.

The data deluge starts Tuesday with the Retail Sales report.

Markets are predicting the worst Holiday Shopping numbers since 2002 and those low expectations have already been priced into mortgage bonds. Therefore, only a completely terrible number will cause mortgage rates to move lower.

Also on Tuesday, markets get hit with the Producer Price Index. This is like a “Cost of Living” measurement, but for business. If businesses are paying more to operate, it’s likely that those costs get passed to consumers.

Last month, PPI was the highest on record since 1973 because of high energy costs. If it comes in high again, mortgage rates should rise on the expectation that consumers will eventually bear the burden of higher costs.

Wednesday, the consumer Cost of Living index gets released in addition to the Beige Book. The Beige Book is the Federal Reserve’s local market reports that point to overall strength or weakness in different regions.

Then, on Thursday, markets will be watching the number of first-time filers for Unemployment Claims. After Unemployment Rates jumped last month, it’s expected that jobless will be higher than “normal”, suggesting that employers are still trimming their workforces.

This is recessionary and should help to hold mortgage rates down.

Lastly, on Friday, it’s the University of Michigan Consumer Sentiment report. Mostly used as a “confidence” gauge, strong readings are thought to push the economy forward because a confident consumer is likely to spend more.

Statistically, though, that correlation is not clear. But, mortgage bonds are sensitive to the report and that’s why we watch it.

It’s a busy week of data and expect markets to get a firmer sense of where the economy is headed. Weakness is expected and mortgage rates are already pricing it in.

Therefore, be wary of better-than-expected results this week because mortgage bonds could correct quite quickly.

Comments Off on Common-Sense Tips To Help Your Home Sell Quickly

Common-Sense Tips To Help Your Home Sell Quickly


2008
01.11

Clipped from NBC's Today Show, real estate maven Barbara Corcoran talks about preparing your home for sale

Clipped from NBC’s Today Show, real estate maven Barbara Corcoran talks about preparing your home for sale. As usual, her remarks are spot-on.

Some highlights from the 5-minute video:

  1. Go online and shop for your own home first
  2. Empty your home of two-thirds of the “stuff”
  3. Keep your home immaculately clean

Corcoran also offers pricing tips that can help get your home sold faster.

Watch the entire interview at MSNBC.

Comments Off on Why Making A Less-Than-20-Percent Downpayment Is Getting More Costly

Why Making A Less-Than-20-Percent Downpayment Is Getting More Costly


2008
01.10

PMI rates are higher than they were six months ago and additional defaults make it likely that PMI rates will rise again in 2008.  As PMI rates increase, so does the cost of homeownership for people whose lenders require it.

Private Mortgage Insurance (PMI) is an insurance policy paid to a lender in the event that a homeowner defaults on his home loan.

These defaults are up 35 percent over last year, according to an industry group — bad news for all homeowners requiring PMI with their mortgage.

Much like home insurers adjust premiums after a worse-than-expected Hurricane Season, PMI insurers are raising mortgage insurance rate for all homeowners, regardless of credit history.

And it comes at a time when PMI is in higher demand.

Because second mortgages are not as available as in recent years, using PMI is the only way for some homeowners to get approved for home loans with a less-than-20-percent downpayment.

PMI rates are higher than they were six months ago and additional defaults make it likely that PMI rates will rise again in 2008. As PMI rates increase, so does the cost of homeownership for people whose lenders require it.

Source
Mortgage-Insurer Defaults Hit Record
Associated Press
December 31, 2007. 12:30. P.M.
http://biz.yahoo.com/ap/071231/mortgage_insurers_defaults.html?.v=1

Comments Off on Consider Protecting Against Injury Before Protecting Against Death

Consider Protecting Against Injury Before Protecting Against Death


2008
01.09

Some quick statistics:

  • 13% of Americans will die before age 65
  • 28% of Americans will face a long-term disability before age 65 and be unable to work and/or earn an income

Despite these facts, Americans are twice as likely to be insured on their lives as on their long-term health.

Life insurance is important, but is much less likely to be redeemed than a suitable long-term disability insurance contract.

Consider that 1 in 2 personal bankruptcies is the result of costly medical bills from years of medical treatments.

Then, consider that 75 percent of those bankrupted families actually had health insurance coverage. At some point, health insurance companies stop paying for long-term care, shifting the burden to the injured.

A person with a long-term disability cannot work his “normal” job and cannot earn his “normal” income. Financial distress usually follows.

Many employers offer long-term disability insurance that can help protect against a long-term medical crisis. Do some homework and then verify your finding with a qualified financial planner. Long-term disability comes in many flavors and it’s important that your individual coverage suit your long- and short-term financial goals.

Many families go broke because of long-term health issues and a large percentage lose their home to foreclosure. Adequate long-term disability insurance can help prevent both of these scenarios.

Source
6 Money Fears
David Futrelle
Money Magazine, December 15, 2005
http://money.cnn.com/2005/09/13/pf/fears_dieyoung/index.htm

Comments Off on Americans Are $6.25 Billion More Wealthy Since September Because Of The Federal Reserve

Americans Are $6.25 Billion More Wealthy Since September Because Of The Federal Reserve


2008
01.08

Since September 2007, the Federal Reserve has lowered the Fed Funds Rate by 1.000%.

This has caused Prime Rate to fall by 1.000%, too. This is because the Fed Funds Rate and Prime Rate are directly related.

In mathematical terms, the relationship looks like this:

(Prime Rate) = (Fed Funds Rate) + (3.000%)

So, because Prime Rate is the interest rate upon which credit card rates are based, as the Fed Funds Rate falls, so does the cost of consumer debt.

This is how rate cuts spur the economy.

When the Federal Reserve lowers the Fed Funds Rate, Americans spend less money on interest payments. Therefore, there is more money available for savings and/or spending on other goods and services.

Considering that Americans carry $2.5 trillion of non-mortgage consumer debt, the Federal Reserve’s cumulative 1.000% rate cut is now saving Americans $25 billion dollars on an annual basis.

In the face of weak economic data, the Federal Reserve is expected to cut the FFR again this month to jumpstart the economy. Every additional quarter-percent cut would save Americans $520 million in interest payments monthly.

Source
How the failure of subprime mortgages hurts the overall economy
John Gallagher
Detroit Free Press, January 6, 2008
http://www.freep.com/apps/pbcs.dll/article?AID=/20080106/BUSINESS06/801060585/1002/BUSINESS

Comments Off on The Week In Review (January 07, 2008) : What To Watch For

The Week In Review (January 07, 2008) : What To Watch For


2008
01.07

Stock markets tanked last week behind high oil prices and weak employment data.

Amid a sell-off that led to a 4.5% decline in the S&P 500, investors sought safety in the bond markets.

As a result, mortgage bonds improved last week, driving some mortgage rates to their lowest levels in two years.

This week, with no economic data on tap, mortgage markets will find direction from a variety of sources.

The first is oil. If oil prices fall this week, expect that mortgage rates will rise slightly. Cheap oil can be fuel for an economic engine so if oil prices are lower, it could help stave off recession.

No recession, though, means that inflation is more likely and inflation usually leads to higher mortgage rates.

The second source of direction will come from the three Fed officials scheduled to speak publicly this week.

Talk of recession should drop mortgage rates across the board whereas talk of inflation should raise them. Chairman Bernanke’s speech will draw the most attention; he speaks Thursday.

And lastly, mortgage rates could move this week on profit-taking from mortgage bond traders.

Mortgage rates have fallen because there has been more demand for mortgage bonds. More demand leads to higher prices which decreases bonds’ rate of return.

If traders look to lock in profit, they will sell their mortgage bonds, reverse that process, and rates will rise.

Comments Off on Why It’s Not So Bad That Unemployment Reached Its Highest Rate Since November 2005

Why It’s Not So Bad That Unemployment Reached Its Highest Rate Since November 2005


2008
01.04
When consumer spending is strong, the economy expands.  This tends to be bad for mortgage rates because a growing economy is at risk for inflation.

On the first Friday of each month, the Bureau of Labor Statistics releases key data about the American workforce.

The report is officially called “Non-Farm Payrolls” but most people refer to it as the “jobs report”.

The jobs report’s influence on markets is palpable for two major reasons:

  1. Consumer spending makes up two-thirds of the economy
  2. When more people are working, there is more consumer spending

When consumer spending is strong, the economy expands. This tends to be bad for mortgage rates because a growing economy is at risk for inflation.

Inflation causes mortgage rates to rise, making home ownership more expensive.

By contrast, when consumer spending is low, the economy tends to contract. This tends to be good for mortgage rates because — well — it’s not inflation.

So this morning’s jobs report held two key data points:

  1. The Unemployment Rate reached 5.0% in November 2007
  2. For all of 2007, payroll growth averaged 111,000 per month, down from 189,000 in 2006

The newspapers and television shows are saying that this news is terrible and that the U.S. is headed for recession. That point is debatable. What isn’t conjecture, though, is that with fewer Americans in the workforce, there is less money available to propel the economy forward.

That’s why mortgage rates should fall today — because the threat of inflation is reduced.

Source
U.S. payrolls rose 18,000 in Dec
Glenn Somerville
Reuters.com, January 4, 2008
http://www.reuters.com/article/economicNews/idUSN0324081520080104

Comments Off on $100 Oil Could Mean More Than High Gas Prices For Americans

$100 Oil Could Mean More Than High Gas Prices For Americans


2008
01.03
Oil briefly touched 100 dollars per barrel in trading January 2, 2008

The price of oil briefly touched $100 per barrel yesterday, just short of the all-time inflation-adjusted high of $102.81 in April 1980.

According to economic forecasting firm Global Insight, each $10-per-barrel increase in oil prices:

  1. Increases gas prices by 19 per gallon
  2. Cuts consumer spending by one-third of a percent
  3. Reduces employment by 100,000
  4. Adds one-half percent to consumer prices

And, because oil prices have nearly doubled from the $51/barrel levels of January 2007, the above figures calculate out to:

  1. $0.95 more per gallon in 2007 because of oil prices
  2. 1.67% cut to consumer spending in 2007 because of oil prices
  3. 500,000 lost jobs in 2007 because of oil prices
  4. 2.50% increase in consumer costs in 2007 because of oil prices

In addition, oil’s run-up has ignited fears of inflation and of recession, with the possibility that both would exist at the same time. This rare economic condition is commonly referred to as “stagflation”

Stagflation is a particularly difficult situation for the Federal Reserve because increasing the Fed Funds Rate would increase the likelihood of recession whereas lowering the Fed Funds Rate would increase the risk of inflation.

For now, mortgage rates are benefiting because less evidence of inflation could attract foreign investment in mortgage bonds. As demand for bonds increases, mortgage rates fall.

Source
Weakened U.S. Economy May Be Facing New Test
Sudeep Reddy
The Wall Street Journal Online, January 3, 2008
http://online.wsj.com/article/SB119930367405362875.html

Comments Off on The Week In Review (January 2, 2008) : What To Watch For

The Week In Review (January 2, 2008) : What To Watch For


2008
01.02

It’s a short, but heavy, week for mortgage markets. Investors are returning to the fray after a few lighter-than-normal weeks and their return should bring some stability to mortgage rates.

Last week, mortgage bond prices rose which, in turn, moved mortgage rates down.

The main reason for last week’s rate improvement was the assassination of Pakistan’s former Prime Minister.

Unlike economic data that can be forecasted or extrapolated, a political assassination happens instantly and it creates uncertainty about the future political and economic policies of a nation.

Consider the following facts about Pakistan:

  1. It has nuclear capabilities
  2. It is located on or near several important oil pipelines
  3. It is in a state of political unrest

Instability in Pakistan threatens the economies of many nations. After the assassination, investors’ risk models changed in an instant and many sought stability.

As the world’s largest marketplace, the United States is where they find it. This is sometimes called “safe haven buying” or a “flight-to-quality” in the newspapers and on TV.

As the investors move their money to the U.S. markets, demand for mortgage bonds increases and this pushes mortgage rates down — just like we saw last week.

This week, mortgage markets will be digesting the minutes from the Federal Open Market Committee’s last meeting and the December jobs report. Investors are expected weakness in the job report so if they get it, mortgage rates won’t do much.

If the report comes in strong, though, expect mortgage rates to rise. More people working means more income to pump back into the economy and that makes markets fearful of inflation.

When evidence of inflation appears, mortgage rates tend to rise.