Looking Ahead to the Fed

With little scheduled economic news and a couple of major events on the horizon, there was little change in mortgage markets during the week. The daily volatility remained high, however. Mortgage rates ended a little higher than the prior week, and the stock market was almost flat. Investors were mostly preparing for next week’s Fed meeting and Employment data.   Investor sentiment for future Fed actions has shifted significantly over the last couple of weeks. Just weeks ago, investors were expecting an additional three quarters of a point of Fed rate cuts over the next two meetings. Now many believe that the Fed will cut rates by only one quarter point at Wednesday’s meeting and then will hold rates steady. The thinking is that the Fed will pause to consider the effects on the economy of prior rate cuts, other expansionary monetary policies, and fiscal stimulus packages (such as the tax rebates). With energy prices at record levels and the dollar at historic lows, the Fed wants to balance the risk of slower economic growth with the need to prevent higher future inflation. This path could be good for mortgage markets, as higher inflation would generally lead to higher mortgage rates.   In the housing sector, the market for existing home sales showed additional signs of stabilizing, while new home sales displayed weakness. Matching expectations, March Existing Home Sales fell a little from February. Median home prices fell 8% from one year ago, while inventories of unsold homes rose slightly. March New Home Sales fell 9% from February. The chief economist of the National Association of Realtors (NAR) suggested that housing market conditions varied greatly in different regions of the country. The NAR predicted that housing market activity will be flat for a few more months and then will pick up during the second half of the year. Compliments of Corey Phelps, Front Street Mortgage (231) 360-7283 email: corey@frontstreetmtg.com

Economic Weakness Lowers Mortgage Rates

Comments from Fed Chief Bernanke and weaker than expected data from the job market painted a grim picture of current economic conditions. Slower economic growth generally leads to lower inflation, which is good news for mortgage markets, and mortgage rates dropped moderately during the week.

 

Wednesday, Bernanke testified before Congress. The focus was on the Bear Stearns rescue plan rather than current economic conditions, but he did outline the Fed’s latest economic outlook. While acknowledging that the economy is in the midst of a downturn, he suggested that the economy will strengthen in the second half of the year, and he expects that growth will be positive in 2009. He believes that Fed rate cuts and government stimulus packages will help lift the economy. He also predicted that inflation will moderate in future months.

 

Friday’s Employment report fell short of even Wall Street’s reduced expectations. Against a consensus forecast for a loss of -50K jobs, the economy lost -80K jobs in March, and the figures from prior months were revised lower by an additional -67K. This marked the worst monthly results since March 2003. Once again, the construction and manufacturing sectors performed poorly. Average Hourly Earnings, a proxy for wages, rose at the expected rate. Overall, even though the job market performed very poorly during the first quarter of 2008, the current Unemployment Rate of 5.1% is still reasonably low by historical standards, and the Fed thinks that a recovery is not too far away.

Post Provided by: Corey Phelps, Front Street Mortgage, corey@frontstreetmtg.com

Shortening the Short Sale

In many instances in our market, we are finding that homes are worth equal too or less than their value of four years ago. This has caused an extreme increase in foreclosed properties and given rise to a formerly lesser used practice of the “short sale.” A short sale is not a new option by any means, I recall a period of short sale mania in Southern California in the late 80’s. It is however, become so prevalent on a national level that it is on the tip of every real estate agents tongue. In real estate, a short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale. Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.With the current unfortunate market conditions, some real estate agents with little or no experience otherwise have begun the unsavory practice of taking a three hour class and promilgating themselves as Short Sale Experts or worse with no experience in closing this complicated type of transaction, conducting seminars, or simpy adding a page to their web site that suggests there are certain things that must be done in order to facilitate a short sale. Be very careful. The fact of the matter is that, from the point of this writing, there is not Standardization among lenders as to how they deal with Loss Midigation. In our current book of business we have two short sales pending. The process from start to finish with two separate lenders couldn’t be more different. One lender asked for more documentation from the seller than was required to obtain the loan in the first place. They also had a certified appraisal performed on the property. The other lender asked for one document to be signed and hade a Price opinion conducted, period. There are no rules for this across the board, each of the thousands of lenders are as individual in their process as the people requesting a short sale.

The best thing to do when considering the right Realtor is ask, “how many short sales have you closed in your real estate career.” and, more importantly, ask for references! 

Cathy Barris and JD Dakoske

cathy@JDandCathy.com

jd@JDandCathy.com