Mortgage rates drop again, and again, and again....

In case you haven't noticed, mortgage rates dipped again for the 6th straight week. Freddie Mac's weekly report said teh 30 year rate slipped to 4.87% last week. This puts them at the lowest levels in about 50 years. Everyone is nervous about the sustainability of the economic recovery and this is driving down demand for money and reducing the threat of underlying inflation. The low rates are also spurring a surge in mortgage applications - up 15%. If you have questions about your rate or your mortgage, give us a call.

John Graham, at Neighborly Financial Mortgage, in Roseville, California.

HAMP - Mortgage Modification Program update

Last week there was a review of the White House Mortgage modification program, HAMP. The program has been in place about a year now and the results have been considered unsuccessful. To date, about 1.2 million people have applied for mortgage relief. Of that about 300 thousand have had their mortgages modified. Over 400 thousand have dropped out of the program, either giving up or being denied. The credit rating Fitch Ratings is projecting that about 2/3 of the homeowners that received modifications, will ultimately default on their modified loans.

Thinking of walking away from your mortgage???

In the past, if you defaulted on a mortgage thru bankruptcy or foreclosure, you could count on a major hit on you FICO score and a wait of about 4 years before you could think about buying another home.

For some people today, the thought of paying a mortgage that is worth more than their home value has them thinking about a strategic foreclosure, just to get out from the debt. After all, it's pretty appealing to think that if you owe $300,000 on a home and it's only worth about $200,000, you could walk away, take a hit to your FICO score, save $100,000 in debt payments, and than buy another home in about 4 years.

But, the picture may be changing. The industry is considering changes that may double the time people would have to wait for a "strategic" foreclosure of this type. New rules could soon be in place that would make these people wait 8 years, pay higher rates, and be required to pay higher down payments.

For the folks that lost their homes due to layoffs, or some other unforseen economic hardship, such as a huge medical bill, they old rule would still apply. What is unclear, is how they would handle the situations, where the borrower got in over their head with too much borrowed on a adjustable rate mortgage and then lost it all when rates went higher. Time will tell.... I'll keep you posted.

If you have questions, let me know. John Graham at Neighborly Financial. www.NeighborlyFinancialMortgage.com

So what's going on with rates ?????

Right now, rates are incredibily low. We thought at this time last year, we were seeing the bottom. Everyone was in a mad scramble to refi to historically low rates. Now, a year later we are seeing rates at even lower levels. And this, at a time when we thought rates would begin to rise, following the government subsidies of the last year.

Well, it all goes back to the recession that we are supposedly coming out of. We seem to go from euphoria to fear and panic, then back again, from week to week. The stock market is going thru a funk now and the same in happening with interest rates on mortgages.

So the real question is what is triggering the fear? Well, it's pretty simple. As some of the smaller European countries like Greece, Spain, Portugal, and Italy have racked up huge government debts, there is growing fear about their ability to repay. In Greece, the government workers are having to make huge concessions to the government in order to keep the government out of bankruptcy. Even with these concessions, other European countries are having to bail out these smaller countries. This extra tax load on the citizens of Europe could trigger a second wave of recession. It's too early to tell, but some folks are nervous. But, in any case, big debts, racked up by governments are not good. (Oh and did I mention that the US debt has more than doubled in the last year........)

But, in any case, if you need a refi, now is a great time to get one. Give us a call at Neighborly Financial (www.NeighborlyFinancialMortgage.com)

What's next?

During the past year, the Fed purchased over $1 trillion worth of mortgages in the form of mortgage backed securities. This had the effect of driving interest rates down about 1/2 % point. During FY'09 rates were running about 5% or a little less for a 30 year fixed mortgage. Had the Fed not purchased these, rates would have been running about 5.5%. The net effect was that many homeowners were able to refi their homes and increase their cash flow, which translated into increased consumer spending and a stimulus to the economy.

But, now that the Fed purchased these mortgages and is holding a huge amount of these, at some point they have to unload them. As they do, this will have the negative effect on interest rates - pushing them higher. At this time the Fed it contemplating how to unload them. They have several options, but the most important question is when and how quickly. Since the Fed has said they have no intentions of raising any interest rates soon, they will probably hold these mortgages for several months.

In any case, once they begin to unload them, interest rates will be pushed artificially higher than they would be at that time.

Rates rise when Fed buyback ends

On March 31, the Fed ended its yearlong program of buying mortgage backed securities - a program aimed at keeping mortgage interest rates low. When they stopped, the impact was immedidate. Rates have risen over a quarter point in the last couple of days.

Interest rates rise in spite of the Fed

It's interesting that this week the Fed stated that they see no need to raise interest rates because the US economy is still fairly weak. In spite of that, mortgage rates took a small step up. Why? Because some of the members of the European Union have overextended their credit. Greece has been in trouble for several weeks and now it is becoming more clear that Portugal has some problems. What has happened is that these countries have borrowed too much and now are at risk of not paying back the loans. This has resulted in Greece having to cut government services and this is causing riots in the streets. As lenders see increased risk, they raise rates on everyone to cover the losses from the default of a few borrowers.

What does this mean to us? First, it means that in spite the Fed wanting to keep interest rates low, they are going to rise anyway. This, in turn, means that our weak economy has another burden to bear in the form of higher interest rates. The hopes for a quick recovery and getting people back to work quickly is not very good.

Second, the problems that Greece has only foreshadow the issues we have in the US. We are piling on huge deficits in the US and record levels. This puts us at increased risks as well. It will take huge tax increases in the coming years to pay back the debt and many years to do it. As this debt gets repaid, it will mean every taxpayer will be funneling money into paying off the debt and paying interest on the debt - money that could be spent on something beneficial...........