Uncertainty in Financial Markets Could Cause Dramatic Rise in Existing ARMs at Next Adjustment If you or anyone you know has an Adjustable Rate Mortgage, this is an important point to consider. Many ARM loans are tied to the London Interbank Offered Rate (LIBOR). In fact, there are six million loans in the United States that use LIBOR to determine the interest rate and as the name suggests, many banks use this rate to lend money to each other.
But, today, banks lack confidence that the money they lend will be paid back. In light of what has happened with Lehman Brothers, IndyMac Bank and others, as well as AIG, banks are requiring much higher rates on LIBOR to offset the added risk.
The Federal Reserve Left Rates Unchanged but...The Federal Reserve met yesterday leaving the target rate unchanged at 2.00% but just like LIBOR the actual rate being charged by banks to each other is closer to 6.00%. This again suggests that those with ARM loans should consider a refinance into historically low fixed rates.
What Happened? Financial companies have been under attack. IndyMac was the largest bank to falter in twenty years. What brought IndyMac down was their exposure to defaulting loans. This sapped investor confidence and drove down the stock price until they filed for bankruptcy.
Following IndyMac, we saw Fannie Mae, Freddie Mac, Lehman Brothers and Merrill Lynch succumb and were either forced into conservatorship, to close their doors, or to sell themselves. AIG, the world's largest insurance company was also impacted, forced to make a deal with the U.S. government to stay in business.
What You Can Do Now?I'd be happy to go over your loan situation and help you understand how the recent events may affect you, and how you can best be protected. Additionally, chaotic times like these often present opportunities. I look forward to hearing from you.
Wednesday, September 17, 2008
Monday, September 8, 2008
Many will profit from Fannie Freddie failure - Will you?
Mortgages are in the news again today...but this time, the news is good! Especially for people looking to buy or refinance a home, as interest rates have dropped to the lowest levels seen since April.
You've probably heard that Fannie Mae and Freddie Mac were taken over or "bailed out" by the Federal Government over the weekend. The announcement came as the government felt that both of these institutions were potentially unable to meet their obligations. These agencies must pay off maturing Bonds every month, and they do so by selling new Bonds. But during the last twelve months, investor appetite to purchase new mortgage-backed security Bonds has deteriorated. As such, it has become more difficult for Fannie and Freddie to replenish capital to fund more loans. If both Fannie and Freddie became insolvent, the housing market as well as the mortgage market would come under further pressure.
With the Treasury stepping in to provide a "backstop" for the mortgage giants, investors now have confidence to purchase Mortgage Bonds. And the greater interest has helped lower interest rates today.
Call me today, so we can discuss what the news means to you and how you can benefit.
You've probably heard that Fannie Mae and Freddie Mac were taken over or "bailed out" by the Federal Government over the weekend. The announcement came as the government felt that both of these institutions were potentially unable to meet their obligations. These agencies must pay off maturing Bonds every month, and they do so by selling new Bonds. But during the last twelve months, investor appetite to purchase new mortgage-backed security Bonds has deteriorated. As such, it has become more difficult for Fannie and Freddie to replenish capital to fund more loans. If both Fannie and Freddie became insolvent, the housing market as well as the mortgage market would come under further pressure.
With the Treasury stepping in to provide a "backstop" for the mortgage giants, investors now have confidence to purchase Mortgage Bonds. And the greater interest has helped lower interest rates today.
Call me today, so we can discuss what the news means to you and how you can benefit.
Friday, September 5, 2008
Market News
Unemployment Rate Jumps
Mortgage rates improved again this week as expectations for future economic growth declined. An economic slowdown typically eases inflationary pressures, which is favorable for mortgage rates. The economy had been showing signs of strength recently mainly due to a surge in exports. Since the dollar has risen against other currencies and many foreign economies are slowing, though, this pocket of economic strength is expected to decline. Investors also reacted to the slowing economic growth by selling stocks, and they moved some of the funds to mortgage securities, which added to the decline in rates.
Even with the recent strength in exports, the labor market has been weak for most of the year, and this week's economic data continued the trend. The August Employment report showed that the economy lost -84K jobs, close to the consensus forecast, and the figures for June and July were revised a little lower. The big surprise came in the Unemployment Rate, which shot up to 6.1%, the highest level since September 2003.
Also Notable:
In August, Average Hourly Earnings, an indicator of wage growth, increased at a 3.6% annual rate
The Fed's Rosengren explained that the easing in rates helped offset tighter credit conditions
The European Central Bank (ECB) made no change in rates
Oil prices fell to $106 per barrel, the lowest level in five months
Mortgage rates improved again this week as expectations for future economic growth declined. An economic slowdown typically eases inflationary pressures, which is favorable for mortgage rates. The economy had been showing signs of strength recently mainly due to a surge in exports. Since the dollar has risen against other currencies and many foreign economies are slowing, though, this pocket of economic strength is expected to decline. Investors also reacted to the slowing economic growth by selling stocks, and they moved some of the funds to mortgage securities, which added to the decline in rates.
Even with the recent strength in exports, the labor market has been weak for most of the year, and this week's economic data continued the trend. The August Employment report showed that the economy lost -84K jobs, close to the consensus forecast, and the figures for June and July were revised a little lower. The big surprise came in the Unemployment Rate, which shot up to 6.1%, the highest level since September 2003.
Also Notable:
In August, Average Hourly Earnings, an indicator of wage growth, increased at a 3.6% annual rate
The Fed's Rosengren explained that the easing in rates helped offset tighter credit conditions
The European Central Bank (ECB) made no change in rates
Oil prices fell to $106 per barrel, the lowest level in five months
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