According to the Mortgage Bankers Association, the mortgage loan application volume filed in the U.S. last week decreased by 8.5%, compared with the previous week. Mortgage interest rates increased during the week ended Friday compared with the week before, according to the MBA weekly survey. The survey covers about half of all U.S. retail residential home loan applications.
The share of applications filed for a mortgage refinance dropped again last week. Mortgage marketing executive, Bryan Dornan believes, “the decrease in refinance applications can be directly attributed to homeowners becoming more educated on what is need to qualify for a refinance loan in today’s credit crunch.” Dornan continued, “Borrowers have either been denied recently or they understand that have late payments on their mortgage payment will prevent them from qualifying with traditional lenders. Borrowers continue to seek help refinancing existing mortgages dropped to 68.1% of total loan applications from 69.3% the previous week. The four-week moving average for all home mortgages was up 1.6%.
Adjustable-rate home loans made up 4.7% of total applications, up from 4.4% the previous week. Rates on 30-year fixed-rate mortgages averaged 5.03%, up from 4.94% the previous week, while 15-year fixed-rate mortgages averaged 4.35%, up from 4.33%. The one-year ARMs interest rate grew to 6.8% from 6.67%.
The Federal Reserve signaled Wednesday that it stands ready to use new unconventional tools, or expand existing ones, to spur lending and consumer spending that could help lift the economy out of a painful recession.The Fed also agreed to keep the targeted range for the federal funds rate between zero and 0.25% for “some time” to help brace the economy. Economists predict the Fed will keep the funds rate, the interest banks charge each other on overnight loans, at that record low level through the rest of this year.
Fed Chief Bernanke Endorses Stimulus Package View the Analysis and Discussion with Former Fed Governor Lyle Gramley.
With its key lending rate to banks already near zero, the Fed pledged anew to use “all available tools” to revive the economy.Specifically, the Fed said it is “prepared” to buy longer-term Treasury securities if the circumstances warrant such action. At its previous meeting in December, the Fed said it was merely evaluating that option. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, was the sole dissenter on this point. He wanted the Fed to move forward on buying the securities.Doing so would help drive down mortgage rates and provide help to the stricken housing market, economists said.Mortgage lenders continue to report interest rates in the 5% range for 30-year fixed home loans.
For example, many thirty-year mortgage loans featuring fixed interest rates are targeted to the 10-year Treasury note. If the Fed were to buy that security, it would push down rates on home mortgages connected to it. The same logic would apply to other Treasury securities.“So many consumer rates are pegged to Treasury rates — homes, cars,” said Joel Naroff, president of Naroff Economic Advisors. “If the economy is to recover, consumers need to borrow and need to borrow at reasonable rates. The Fed made clear that it is prepared to make that happen.”The Fed also said it “stands ready” to expand another program aimed at providing relief to the crippled mortgage market.
Under that program, the Fed is buying up to $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. It also has agreed to buy up to $100 billion of Fannie and Freddie debt.Mortgage interest rates have fallen since the program’s announcement late last year. The Fed said it could buy more of these bad credit mortgage securities or extend the length of the program.
The Fed on Tuesday took measures to stem home foreclosures as required by a 2008 law. The relief would apply to mortgage assets the Fed is holding because of last year’s bailouts of Bear Stearns and insurer American International Group. Distressed borrowers could see the amount they owe on their home loan lowered or their interest rate reduced, among the options for help.But borrowers have no way of knowing whether their mortgage loans are held by the Fed, because their loan payments are collected by other companies, known as loan servicers.
The central bank also will be launching a program aimed at bolstering the availability of consumer loans. Under the program, which is expected to start in February, up to $200 billion will be made available to spur auto, student and credit card loans as well as loans to small businesses. To do that, the Fed will buy securities backed by those different types of consumer debt. The Fed also hopes that action will lower rates on those loans.
The Fed said Wednesday that it will assess whether the program should be expanded in size or scope. Fed officials previously have mentioned the possibility of expanding the program to provide financing for other types of securities, such as those backed by commercial mortgages.
Fed Chairman Ben Bernanke and his colleagues are battling a three-headed economic monster: crises in housing, credit and financial markets that — taken together_ haven’t been seen since the 1930s. Despite the Fed’s aggressive rate-cutting campaign, a string of radical Fed programs and a $700 billion financial bailout program run by the Treasury Department, credit and financial markets are still stressed and far from normal. “Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight,” the Fed said. Homeowners need quick mortgage relief with loan modification programs that guarantee homeowners affordable home loan terms.
Warning that the nation is at a “perilous moment,” President Barack Obama made a fresh plea to Congress Wednesday to enact a $825 billion package of increased government spending and tax cuts to stimulate the economy. The recession, now in its second year, could turn out to be the longest since World War II. The nation’s unemployment rate bolted to a 16-year high of 7.2% in December and could hit 10 % or higher at the end of this year or early next year. A staggering 2.6 million jobs were lost last year, the most since 1945, though the labor force has grown significantly since then. Another 2 million or more jobs will vanish this year, economists predict.
Against that backdrop, the Fed raised the specter of deflation — but didn’t use the word. The Fed saw a risk that “inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.” With jobs disappearing, home values tanking, foreclosures soaring and nest eggs shriveling, consumers have sharply cut spending. That, along with the housing collapse, has played a big role in causing the economy’s backslide. Many economists predict data will show the economy contracted at a pace of 5.4% in the final three months of last year when the government releases the gross domestic product report Friday. If they are correct, that would mark the worst performance since a drop of 6.4% in the first quarter of 1982, when the country was suffering through a severe recession. The economy is still contracting now — at a pace of around 4%, according to some projections.
Greg McBride from BankRate discusses the mortgage meltdown and Suzy Orman give their different points of view on the Federal Reserve’s rate cuts and how it helps the homeowners, consumers and mortgage lenders!Mortgage interest rates remain low for conforming and FHA home loans.
The Federal Reserve moved forward forging their plan to purchase mortgage bonds issued by Fannie Mae and Freddie Mac on Tuesday, saying it would start buying early next month and purchase up to $500bn (£345bn) by the end of June.The aggressive tactics – the Fed had previously said it would buy this amount over “several quarters” signifies the central bank’s determination to hammer down the risk spreads on the mortgage bonds and thereby reduce mortgage interest rates.
The Fed said “the program is being established to support the mortgage and housing markets and to foster improved conditions in financial markets more generally”.The move comes as policymakers at the central bank and in both the outgoing Bush and incoming Obama administrations look to target lower FHA mortgage rates in the hope that lowering them would halt the decline in house prices and thereby support financial asset prices.
Many Washington-based analysts think there is still a chance that Hank Paulson, the outgoing Treasury secretary, will announce plans for low-cost 4.5 % mortgages for new homebuying before leaving office, based on a plan proposed by Columbia University professors Glenn Hubbard and Chris Mayer.Barack Obama’s incoming economic team is also looking at ways to lower mortgage rates and ensure the availability of mortgage financing. Meanwhile, regulators are considering relaxing rules on mortgage refinancing in order to make it easier for borrowers with existing mortgage loans to take advantage of lower mortgage rates.The Fed is also focused on two other areas as it seeks to stimulate the economy – financing consumer loans and potential purchases of Treasury bonds. Read complete article written by Krishna Guha >
