Fed Seeks to Lower Mortgage Rates as Foreclosures Set to Double in 2009

Fed Seeks to Lower Mortgage Rates

Mid-Day Market News & Commentary by Chris McLaughlin, December 2, 2008
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Listen up folks. You need to start calling your investors …calling those fence sitters that have been sitting too long. The Federal Reserve just said they are going to start buying Treasury notes and bonds. Let’s review some gobbly gook FedSpeak that Fed Chairman Ben Bernanke said yesterday in Austin, Texas:

“The second arrow in the Federal Reserve’s quiver – the provision of liquidity – remains effective,” he said. “The Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities. This approach might influence the yields on these securities, thus helping to spur aggregate demand.”

Did you catch that? Folks mortgage rates are going EVEN LOWER. Why? Mortgage rate are directly tied to the 10 year treasury. As the Fed comes in and buys them up, that will send the yield on the treasury even lower, therefore reducing the overall rate on the 30 year mortgage.

And there’s more good news. Just last week the Fed announced that it would be buying $100 billion in debt from Fannie and Freddie, and around $500 billion in mortgage backed securities. Now what do markets do? They anticipate action and price it into the equation … so if you’re a Realtor, a loan officer, or a real estate investor, this is our version of a Bailout. Look for the 30 year fixed to stay well below 6%!

If, however, you agree with us that the government is mostly filled with morons that have been botching up this economic recovery after causing it, be sure to catch our recorded webinar on the topic:

www.shortsalesricheswebinar.com

Ok, on to other real estate related news of the day…

Are you ready for this new statistic, reported today by the Wall Street Journal? TransUnion LLC, the Chicago-based credit bureau, predicts that 7.17% of consumers will be at least 60 days past due on their mortgages by the fourth quarter of 2009. That’s nearly double where it is today. “There are a lot more loans that will be resetting throughout 2009 through 2011,” Ezra Becker, principal consultant in TransUnion’s financial-services group, told the Journal. “There may be an ongoing flow of consumers who may now be able to pay their mortgage but may not be able to a year from now.”

If you think that REOs and short sales are slowing you need to get your head on straight! They will EXPLODE in 2009. Loan modifications can only have so much impact …

Bank of America announced today that it would be eliminating at least 10,000 investment banking jobs as it soaks up Merrill Lynch. The combined companies will have about 260,000 employees, with 50,000 representing the investment banking division.

And finally … someone got a brain in the public relations department at the Big 3 Automakers. General Motors announced today that its CEO, Rick Wagoner, would drive to Washington instead of flying. The CEO, who flew by private jet sipping champagne (ok, I through the champagne in for effect…you get the idea!) for his last appearance, will drive a Chevy Malibu hybrid from Detroit to DC. Ford’s CEO, Alan Mullaly will also be driving from Detroit. Now … it would be a public relations bonanza, and it would certainly send the right message, if we could get the two of these guys to share a ride!

Now, on to our real estate investor education section…

All Pain and No Gain? Not so Fast!

While the most recent data released by the Federal Housing Finance Agency FHFA may initially seem to indicate “all pain and no gain” taking time to delve a little deeper into the numbers shows a few clear-cut nuggets in an otherwise pan of silt.

First the pain…

U.S. home prices fell 1.8 percent in Q3 as compared to the previous quarter…the largest in the purchase only index 17 year history.

Over the past year prices have fallen 6.0 percent between Q3 of 2007 and Q3 of 2008 – not adjusted for inflation. Since the price of goods and services increased by 6.7 percent during the same period, the inflation adjusted decline is 12.7 percent.

Four states continue to see double-digit declines including Nevada (-20.9%), California (-20.8%), Florida (-16%) and Arizona (-13.5%).

A Few gains…

Some states actually managed to exhibit price increases even while most of the nation continued to show declining sales figures; North Dakota (4.0%), South Dakota (3.9%), Texas

(3.2%), Alabama (2.8%), and Oklahoma (2.8%).

Several MSA or Metropolitan Statistical Areas also showed price appreciation including Austin-Round Rock, TX (5.6%), Augusta-Richmond County, GA-SC (5.5%) and Rapid City, SD (5.4%).

Extension of higher conforming loan limits into 2009. While the recent increase to $729,750 for high cost areas is due to end by January 1, 2009, revisions due to take effect will increase loan limits to $417,000 for all homes and up to $625,500 in high cost areas.

Quick Tip…

Take time to sign up for automatic notification of the FHFA report as it is released by sending an email to FHFAinfo@FHFA.gov. The next quarterly report covering Q4 of 2008 is scheduled for the end of February 2009 and the next monthly index is due out on December 23, 2008.

Fed Seeks to Lower Mortgage Rates as Foreclosures Set to Double in 2009

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