Falling interest rates are leading to a rush to get cheaper mortgages. Should you join in?
By Les Christie, CNNMoney.com staff writer
Last Updated: December 24, 2008: 2:31 PM ET
NEW YORK (CNNMoney.com) -- Falling interest rates are fueling a mortgage refinance frenzy as homeowners rush to reduce their housing payments.
The average rate for a 30-year, fixed mortgage dropped to 5.08% last week, according to the Mortgage Bankers Association, more than a full point lower than just a month ago.
Mortgage applications were up a whopping 48% last week, according to the MBA and more than 80% were from homeowners looking to lower housing costs.
"It's snowing loans," said Steve Habetz, a Connecticut mortgage broker, "and they're all refis."
Among those were Elizabeth Mayer and Michael Keohane, who bought their Manhattan condo just a little over a year ago, financing $220,000 of the purchase price with a 30-year, fixed rate loan of 6.5%. That was affordable, with monthly payments of less than $1,400. But their new 5.25% loan will lower their payment to about $1,215, saving about $175 a month.
"It was a nice holiday gift," said Mayer.
With savings like that, it's no wonder that homeowners are coming out of the woodwork. And mortgage brokers are beating the drums too, advising their clients to let the good times roll.
Mayer said her mortgage broker had kept her informed of interest rate declines ever since she originally purchased her home. "He's been encouraging whenever opportunities arose," she said. "We missed one opportunity last spring when we just weren't able to act on it."
The broker made sure they didn't miss this chance. "He e-mailed me [about it] from South Africa and called when he got back," said Mayer.
Who should refi...
Anyone with high adjustable-rate loans. Folks in this group should try to get into a low fixed rate if they can. Not only will they lower their payments immediately but it would also eliminate the possibility of future increases.
Those who would lower their rate by a percentage point or more. Borrowers who already have a reasonable fixed rate shouldn't jump into a new loan every time rates inch down, according to Orawin Velz, an economist for the Mortgage Bankers Association.
"You should have at least a percentage point difference before you even think about it," Velz said. "If you have a 6.5% loan right now, it would be a great time to refi."
Waiting for a substantial rate decrease makes sense because getting a new mortgage incurs some expenses. There are the costs of a new appraisal and origination and application fees. Plus, a title search and title insurance are usually required.
All those costs, which can add up to $2,000 or $3,000 or more for a typical $200,000 loan, are often rolled back into the mortgage, increasing the principal upon which the interest rates are applied. If that goes up so much that it offsets the interest rate drop, it doesn't make sense to refi.
Those who are planning to stay in their homes for a while. The increased balances usually take a year or two to be wiped out by lower monthly payments, so anyone planning to sell the home during the next few years probably should not refinance, unless the difference in interest rates is very substantial.
The actual rate borrowers get depends, just as with purchase mortgages, on credit scores, income and assets and the value of the home.
"If you have a high credit score and your equity is good, it's like a vanilla cream puff," said Velz. "You're going to get a great rate."
Borrowers with significant equity in their homes. Many homeowners have had much of their home values erased in the post-bubble bust, eliminating much or all of their home equity - the difference between the value of the home and the amount owed on the mortgage.
If a refi borrower's home equity has fallen below 20% of the total appraised home value, the borrower will likely have to purchase private mortgage insurance. The insurance adds a point or two to the monthly mortgage costs, which turns a 5% loan into a 6% or 7% loan, erasing any advantage of refinancing.
"That's the biggest hurdle for refinancing right now," said Velz.
Borrowers who don't think rates will decline much further. Everyone considering refis has to decide whether to wait for interest rates to go even lower, which the Mortgage Bankers Association has been forecasting.
That's only a prediction, though, not a certainty. Rates could turn higher instead.
Borrowers must weigh the advantages of gambling on rates turning around or locking in savings at the present very low rates.
First Published: December 24, 2008: 1:42 PM ET
Thursday, December 25, 2008
Tuesday, December 16, 2008
Fed slashes key rate to near zero
Ben Bernanke & Co. cite weakness in economy and reduced inflation threat as justification for cutting rates to a range of 0% to 0.25%
By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 16, 2008: 2:47 PM ET
NEW YORK (CNNMoney.com) -- In its latest effort to try and stimulate the U.S. economy, the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%, and said it expects to keep rates near that unprecedented low level for some time to come.
The central bank typically sets a specific target for its federal funds rate instead of a range. The rate had previously been at 1% and this marks the first time the Fed has cut rates below 1%. Most investors were expecting the Fed to cut rates to either 0.25% or 0.5%.
Taking the rate so close to zero leaves the Fed with little room for additional moves if the economy does not start to show signs of improvement soon.
But the Fed said in a statement that it is looking at different steps it can take to stimulate the economy and keep market rates low, including the purchases of long-term U.S. Treasury notes. The Fed also said it will consider other, yet to be disclosed moves as well.
"The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said.
In explaining the reason behind the rate cut, the Fed said the U.S. economy, which has officially been in a recession for a year, was in danger of getting weaker, and that the risk of inflation had decreased "appreciably."
Earlier Tuesday, the Labor Department reported that the Consumer Price Index, its key inflation measure, fell by a record 1.7% in November.
The central bank's federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans. This marks the tenth time it has cut rates in the last 15 months.
This rate is the key tool the Fed uses to spur or slow the economy as it tries to balance its dual goals of economic growth and price stability. Lower rates are designed to encourage spending by making borrowing more affordable. Higher rates can keep prices in check by slowing the economy.
Other central banks, notably the Bank of Japan, have taken rates down to near the 0% level in the past. Last week, the Swiss central bank cut its key rate to 0.5%.
First Published: December 16, 2008: 2:29 PM ET
By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 16, 2008: 2:47 PM ET
NEW YORK (CNNMoney.com) -- In its latest effort to try and stimulate the U.S. economy, the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%, and said it expects to keep rates near that unprecedented low level for some time to come.
The central bank typically sets a specific target for its federal funds rate instead of a range. The rate had previously been at 1% and this marks the first time the Fed has cut rates below 1%. Most investors were expecting the Fed to cut rates to either 0.25% or 0.5%.
Taking the rate so close to zero leaves the Fed with little room for additional moves if the economy does not start to show signs of improvement soon.
But the Fed said in a statement that it is looking at different steps it can take to stimulate the economy and keep market rates low, including the purchases of long-term U.S. Treasury notes. The Fed also said it will consider other, yet to be disclosed moves as well.
"The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said.
In explaining the reason behind the rate cut, the Fed said the U.S. economy, which has officially been in a recession for a year, was in danger of getting weaker, and that the risk of inflation had decreased "appreciably."
Earlier Tuesday, the Labor Department reported that the Consumer Price Index, its key inflation measure, fell by a record 1.7% in November.
The central bank's federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans. This marks the tenth time it has cut rates in the last 15 months.
This rate is the key tool the Fed uses to spur or slow the economy as it tries to balance its dual goals of economic growth and price stability. Lower rates are designed to encourage spending by making borrowing more affordable. Higher rates can keep prices in check by slowing the economy.
Other central banks, notably the Bank of Japan, have taken rates down to near the 0% level in the past. Last week, the Swiss central bank cut its key rate to 0.5%.
First Published: December 16, 2008: 2:29 PM ET
Monday, December 15, 2008
FHA Upcoming Downpayment Changes Effective January 1
Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)
HUD sure makes things confusing sometimes don’t they? With so many changes already in place and coming up with the New Year, I thought it might be a good time to run down a list so that everyone can prepare for January 1st. I’ve run across a few folks who are confused as to guideline changes and effective dates so this will serve as a helpful reminder. Effective for FHA purchases in which cases are assigned on and after January 1st, the minimum downpayment requirements change from the current structure which is a mass of varying requirements based on purchase price and location. Those calculations, which often prove to be very confusing, are being replaced by a simple 3.5% downpayment requirement/96.5% loan-to-value max limit across the board. This calculation will make things much simpler industry-wide when it comes to calculating the purchase maximum mortgage amounts.
However, with the new calculations come a few drawbacks. To date, borrowers have been able to roll in allowable closing costs up to their maximum loan-to-value but effective January 1st, closing costs are no longer allowed to be rolled into max mortgage. Closing costs no longer may be used to meet the minimum investment requirement on FHA purchase transactions. The borrower is responsible for covering the amounts of closing costs, prepaids and 3.5% downpayment required for settlement.
Now the seller-funded downpayment assistance options have been eliminated, this causes some concern for borrowers who have little monies saved for downpayment who wouldn’t qualify for any 100% conventional financing program options due to credit restrictions. So what are borrower options for covering the closing cost, prepaid and downpayment requirements on and after January 1st?
Interested-party contribution limits are not changing so sales agreements may still be written with the seller, realtor, builder and/or lender crediting up to 6% of the purchase price toward borrower closing costs and prepaids. As for the 3.5% downpayment, borrowers may still receive gift funds from relatives, may still receive government homebuyer grant funding in eligible areas, and may use secured funds in the form of a loan against a 401-k plan or other secured asset, or sale of personal property.
In regards to FHA up-front MIP and annual mortgage insurance premiums, these are already in place effective for cases assigned on and after October 1st and will NOT be changing with the downpayment requirement changes. For more info on the MI premiums, refer to Mortgagee Letter 2008-22.
Maximum LTV limits for refinances are explained in Mortgagee Letter 2008-13 and the attachment that was provided.
An important reminder regarding the upcoming downpayment requirement change- Don’t forget to update your loan origination software system as needed. Your existing Good Faith Estimate template(s) may need to be updated to remove the financing of allowable closing costs and may need to incorporate the new simplified downpayment requirement for 96.5% of the lower of purchase price or appraised value. If you utilize software with a major provider like Calyx Point, Contour Loan Handler or Ellie Mae Encompass, you may wish to contact your account representative for an update on what they are planning and when software updates may be expected.
About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.
Certified Ambassador Loan Processor (CALP)
HUD sure makes things confusing sometimes don’t they? With so many changes already in place and coming up with the New Year, I thought it might be a good time to run down a list so that everyone can prepare for January 1st. I’ve run across a few folks who are confused as to guideline changes and effective dates so this will serve as a helpful reminder. Effective for FHA purchases in which cases are assigned on and after January 1st, the minimum downpayment requirements change from the current structure which is a mass of varying requirements based on purchase price and location. Those calculations, which often prove to be very confusing, are being replaced by a simple 3.5% downpayment requirement/96.5% loan-to-value max limit across the board. This calculation will make things much simpler industry-wide when it comes to calculating the purchase maximum mortgage amounts.
However, with the new calculations come a few drawbacks. To date, borrowers have been able to roll in allowable closing costs up to their maximum loan-to-value but effective January 1st, closing costs are no longer allowed to be rolled into max mortgage. Closing costs no longer may be used to meet the minimum investment requirement on FHA purchase transactions. The borrower is responsible for covering the amounts of closing costs, prepaids and 3.5% downpayment required for settlement.
Now the seller-funded downpayment assistance options have been eliminated, this causes some concern for borrowers who have little monies saved for downpayment who wouldn’t qualify for any 100% conventional financing program options due to credit restrictions. So what are borrower options for covering the closing cost, prepaid and downpayment requirements on and after January 1st?
Interested-party contribution limits are not changing so sales agreements may still be written with the seller, realtor, builder and/or lender crediting up to 6% of the purchase price toward borrower closing costs and prepaids. As for the 3.5% downpayment, borrowers may still receive gift funds from relatives, may still receive government homebuyer grant funding in eligible areas, and may use secured funds in the form of a loan against a 401-k plan or other secured asset, or sale of personal property.
In regards to FHA up-front MIP and annual mortgage insurance premiums, these are already in place effective for cases assigned on and after October 1st and will NOT be changing with the downpayment requirement changes. For more info on the MI premiums, refer to Mortgagee Letter 2008-22.
Maximum LTV limits for refinances are explained in Mortgagee Letter 2008-13 and the attachment that was provided.
An important reminder regarding the upcoming downpayment requirement change- Don’t forget to update your loan origination software system as needed. Your existing Good Faith Estimate template(s) may need to be updated to remove the financing of allowable closing costs and may need to incorporate the new simplified downpayment requirement for 96.5% of the lower of purchase price or appraised value. If you utilize software with a major provider like Calyx Point, Contour Loan Handler or Ellie Mae Encompass, you may wish to contact your account representative for an update on what they are planning and when software updates may be expected.
About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.
Friday, December 5, 2008
Home Renovations On Sale
Materials costs are plunging, and contractors are begging for work. Suddenly that long-postponed remodel is looking like a smart idea.
By Donna Rosato, Money Magazine senior writer
December 3, 2008: 9:33 AM ET
(Money Magazine) -- If you're struggling to see a silver lining in the beaten-down real estate market, consider this one: It may be a rotten moment to sell your house, but if you've postponed a much needed renovation project on your home - replacing a rotting deck, repairing a leaky roof or updating an antiquated bathroom - now just might be the best time in years to tackle that task.
The reason: Costs are starting to drop - in some cases, sharply - on everything from building materials to contractors' fees as the economy weakens and housing prices tumble.
In fact, consumer spending on home improvements is off by 12% since peaking last year, according to Harvard's Joint Center for Housing Studies - and that works to the advantage of anyone willing and able to remodel now.
"It's hard for homeowners to think about spending on their houses when real estate values are falling," says Kermit Baker, a senior research fellow at Harvard who tracks remodeling trends. "But with contractors hungrier for business, you'll be able to negotiate better prices, win other concessions and hire better-quality contractors than you could a year or two ago."
Overall, experts say, you can expect to save at least 10% on the cost of a renovation and possibly a lot more, depending on where you live and the project you choose. And if prices on many remodeling materials continue to decline as projected over the next few months, the cost of home improvements should fall even further.
Yet another benefit: Putting money into needed repairs and updates now should help your home maintain its value even as other house prices keep falling.
Of course, not all renovations are created equal. Adding a home office or a swimming pool might be on your wish list, but these days neither is likely to give you much of a return on your investment.
With home prices still in a free fall, it's more critical than ever to understand which projects will return the most on your investment and how to negotiate the best deal with the pros you hire to do the job. The following strategies should help.
Cherry-pick your project
Understand this from the outset: No matter what kind of repair or renovation you undertake, you can't count on the payback you'd have gotten a few years ago when home prices were rising steadily.
According to a new study by Remodeling magazine, these days you can expect to recoup about two-thirds of your costs on a typical home improvement if you sell your home within a year after completing the job, compared with 87% in 2005, when home values were at their peak.
That means you have to be especially careful in choosing which jobs to do, considering the urgency of the need (if that roof is leaking, you really have to fix it now) as well as what you'll pay in material costs, how much of the total bill you may recover and any extra benefits you may get.
To the extent you have a choice, focus on projects with better-than-average returns that may yield additional savings in other ways. For example, installing new windows will cost $10,000 to $20,000 on average but return 75% to 80% of your investment (see "Payback time" above and to the right for the six projects with the best return).
And those improvements have the added benefit of making your home more energy-efficient, so you'll also save on your electricity and heating bills. Plus, you may qualify for tax credits that will further offset the cost of making the changes. A host of home improvement tax credits for windows, doors, insulation and roofing were added or extended in the recent bailout bill; for the complete list, go to energystar.gov.
Some exterior improvements also make a lot of sense right now thanks to sharply lower oil prices. That's because many petroleum-based products, such as asphalt and vinyl, are the core material in these renovations.
The costs of these products had soared recently along with the price of oil but have started to drop, making this the best time in a while to replace your aging roof, repave your driveway or redo your vinyl siding. (See "Building blocks at a discount" above and to the right for a look at recent price changes in key remodeling materials.)
Also think about limiting the scope of the project, since minor upgrades rather than major additions give you more bang for your buck today. For instance, if you modernize your bathroom, you can expect to recover about 75% of what you spent, but adding an entirely new bathroom will pay back only 64% of the cost of the job.
Press for a price break...
These days you'll find a glut of construction professionals vying for your business - a far cry from the situation a few years ago when it was impossible to get a reputable contractor to return your call and a six-month wait to start a kitchen remodel was the norm.
How low can you ask remodeling pros to go? According to a new survey by the contractor referral site Angie's List, 70% of home builders and remodelers are willing to drop prices at least 10%, and 30% say they'll give even steeper discounts.
"There's a larger pool of professionals fighting for these jobs, so a little negotiation may go a long way to get the best possible price for your project," says Angie Hicks, founder of Angie's List, which charges a monthly fee of $6 for access to customer reviews and references.
You'll have the most leverage in the areas that have been hit hardest by the housing slump. But no matter where you live, you should be able to strike a bargain (for tips, see "Hiring a Contractor" above and to the right).
Get bids from at least three remodelers, and insist that their quotes spell out all costs, including labor as well as materials (brand-name products where possible).
Let each pro know up front that you are comparison shopping and that price, in addition to quality craftsmanship, will play a key role in deciding whom you will work with. With the bids in hand, you can then compare prices and start negotiating.
Shopping around really paid off for Nancy Boris, who saved $2,800 on the cost of replacing the back patio of her 2,400-square-foot, three-bedroom home in Roseville, Calif.
Boris, a nurse case manager, got bids ranging from $2,400 (from a contractor who didn't have insurance or references) to $5,800. The highest bidder eventually came down $2,000 in price to $3,800, but Boris ended up going with a pro who had better references for $3,000.
...but be wary of super-low bids
As Boris discovered, it doesn't always pay to just reflexively choose the contractor who comes in with the lowest quote.
In their eagerness (or perhaps desperation) to win business in these tight economic times, some less than scrupulous remodelers may cut corners to come up with that low bid or else leave off charges that they may tack on later, making the actual cost of the project higher than it seemed initially.
Carefully scrutinize any bid that comes in significantly lower than the rest. Ask the contractor, politely but point-blank, how he manages to undercut his competition.
Does he have a general liability policy and workers' compensation? If not, should one of the crew get injured on your property, you'll be liable. Is he using low-quality materials? Is everything you need to get the job done included in the bid?
Then follow up by asking for references from previous clients and checking out his reputation and work history. To do so, go to contractorcheck.com, where for a fee of $13 you can get information about licensing and insurance as well as any legal actions taken. Sites like ContractorsFromHell.com and AngiesList.com can also provide valuable insights.
Wring out extra concessions
In addition to price breaks, ask for other perks while you're negotiating, like a faster completion or a more convenient schedule for work to be done, advises Sal Alfano, editorial director of Remodeling.
Remember, homeowners nowadays are in the driver's seat. "With contractors working on fewer projects, you can expect better service," he says. "Even if in the end you don't get a significantly better price on your project, you should at least get better work done."
By Donna Rosato, Money Magazine senior writer
December 3, 2008: 9:33 AM ET
(Money Magazine) -- If you're struggling to see a silver lining in the beaten-down real estate market, consider this one: It may be a rotten moment to sell your house, but if you've postponed a much needed renovation project on your home - replacing a rotting deck, repairing a leaky roof or updating an antiquated bathroom - now just might be the best time in years to tackle that task.
The reason: Costs are starting to drop - in some cases, sharply - on everything from building materials to contractors' fees as the economy weakens and housing prices tumble.
In fact, consumer spending on home improvements is off by 12% since peaking last year, according to Harvard's Joint Center for Housing Studies - and that works to the advantage of anyone willing and able to remodel now.
"It's hard for homeowners to think about spending on their houses when real estate values are falling," says Kermit Baker, a senior research fellow at Harvard who tracks remodeling trends. "But with contractors hungrier for business, you'll be able to negotiate better prices, win other concessions and hire better-quality contractors than you could a year or two ago."
Overall, experts say, you can expect to save at least 10% on the cost of a renovation and possibly a lot more, depending on where you live and the project you choose. And if prices on many remodeling materials continue to decline as projected over the next few months, the cost of home improvements should fall even further.
Yet another benefit: Putting money into needed repairs and updates now should help your home maintain its value even as other house prices keep falling.
Of course, not all renovations are created equal. Adding a home office or a swimming pool might be on your wish list, but these days neither is likely to give you much of a return on your investment.
With home prices still in a free fall, it's more critical than ever to understand which projects will return the most on your investment and how to negotiate the best deal with the pros you hire to do the job. The following strategies should help.
Cherry-pick your project
Understand this from the outset: No matter what kind of repair or renovation you undertake, you can't count on the payback you'd have gotten a few years ago when home prices were rising steadily.
According to a new study by Remodeling magazine, these days you can expect to recoup about two-thirds of your costs on a typical home improvement if you sell your home within a year after completing the job, compared with 87% in 2005, when home values were at their peak.
That means you have to be especially careful in choosing which jobs to do, considering the urgency of the need (if that roof is leaking, you really have to fix it now) as well as what you'll pay in material costs, how much of the total bill you may recover and any extra benefits you may get.
To the extent you have a choice, focus on projects with better-than-average returns that may yield additional savings in other ways. For example, installing new windows will cost $10,000 to $20,000 on average but return 75% to 80% of your investment (see "Payback time" above and to the right for the six projects with the best return).
And those improvements have the added benefit of making your home more energy-efficient, so you'll also save on your electricity and heating bills. Plus, you may qualify for tax credits that will further offset the cost of making the changes. A host of home improvement tax credits for windows, doors, insulation and roofing were added or extended in the recent bailout bill; for the complete list, go to energystar.gov.
Some exterior improvements also make a lot of sense right now thanks to sharply lower oil prices. That's because many petroleum-based products, such as asphalt and vinyl, are the core material in these renovations.
The costs of these products had soared recently along with the price of oil but have started to drop, making this the best time in a while to replace your aging roof, repave your driveway or redo your vinyl siding. (See "Building blocks at a discount" above and to the right for a look at recent price changes in key remodeling materials.)
Also think about limiting the scope of the project, since minor upgrades rather than major additions give you more bang for your buck today. For instance, if you modernize your bathroom, you can expect to recover about 75% of what you spent, but adding an entirely new bathroom will pay back only 64% of the cost of the job.
Press for a price break...
These days you'll find a glut of construction professionals vying for your business - a far cry from the situation a few years ago when it was impossible to get a reputable contractor to return your call and a six-month wait to start a kitchen remodel was the norm.
How low can you ask remodeling pros to go? According to a new survey by the contractor referral site Angie's List, 70% of home builders and remodelers are willing to drop prices at least 10%, and 30% say they'll give even steeper discounts.
"There's a larger pool of professionals fighting for these jobs, so a little negotiation may go a long way to get the best possible price for your project," says Angie Hicks, founder of Angie's List, which charges a monthly fee of $6 for access to customer reviews and references.
You'll have the most leverage in the areas that have been hit hardest by the housing slump. But no matter where you live, you should be able to strike a bargain (for tips, see "Hiring a Contractor" above and to the right).
Get bids from at least three remodelers, and insist that their quotes spell out all costs, including labor as well as materials (brand-name products where possible).
Let each pro know up front that you are comparison shopping and that price, in addition to quality craftsmanship, will play a key role in deciding whom you will work with. With the bids in hand, you can then compare prices and start negotiating.
Shopping around really paid off for Nancy Boris, who saved $2,800 on the cost of replacing the back patio of her 2,400-square-foot, three-bedroom home in Roseville, Calif.
Boris, a nurse case manager, got bids ranging from $2,400 (from a contractor who didn't have insurance or references) to $5,800. The highest bidder eventually came down $2,000 in price to $3,800, but Boris ended up going with a pro who had better references for $3,000.
...but be wary of super-low bids
As Boris discovered, it doesn't always pay to just reflexively choose the contractor who comes in with the lowest quote.
In their eagerness (or perhaps desperation) to win business in these tight economic times, some less than scrupulous remodelers may cut corners to come up with that low bid or else leave off charges that they may tack on later, making the actual cost of the project higher than it seemed initially.
Carefully scrutinize any bid that comes in significantly lower than the rest. Ask the contractor, politely but point-blank, how he manages to undercut his competition.
Does he have a general liability policy and workers' compensation? If not, should one of the crew get injured on your property, you'll be liable. Is he using low-quality materials? Is everything you need to get the job done included in the bid?
Then follow up by asking for references from previous clients and checking out his reputation and work history. To do so, go to contractorcheck.com, where for a fee of $13 you can get information about licensing and insurance as well as any legal actions taken. Sites like ContractorsFromHell.com and AngiesList.com can also provide valuable insights.
Wring out extra concessions
In addition to price breaks, ask for other perks while you're negotiating, like a faster completion or a more convenient schedule for work to be done, advises Sal Alfano, editorial director of Remodeling.
Remember, homeowners nowadays are in the driver's seat. "With contractors working on fewer projects, you can expect better service," he says. "Even if in the end you don't get a significantly better price on your project, you should at least get better work done."
Wednesday, September 24, 2008
Dead or Alive?
Is it dead? Is it alive? They tried to kill it and it didn't die. They tried again and killed it; but wait...is it breathing again?
What I am referring to is Down Payment Assistance, also known as DPA. DPA is a program that allows a third party charitable organization such as Ameridream or Nehemiah to pay a borrower's down payment required by FHA, (usually 3% of the purchase price).
In 2007 HUD tried to eliminate the use of DPA. Organizations
such as Ameridream and Nehemiah with some congressional and grassroots help managed to stop HUD then. However
President Bush signed into law legislation (H.R. 3321) that contained a provision to eliminate charitable down payment assistance which becomes effective October 1, 2008.
One day later, following the President's signing H.R. 3321, Congress introduced bipartisan legislation H.R.6694 which would reauthorize and reform charitable DPA. H.R. 6694 has until September 30th, 2008 to be signed or the ban on DPA becomes permanent.
According to an Inman News article published September 9th, 2008, Chairman Barney Frank is quoted as saying "The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing," Frank said at Saturday's hearing. "That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground -- and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there -- it has the approval now of the Secretary of HUD."
What difference does DPA make? Approximately 40% of all FHA purchases use DPA. Since the 2007 court victory against HUD, 40,000 homebuyers became homeowners. That's 40,000 more homes that sold since the end of 2007. In other words 40,000 fewer homes are sitting on the market waiting to be sold. According to Nehemiah Corporation of America, As a result of DPA being eliminated on October 1st 2008, "50,000 hard-working, credit-worthy families will be denied the American dream of homeownership in that month alone."
By: Tina Spradlin
What I am referring to is Down Payment Assistance, also known as DPA. DPA is a program that allows a third party charitable organization such as Ameridream or Nehemiah to pay a borrower's down payment required by FHA, (usually 3% of the purchase price).
In 2007 HUD tried to eliminate the use of DPA. Organizations
such as Ameridream and Nehemiah with some congressional and grassroots help managed to stop HUD then. However
President Bush signed into law legislation (H.R. 3321) that contained a provision to eliminate charitable down payment assistance which becomes effective October 1, 2008.
One day later, following the President's signing H.R. 3321, Congress introduced bipartisan legislation H.R.6694 which would reauthorize and reform charitable DPA. H.R. 6694 has until September 30th, 2008 to be signed or the ban on DPA becomes permanent.
According to an Inman News article published September 9th, 2008, Chairman Barney Frank is quoted as saying "The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing," Frank said at Saturday's hearing. "That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground -- and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there -- it has the approval now of the Secretary of HUD."
What difference does DPA make? Approximately 40% of all FHA purchases use DPA. Since the 2007 court victory against HUD, 40,000 homebuyers became homeowners. That's 40,000 more homes that sold since the end of 2007. In other words 40,000 fewer homes are sitting on the market waiting to be sold. According to Nehemiah Corporation of America, As a result of DPA being eliminated on October 1st 2008, "50,000 hard-working, credit-worthy families will be denied the American dream of homeownership in that month alone."
By: Tina Spradlin
Monday, August 18, 2008
Beware the $7,500 'tax credit'
The housing rescue credit may prod some new homebuyers. But the money must be repaid, and the program probably won't be enough to jump start housing market.
By Les Christie, CNNMoney.com staff writer
Last Updated: August 18, 2008: 1:27 PM EDT
NEW YORK (CNNMoney.com) -- Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.
But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.
"It's one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. "Consumers have to make sure they understand the credit thoroughly.
The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Buyers with income of between $95,000 and $170,000 are eligible for a partial credit.
The Senate Finance Committee estimates that about 1.6 million people will use the credit.
The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007.
Realtors are also behind the credit. "[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity," said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.
The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today's dollars).
"Buyers flocked to market and cleared out a then-record inventory of homes," said NAHB president Sandy Dunn. But that credit did not have to be repaid.
And the impact should extend beyond first time home buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.
How it works
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.
It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.
Buyers must to start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it's sold at a loss and the difference will be forgiven.
And some argue that mortgage lenders will take the credit into consideration, making it easier for buyers to get a loan.
"[The $7,500 reserve] will make borrowers less likely to fall into default," said Ken Goldstein, an economist with the Conference Board, since it gives them a nest egg should they run into trouble. Still, that assumes that buyers will sock the $7,500 away rather than spend it.
No cure
Indeed, the credit comes with plenty of caveats from economists and industry analysts.
"It's not going to provide first-time home buyers with cash up front," said the Consumer Federation of America's Allen Fishbein. "You have to apply to get the credit after the fact. There's a delay before you get the financial advantage."
And there are concerns that borrowers may treat the credit as a windfall, spending it as if it doesn't have to be repaid.
"It may appear to be free money," said Fishbein. "Consumers have to have their eyes open about how this works."
Other economists caution that while the credit may be helpful, it's hardly a solution to the crisis.
"It will not turn things around," said Jared Bernstein, an economist with the Economic Policy Institute. "Given the economy, it will only push a precious few first-time home buyers over the edge right now."
Plummeting home prices will blunt any impact that the credit may have, according to Nicholas Retsinas, director of the Harvard University's Joint Center for Housing Studies. As far as he's concerned, the market is simply too soft right now for a modest measure like this to make a big difference.
"The challenge right now is as much willingness to buy as affordability," he said. "The market still has this psychological barrier because people think prices will be lower tomorrow. I don't think this can overcome that barrier."
First Published: August 18, 2008: 11:08 AM EDT
Find mortgage rates in your area
Find this article at:
http://money.cnn.com/2008/08/15/real_estate/buyers_tax_credit/index.htm?postversion=2008081811
By Les Christie, CNNMoney.com staff writer
Last Updated: August 18, 2008: 1:27 PM EDT
NEW YORK (CNNMoney.com) -- Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.
But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.
"It's one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. "Consumers have to make sure they understand the credit thoroughly.
The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Buyers with income of between $95,000 and $170,000 are eligible for a partial credit.
The Senate Finance Committee estimates that about 1.6 million people will use the credit.
The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007.
Realtors are also behind the credit. "[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity," said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.
The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today's dollars).
"Buyers flocked to market and cleared out a then-record inventory of homes," said NAHB president Sandy Dunn. But that credit did not have to be repaid.
And the impact should extend beyond first time home buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.
How it works
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.
It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.
Buyers must to start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it's sold at a loss and the difference will be forgiven.
And some argue that mortgage lenders will take the credit into consideration, making it easier for buyers to get a loan.
"[The $7,500 reserve] will make borrowers less likely to fall into default," said Ken Goldstein, an economist with the Conference Board, since it gives them a nest egg should they run into trouble. Still, that assumes that buyers will sock the $7,500 away rather than spend it.
No cure
Indeed, the credit comes with plenty of caveats from economists and industry analysts.
"It's not going to provide first-time home buyers with cash up front," said the Consumer Federation of America's Allen Fishbein. "You have to apply to get the credit after the fact. There's a delay before you get the financial advantage."
And there are concerns that borrowers may treat the credit as a windfall, spending it as if it doesn't have to be repaid.
"It may appear to be free money," said Fishbein. "Consumers have to have their eyes open about how this works."
Other economists caution that while the credit may be helpful, it's hardly a solution to the crisis.
"It will not turn things around," said Jared Bernstein, an economist with the Economic Policy Institute. "Given the economy, it will only push a precious few first-time home buyers over the edge right now."
Plummeting home prices will blunt any impact that the credit may have, according to Nicholas Retsinas, director of the Harvard University's Joint Center for Housing Studies. As far as he's concerned, the market is simply too soft right now for a modest measure like this to make a big difference.
"The challenge right now is as much willingness to buy as affordability," he said. "The market still has this psychological barrier because people think prices will be lower tomorrow. I don't think this can overcome that barrier."
First Published: August 18, 2008: 11:08 AM EDT
Find mortgage rates in your area
Find this article at:
http://money.cnn.com/2008/08/15/real_estate/buyers_tax_credit/index.htm?postversion=2008081811
Wednesday, August 13, 2008
25% of home sales result in loss
Values have fallen so far in many cities that sale prices don't cover what sellers originally paid. That means more hard times before markets recover.
By Les Christie, CNNMoney.com staff writer
Last Updated: August 13, 2008: 1:38 PM EDT
NEW YORK (CNNMoney.com) -- More homeowners than ever are selling at a loss, propelling the real estate market deeper into crisis.
In the 12 months that ended June 30, nearly 25% of all homes sold nationwide fetched less than sellers originally paid, according to real estate Web site Zillow.com.
While the nation's double-digit decline in home prices has been well documented, the new report underscores the economic force of those price declines. Homeowners are walking away with much less in their pocket when they sell. And that affects more than the real estate market.
"It's stunning what's happening out there," said Stan Humphries, Zillow's vice president of data and analytics, who looked at statistics that date back to 1996. "The numbers are the worst we've seen and it's not just the magnitude of the problem but the scope - so many markets are affected."
In Merced, Calif., 63% of homes sold during the past 12 months brought in less than what the owner paid. Prices there have fallen 40% over the past 12 months and 56% from their 2006 peak.
About 63% of sellers in Stockton, Calif., lost money during the same period, 60% in Modesto, Calif., 55% in Las Vegas and 38% in Phoenix.
And the trend has worsened in recent months. In Merced, 74.9% of sellers took a loss when they sold during the three months ended June 30 compared with just 28.7% during the same period in 2007.
The experience of one would-be seller in Cape Coral, Fla., illustrates the kinds of losses sellers are suffering. The homeowner, who asked not to be named, paid $147,000 in 2003 for a three-bed, two-bath ranch. Prices have dropped there more than 22% in the past 12 months.
He said he made a 10% downpayment spent big on upgrades, including two renovated baths. The house was appraised at $279,000 two years ago. Two months ago: $140,000. He has been trying to sell it for more than a year and has dropped the price to $129,900.
"It's terrible," he said. "I'm taking a major loss. I'll probably have to bring a check to the closing."
The short-sale solution
Many sellers are so underwater that their only solution is a short sale. Elsa Bell, a claims adjuster, bought her Riverside, Calif., house in 2006 for $330,000, using a no-down-payment loan. In April she put the house on the market for $275,000, but it hasn't sold.
"The bank is willing to do a short sale, and we have an offer of $170,000 on the house, but we believe the bank will turn that down," Bell said.
A short sale is when a lender agrees to take less than the amount it is owed on a mortgage and forgives the remaining debt.
For Bell, whatever the sale brings, it's going to be a lot less than what she paid.
The good news is that she should get out of the deal fairly clean. Since she has little invested, she has little to lose. The bad news is that a short sale may mean a hit to her credit score.
Nationwide, nearly a third of all homeowners who bought since 2003 owe more on their homes than the homes are worth. And those that, like Bell, put little or none of their own money into the home purchases, are more likely to try to sell short or simply abandon their homes.
"They hand over their keys and walk away from the homes," says Danielle Babb, a real estate investor, instructor at the University of California Irvine and author of "Finding Foreclosures."
That adds to foreclosure rates. Zillow reported that nearly 15% of U.S. existing home sales during the last 12 months involved foreclosed homes.
That trend will almost surely continue.
In Stockton, Calif., 2006 buyers now owe a median of nearly $171,000 more than their homes are worth. In Salinas, Calif., 2006 buyers now have median negative equity of $161,000, and in Merced, the figure is nearly $160,000.
Broader impact
A plethora of sellers taking losses can have a chilling effect on people's lives, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
People don't want to sell at a loss, so they put off their plans, whether it's a move for a better job opportunity elsewhere or trading up to a larger home.
"That will delay the [market correction]," said Baker. "It takes time for people to recognize that [these losses] are real."
A quick turnaround is not likely. More than $200 billion in adjustable rate mortgages are scheduled to reset during the second half of 2008, according to the National Association of Realtors, and loans of all types defaulting at high rates. There is also about 11 months of inventory at the current rate of sales.
"With $3.9 million unsold homes on the market, prices will have to come down even more before the market stabilizes," said Zillow's Humphries.
First Published: August 13, 2008: 1:00 PM EDT
By Les Christie, CNNMoney.com staff writer
Last Updated: August 13, 2008: 1:38 PM EDT
NEW YORK (CNNMoney.com) -- More homeowners than ever are selling at a loss, propelling the real estate market deeper into crisis.
In the 12 months that ended June 30, nearly 25% of all homes sold nationwide fetched less than sellers originally paid, according to real estate Web site Zillow.com.
While the nation's double-digit decline in home prices has been well documented, the new report underscores the economic force of those price declines. Homeowners are walking away with much less in their pocket when they sell. And that affects more than the real estate market.
"It's stunning what's happening out there," said Stan Humphries, Zillow's vice president of data and analytics, who looked at statistics that date back to 1996. "The numbers are the worst we've seen and it's not just the magnitude of the problem but the scope - so many markets are affected."
In Merced, Calif., 63% of homes sold during the past 12 months brought in less than what the owner paid. Prices there have fallen 40% over the past 12 months and 56% from their 2006 peak.
About 63% of sellers in Stockton, Calif., lost money during the same period, 60% in Modesto, Calif., 55% in Las Vegas and 38% in Phoenix.
And the trend has worsened in recent months. In Merced, 74.9% of sellers took a loss when they sold during the three months ended June 30 compared with just 28.7% during the same period in 2007.
The experience of one would-be seller in Cape Coral, Fla., illustrates the kinds of losses sellers are suffering. The homeowner, who asked not to be named, paid $147,000 in 2003 for a three-bed, two-bath ranch. Prices have dropped there more than 22% in the past 12 months.
He said he made a 10% downpayment spent big on upgrades, including two renovated baths. The house was appraised at $279,000 two years ago. Two months ago: $140,000. He has been trying to sell it for more than a year and has dropped the price to $129,900.
"It's terrible," he said. "I'm taking a major loss. I'll probably have to bring a check to the closing."
The short-sale solution
Many sellers are so underwater that their only solution is a short sale. Elsa Bell, a claims adjuster, bought her Riverside, Calif., house in 2006 for $330,000, using a no-down-payment loan. In April she put the house on the market for $275,000, but it hasn't sold.
"The bank is willing to do a short sale, and we have an offer of $170,000 on the house, but we believe the bank will turn that down," Bell said.
A short sale is when a lender agrees to take less than the amount it is owed on a mortgage and forgives the remaining debt.
For Bell, whatever the sale brings, it's going to be a lot less than what she paid.
The good news is that she should get out of the deal fairly clean. Since she has little invested, she has little to lose. The bad news is that a short sale may mean a hit to her credit score.
Nationwide, nearly a third of all homeowners who bought since 2003 owe more on their homes than the homes are worth. And those that, like Bell, put little or none of their own money into the home purchases, are more likely to try to sell short or simply abandon their homes.
"They hand over their keys and walk away from the homes," says Danielle Babb, a real estate investor, instructor at the University of California Irvine and author of "Finding Foreclosures."
That adds to foreclosure rates. Zillow reported that nearly 15% of U.S. existing home sales during the last 12 months involved foreclosed homes.
That trend will almost surely continue.
In Stockton, Calif., 2006 buyers now owe a median of nearly $171,000 more than their homes are worth. In Salinas, Calif., 2006 buyers now have median negative equity of $161,000, and in Merced, the figure is nearly $160,000.
Broader impact
A plethora of sellers taking losses can have a chilling effect on people's lives, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
People don't want to sell at a loss, so they put off their plans, whether it's a move for a better job opportunity elsewhere or trading up to a larger home.
"That will delay the [market correction]," said Baker. "It takes time for people to recognize that [these losses] are real."
A quick turnaround is not likely. More than $200 billion in adjustable rate mortgages are scheduled to reset during the second half of 2008, according to the National Association of Realtors, and loans of all types defaulting at high rates. There is also about 11 months of inventory at the current rate of sales.
"With $3.9 million unsold homes on the market, prices will have to come down even more before the market stabilizes," said Zillow's Humphries.
First Published: August 13, 2008: 1:00 PM EDT
Tuesday, August 12, 2008
The next wave of mortgage defaults
More borrowers with good credit are defaulting on their home loans, and that's going to make it even harder for the staggering housing market to recover.
By Les Christie, CNNMoney.com staff writer
Last Updated: August 12, 2008: 8:06 AM EDT
NEW YORK (CNNMoney.com ) -- Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery.
The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogicthat compiles and analyzes residential mortgage statistics.
Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.
And prime loans issued in early 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.
"The extent of how bad these loans are doing is very troubling," said Pat Newport, real estate economist with Global Insight, a forecasting firm.
Washington Mutual (WM, Fortune 500) CEO Kerry Killinger said last month that the bank's prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005.
Also last month, JP Morgan Chase (JPM, Fortune 500) CEO Jaime Dimon called prime mortgage performance "terrible" and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.
The latest shoe
Prime loans are just the latest class of mortgages to suffer a spike in failure rates. The first lot to go bad was, of course, subprime mortgages, whose problems set the housing meltdown in motion. Next were the Alt-A loans, a class between prime and subprime loans that doesn't require strict documentation of a borrower's assets or income.
Now, as prime loans are added to the mix, the resulting foreclosures could haunt the housing market for a long time, according to Global Insight's Patrick Newport.
"Home prices will drop for quite a while - maybe several years," he said.
Prices are already off nearly 20% from their 2006 highs, according to the S&P/Case-Shiller Home Price index.
And there's a strong inverse correlation between home prices and defaults, according to Lawrence Yun, chief economist for the National Association of Realtors.
"It's a feedback loop," he said. "Price declines lead to more defaults, which leads to more price declines."
More foreclosures will add to an already massive oversupply of homes on the market. Inventories are up to about 11 month's worth of sales at the current rate.
Indeed, about 2.8% of all homes for sale were vacant as of June 30, according to Census Bureau statistics. That's up about 50% from three years ago, and near historic highs.
More foreclosures, fewer loans
The failure of prime mortgages will also make it more difficult for new borrowers to find affordable loans - and that will slow sales even more. Lending standards have been tightening for months, but if prime loans start to look risky, lenders will be even more conservative about who gets a mortgage.
About 60% of the loan officers surveyed reported that they tightened lending standards for prime mortgages during the first three months of 2008, according to the April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which is released quarterly.
That number will likely be even higher for the second quarter, according to Mike Larson, a real estate analyst for Weiss Research. "It's already harder and more expensive to get loans," he said. "Lenders pull in their horns when things go south."
While easy credit fueled the housing boom, restricted credit is certainly contributing to the bust.
"Eventually," said Newport, "time will break the cycle. Pricing will drop enough to attract more buyers, and inventories will decline."
But there will probably more hard times ahead before markets come back into balance and recovery begins.
First Published: August 12, 2008: 4:08 AM EDT
By Les Christie, CNNMoney.com staff writer
Last Updated: August 12, 2008: 8:06 AM EDT
NEW YORK (CNNMoney.com ) -- Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery.
The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogicthat compiles and analyzes residential mortgage statistics.
Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.
And prime loans issued in early 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.
"The extent of how bad these loans are doing is very troubling," said Pat Newport, real estate economist with Global Insight, a forecasting firm.
Washington Mutual (WM, Fortune 500) CEO Kerry Killinger said last month that the bank's prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005.
Also last month, JP Morgan Chase (JPM, Fortune 500) CEO Jaime Dimon called prime mortgage performance "terrible" and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.
The latest shoe
Prime loans are just the latest class of mortgages to suffer a spike in failure rates. The first lot to go bad was, of course, subprime mortgages, whose problems set the housing meltdown in motion. Next were the Alt-A loans, a class between prime and subprime loans that doesn't require strict documentation of a borrower's assets or income.
Now, as prime loans are added to the mix, the resulting foreclosures could haunt the housing market for a long time, according to Global Insight's Patrick Newport.
"Home prices will drop for quite a while - maybe several years," he said.
Prices are already off nearly 20% from their 2006 highs, according to the S&P/Case-Shiller Home Price index.
And there's a strong inverse correlation between home prices and defaults, according to Lawrence Yun, chief economist for the National Association of Realtors.
"It's a feedback loop," he said. "Price declines lead to more defaults, which leads to more price declines."
More foreclosures will add to an already massive oversupply of homes on the market. Inventories are up to about 11 month's worth of sales at the current rate.
Indeed, about 2.8% of all homes for sale were vacant as of June 30, according to Census Bureau statistics. That's up about 50% from three years ago, and near historic highs.
More foreclosures, fewer loans
The failure of prime mortgages will also make it more difficult for new borrowers to find affordable loans - and that will slow sales even more. Lending standards have been tightening for months, but if prime loans start to look risky, lenders will be even more conservative about who gets a mortgage.
About 60% of the loan officers surveyed reported that they tightened lending standards for prime mortgages during the first three months of 2008, according to the April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which is released quarterly.
That number will likely be even higher for the second quarter, according to Mike Larson, a real estate analyst for Weiss Research. "It's already harder and more expensive to get loans," he said. "Lenders pull in their horns when things go south."
While easy credit fueled the housing boom, restricted credit is certainly contributing to the bust.
"Eventually," said Newport, "time will break the cycle. Pricing will drop enough to attract more buyers, and inventories will decline."
But there will probably more hard times ahead before markets come back into balance and recovery begins.
First Published: August 12, 2008: 4:08 AM EDT
Thursday, June 5, 2008
Homes in foreclosure top 1 million
Mortgage bankers report hits grim a benchmark in first quarter, showing a record number of homes in jeopardy.
By Chris Isidore, CNNMoney.com senior writer
Last Updated: June 5, 2008: 11:27 AM EDT
NEW YORK (CNNMoney.com) -- More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that the crisis will continue to worsen.
The Mortgage Bankers Association's first quarter report showed that a record 2.5% of all home loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That's up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007.
The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That's up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007.
The number of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans are now at least one payment past due, while about 737,000 are at least three months past due but not yet in foreclosure.
This marks the sixth straight quarter in which a record percentage of loans went into foreclosure. The trend has led to a widespread decline in home prices, as well as huge losses for banks and other financial firms that issued or invested in the loans.
Nearly half of the homes in foreclosure are concentrated in six states. But those states are undergoing two very different types of housing meltdowns.
California, Florida, Arizona and Nevada have been hit by a hangover after a home building boom in the middle of the decade, which was fueled by rising home prices and investors snatching up real estate using risky mortgages. Those four states have about 368,000 homes in foreclosure, or a third of the nationwide total. Roughly 3.7% of all of the loans in these states are now in foreclosure.
"Clearly things in California and Florida are going to get worse before they get better," said Jay Brinkman, MBA's vide president for research and economics.
The other two states that are ground zero for the crisis - Michigan and Ohio - have been hit by the more traditional economic woes stemming from rising job losses, particularly in the automotive sector.
Ohio has about 61,000 homes in foreclosure, while Michigan has about 54,000. The foreclosure rate in those two states is 3.9%.
First Published: June 5, 2008: 10:17 AM EDT
Find this article at:
http://money.cnn.com/2008/06/05/news/economy/foreclosure/index.htm?postversion=2008060511
By Chris Isidore, CNNMoney.com senior writer
Last Updated: June 5, 2008: 11:27 AM EDT
NEW YORK (CNNMoney.com) -- More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that the crisis will continue to worsen.
The Mortgage Bankers Association's first quarter report showed that a record 2.5% of all home loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That's up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007.
The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That's up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007.
The number of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans are now at least one payment past due, while about 737,000 are at least three months past due but not yet in foreclosure.
This marks the sixth straight quarter in which a record percentage of loans went into foreclosure. The trend has led to a widespread decline in home prices, as well as huge losses for banks and other financial firms that issued or invested in the loans.
Nearly half of the homes in foreclosure are concentrated in six states. But those states are undergoing two very different types of housing meltdowns.
California, Florida, Arizona and Nevada have been hit by a hangover after a home building boom in the middle of the decade, which was fueled by rising home prices and investors snatching up real estate using risky mortgages. Those four states have about 368,000 homes in foreclosure, or a third of the nationwide total. Roughly 3.7% of all of the loans in these states are now in foreclosure.
"Clearly things in California and Florida are going to get worse before they get better," said Jay Brinkman, MBA's vide president for research and economics.
The other two states that are ground zero for the crisis - Michigan and Ohio - have been hit by the more traditional economic woes stemming from rising job losses, particularly in the automotive sector.
Ohio has about 61,000 homes in foreclosure, while Michigan has about 54,000. The foreclosure rate in those two states is 3.9%.
First Published: June 5, 2008: 10:17 AM EDT
Find this article at:
http://money.cnn.com/2008/06/05/news/economy/foreclosure/index.htm?postversion=2008060511
Thursday, March 13, 2008
The next shoe to drop in housing
Rising foreclosures and big losses at Fannie Mae and Freddie Mac are making it harder for people with good credit backgrounds to get a traditional mortgage.
By Tami Luhby, CNNMoney.com staff writer
Last Updated: March 13, 2008: 8:48 AM EDT
NEW YORK (CNNMoney.com) -- The credit crunch has finally hit the traditional mortgage market.
Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart.
Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.
"Even if you have good credit, you don't know if they are going to give you a loan or not," said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania.
And for those who can still get a loan, the tremors in the mortgage-backed securities market has made loans more expensive for borrowers. As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates.
The national average rate on a 30-year fixed-rate mortgage was 5.96% Thursday, after jumping to 6.08% earlier this week, according to Bankrate.com. Rates on a 30-year fixed mortgage were about 5.90% a week ago. A borrower looking for a 5-year adjustable-rate mortgage would pay 5.71% today, up from around 5.03% a week ago.
"The cost of mortgage financing has increased dramatically and it couldn't come at a worse time," said Tom LaMalfa, managing director of Wholesale Access, a mortgage research firm. "We're going to see a further diminishment of available mortgage money."
Not just a subprime problem anymore
Rising defaults and delinquencies effectively shut down the subprime and jumbo mortgage markets last summer, but borrowers with good credit could still get conventional loans that met the agencies' criteria. That's because investors continued to buy securities - backed by Fannie (FNM) and Freddie (FRE, Fortune 500) - seen as safe since they carry an implicit federal government guarantee.
But the landscape changed in late February. Investors were spooked after Fannie and Freddie reported a combined $6 billion in losses for the fourth quarter as defaults rose.
A new round of fear washed over Wall Street last week when financial fund Carlyle Capital announced its lenders wanted more money to make up for the depressed value of the agency mortgage-backed securities Carlyle had put up as collateral for loans. An announcement by the Mortgage Bankers Association last Thursday that defaults had reached record levels didn't help soothe concerns.
This bad news comes as Congress, in an effort to stimulate lending in higher-cost areas, temporarily raised the size of the mortgages Fannie and Freddie can guarantee to as much as $729,750.
The situation has grown so worrisome that the Federal Reserve took several steps this week to inject liquidity into the agency mortgage-backed security market by allowing banks to trade these securities in as collateral for loans.
On top of that, to shore up their finances and regain investors' trust, Fannie and Freddie have been instituting new fees and stricter underwriting guidelines, making it costlier and harder to qualify for traditional mortgages.
In an investor conference Wednesday, Freddie officials sought to calm jitters by saying the agency has "significantly" increased prices, introducing new fees based on risk levels.
Prepare to pay more for a mortgage
Wholesale Access has estimated that all these changes mean 30% to 40% of borrowers who could have qualified for a conventional mortgage a year ago can no longer do so.
Fannie and Freddie are demanding higher credit scores and charging higher rates for those who don't have them. Until recently, a borrower with a 620 score might pay the same as one with a 680 score, said Victoria Bingham, chief executive with Pacific Rim Mortgage in Tigard, Ore.
But now that person might have to pay a half percentage point more. With today's rates, that translates into 6.75% for a 30-year fixed-rate mortgage instead of 6.25%, or $74 more a month on a $225,000 loan, typical for her client base.
Borrowers must also put more money down, especially if they don't have stellar credit. For instance, those with down payments of less than 5% need a credit score of at least 680, said Steven Plaisance, executive vice president of Arvest Mortgage Co. in Tulsa, Ok. Previously, he could make loans to people without big down payments if they had other strong points, such as stable employment.
Experts said they don't think traditional mortgages will disappear. But if they are harder to get, it will take longer for the housing market to recover as a glut of unsold houses could lead to even more declines in real estate values.
"Fewer buyers who can come into the market mean more homes on the market," LaMalfa said. "The absence of an increase in demand will put further pressure on prices."
Have you lost your job, your business or your home? Are you raiding retirement accounts to pay the bills? We want to hear from you. Tell us how you're being affected by the weakening economy and you could be profiled in an upcoming story. Send emails to realstories@cnnmoney.com.
First Published: March 13, 2008: 3:45 AM EDT
Rising foreclosures and big losses at Fannie Mae and Freddie Mac are making it harder for people with good credit backgrounds to get a traditional mortgage.
By Tami Luhby, CNNMoney.com staff writer
Last Updated: March 13, 2008: 8:48 AM EDT
NEW YORK (CNNMoney.com) -- The credit crunch has finally hit the traditional mortgage market.
Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart.
Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.
"Even if you have good credit, you don't know if they are going to give you a loan or not," said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania.
And for those who can still get a loan, the tremors in the mortgage-backed securities market has made loans more expensive for borrowers. As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates.
The national average rate on a 30-year fixed-rate mortgage was 5.96% Thursday, after jumping to 6.08% earlier this week, according to Bankrate.com. Rates on a 30-year fixed mortgage were about 5.90% a week ago. A borrower looking for a 5-year adjustable-rate mortgage would pay 5.71% today, up from around 5.03% a week ago.
"The cost of mortgage financing has increased dramatically and it couldn't come at a worse time," said Tom LaMalfa, managing director of Wholesale Access, a mortgage research firm. "We're going to see a further diminishment of available mortgage money."
Not just a subprime problem anymore
Rising defaults and delinquencies effectively shut down the subprime and jumbo mortgage markets last summer, but borrowers with good credit could still get conventional loans that met the agencies' criteria. That's because investors continued to buy securities - backed by Fannie (FNM) and Freddie (FRE, Fortune 500) - seen as safe since they carry an implicit federal government guarantee.
But the landscape changed in late February. Investors were spooked after Fannie and Freddie reported a combined $6 billion in losses for the fourth quarter as defaults rose.
A new round of fear washed over Wall Street last week when financial fund Carlyle Capital announced its lenders wanted more money to make up for the depressed value of the agency mortgage-backed securities Carlyle had put up as collateral for loans. An announcement by the Mortgage Bankers Association last Thursday that defaults had reached record levels didn't help soothe concerns.
This bad news comes as Congress, in an effort to stimulate lending in higher-cost areas, temporarily raised the size of the mortgages Fannie and Freddie can guarantee to as much as $729,750.
The situation has grown so worrisome that the Federal Reserve took several steps this week to inject liquidity into the agency mortgage-backed security market by allowing banks to trade these securities in as collateral for loans.
On top of that, to shore up their finances and regain investors' trust, Fannie and Freddie have been instituting new fees and stricter underwriting guidelines, making it costlier and harder to qualify for traditional mortgages.
In an investor conference Wednesday, Freddie officials sought to calm jitters by saying the agency has "significantly" increased prices, introducing new fees based on risk levels.
Prepare to pay more for a mortgage
Wholesale Access has estimated that all these changes mean 30% to 40% of borrowers who could have qualified for a conventional mortgage a year ago can no longer do so.
Fannie and Freddie are demanding higher credit scores and charging higher rates for those who don't have them. Until recently, a borrower with a 620 score might pay the same as one with a 680 score, said Victoria Bingham, chief executive with Pacific Rim Mortgage in Tigard, Ore.
But now that person might have to pay a half percentage point more. With today's rates, that translates into 6.75% for a 30-year fixed-rate mortgage instead of 6.25%, or $74 more a month on a $225,000 loan, typical for her client base.
Borrowers must also put more money down, especially if they don't have stellar credit. For instance, those with down payments of less than 5% need a credit score of at least 680, said Steven Plaisance, executive vice president of Arvest Mortgage Co. in Tulsa, Ok. Previously, he could make loans to people without big down payments if they had other strong points, such as stable employment.
Experts said they don't think traditional mortgages will disappear. But if they are harder to get, it will take longer for the housing market to recover as a glut of unsold houses could lead to even more declines in real estate values.
"Fewer buyers who can come into the market mean more homes on the market," LaMalfa said. "The absence of an increase in demand will put further pressure on prices."
Have you lost your job, your business or your home? Are you raiding retirement accounts to pay the bills? We want to hear from you. Tell us how you're being affected by the weakening economy and you could be profiled in an upcoming story. Send emails to realstories@cnnmoney.com.
First Published: March 13, 2008: 3:45 AM EDT
Friday, February 8, 2008
Refinancing: Only for the privileged few
Sure, now is a great time to refinance - that is, if you can still qualify. Here is what lenders are looking for.
By Les Christie, CNNMoney.com staff writer
February 8 2008: 8:03 AM EST
NEW YORK (CNNMoney.com) -- The good news: mortgage rates are down and applications for refinancings are up. The bad news: it's much harder to qualify for a refinanced loan these days.
What's more, the borrowers who need to refinance the most - because their adjustable rate mortgages (ARMs) are resetting to higher interest rates - are among those having the most trouble winning approvals.
"I'm turning away about 60% to 75% of the clients who come to me for a refi," said Bob Moulton, president of Americana Mortgage Group on Long Island, N.Y. "Some don't have enough equity and others have bad credit scores."
During the boom years, lenders approved most anyone with a pulse. Not so today. Mortgage brokers recognize this and are now being very selective about the clients whose applications they choose to submit to the likes of Wells Fargo or Bank of America.
If an applicant has poor credit, or a home whose value is rapidly deteriorating, they're just not going to bother.
"If the person is Sweet Polly Purebread -- good income, good assets, high credit score -- there's money out there," said Moulton. "But if not, then it's harder."
Interest rates are way down - 5.67% is the going rate for a a 30-year fixed loan this week, according to Freddie Mac - which in turn has generated a spike in refinancing applications.
Total mortgage applications were up 73% last week compared with the same period 12 months ago, according to the Mortgage Bankers Association (MBA), and 69%of those applications were from borrowers seeking to refinance. Last February, when interest rates were about 6.3%, about 46% of applications were for refis.
The make-or-break metric for anyone looking to refinance right now is home equity - the difference between what is owed on a house and what the house is worth. But with home prices down, many homeowners have little of that precious commodity left.
"If you have an 80% loan, with a 10% home equity loan, you may not be able to refinance," said Peter Grabel, a mortgage broker in Connecticut - especially in down markets.
Consider a homeowner who bought in Miami a year ago with 20% down. Home prices have fallen 15% there in the past year, wiping out three-quarters of the equity. Lenders, want collateral that's worth more than the value of the loan, are wary about having so little cushion. If they have to repossess and resell the house, they're on the hook for a big loss.
If there's no home equity, borrowers may have to come up with substantial cash and pay down the mortgage to make refinancing possible. Otherwise they're out of luck.
"No lender would take that deal," said Marc Savitt, president of the National Association of Mortgage Brokers. "It's a lot different from two years ago."
The bar has also been raised for credit scores when it comes to refinancing, according to Grabel. And sometimes, it's not a matter of whether someone can get refinancing but at what price.
"Those with high credit scores are getting very good rates, but the lenders have heightened the requirements to qualify," said Grabel. Instead of a score of 680 for the best rate, a borrower might need 700 now.
For example, he has a client who wants a cash-out deal. The client has lots of equity in his house but a dismal credit score - 552.
"I used to have 20 lenders I could send him to; now there's maybe one," said Grabel. "The rate, though, will be high, higher than what he's paying now. Lenders may do a loan, but it may not make financial sense for the borrower."
The only reason that this client will take the deal is because he's going through a divorce and needs to buy out his wife. He doesn't have time to rebuild his credit rating, but he's lucky that at least his house appraises well.
Indeed, appraisals are another tool that lenders are using to eliminate unqualified applicants..
"It used to be a formality," said Grabel. "Now it's, 'Lets do the appraisal first and see what value comes in." Lenders are scrutinizing them to a degree unheard of during the boom. They don't want to lend $160,000 on an appraised value of $200,000 unless they're sure the house is truly worth that.
Ted Grose, a past president of the California Association of Mortgage Brokers, said lenders now often conduct what he called "bench reviews" of appraisals. "They have an experienced, independent third-party go over the appraisal to make sure the numbers are accurate," he said.
Grose called many of the applicants he sees "very challenging, mostly because of high loan-to-value ratios."
Many of these people took exotic loans to get into high-priced properties. They used hybrid ARMs that are resetting to higher rates, or interest only loans.
Particularly deadly are option ARMs, which act as negative amortization loans; the payments don't even cover the interest and the balance grows over time. Combine that with falling home prices, and the loan balance may be more than the home's market value.
Under those circumstances, said Grose, few borrowers can be helped.
By Les Christie, CNNMoney.com staff writer
February 8 2008: 8:03 AM EST
NEW YORK (CNNMoney.com) -- The good news: mortgage rates are down and applications for refinancings are up. The bad news: it's much harder to qualify for a refinanced loan these days.
What's more, the borrowers who need to refinance the most - because their adjustable rate mortgages (ARMs) are resetting to higher interest rates - are among those having the most trouble winning approvals.
"I'm turning away about 60% to 75% of the clients who come to me for a refi," said Bob Moulton, president of Americana Mortgage Group on Long Island, N.Y. "Some don't have enough equity and others have bad credit scores."
During the boom years, lenders approved most anyone with a pulse. Not so today. Mortgage brokers recognize this and are now being very selective about the clients whose applications they choose to submit to the likes of Wells Fargo or Bank of America.
If an applicant has poor credit, or a home whose value is rapidly deteriorating, they're just not going to bother.
"If the person is Sweet Polly Purebread -- good income, good assets, high credit score -- there's money out there," said Moulton. "But if not, then it's harder."
Interest rates are way down - 5.67% is the going rate for a a 30-year fixed loan this week, according to Freddie Mac - which in turn has generated a spike in refinancing applications.
Total mortgage applications were up 73% last week compared with the same period 12 months ago, according to the Mortgage Bankers Association (MBA), and 69%of those applications were from borrowers seeking to refinance. Last February, when interest rates were about 6.3%, about 46% of applications were for refis.
The make-or-break metric for anyone looking to refinance right now is home equity - the difference between what is owed on a house and what the house is worth. But with home prices down, many homeowners have little of that precious commodity left.
"If you have an 80% loan, with a 10% home equity loan, you may not be able to refinance," said Peter Grabel, a mortgage broker in Connecticut - especially in down markets.
Consider a homeowner who bought in Miami a year ago with 20% down. Home prices have fallen 15% there in the past year, wiping out three-quarters of the equity. Lenders, want collateral that's worth more than the value of the loan, are wary about having so little cushion. If they have to repossess and resell the house, they're on the hook for a big loss.
If there's no home equity, borrowers may have to come up with substantial cash and pay down the mortgage to make refinancing possible. Otherwise they're out of luck.
"No lender would take that deal," said Marc Savitt, president of the National Association of Mortgage Brokers. "It's a lot different from two years ago."
The bar has also been raised for credit scores when it comes to refinancing, according to Grabel. And sometimes, it's not a matter of whether someone can get refinancing but at what price.
"Those with high credit scores are getting very good rates, but the lenders have heightened the requirements to qualify," said Grabel. Instead of a score of 680 for the best rate, a borrower might need 700 now.
For example, he has a client who wants a cash-out deal. The client has lots of equity in his house but a dismal credit score - 552.
"I used to have 20 lenders I could send him to; now there's maybe one," said Grabel. "The rate, though, will be high, higher than what he's paying now. Lenders may do a loan, but it may not make financial sense for the borrower."
The only reason that this client will take the deal is because he's going through a divorce and needs to buy out his wife. He doesn't have time to rebuild his credit rating, but he's lucky that at least his house appraises well.
Indeed, appraisals are another tool that lenders are using to eliminate unqualified applicants..
"It used to be a formality," said Grabel. "Now it's, 'Lets do the appraisal first and see what value comes in." Lenders are scrutinizing them to a degree unheard of during the boom. They don't want to lend $160,000 on an appraised value of $200,000 unless they're sure the house is truly worth that.
Ted Grose, a past president of the California Association of Mortgage Brokers, said lenders now often conduct what he called "bench reviews" of appraisals. "They have an experienced, independent third-party go over the appraisal to make sure the numbers are accurate," he said.
Grose called many of the applicants he sees "very challenging, mostly because of high loan-to-value ratios."
Many of these people took exotic loans to get into high-priced properties. They used hybrid ARMs that are resetting to higher rates, or interest only loans.
Particularly deadly are option ARMs, which act as negative amortization loans; the payments don't even cover the interest and the balance grows over time. Combine that with falling home prices, and the loan balance may be more than the home's market value.
Under those circumstances, said Grose, few borrowers can be helped.
Friday, February 1, 2008
Foreclosure:
What It Means, How It Works Foreclosure is the process through which a lender can sell or repossess (take ownership of) a property in order to recover the amount owed on a defaulted loan secured by the property. Anyone worried about missing their home payments--or those thinking about purchasing a foreclosure property--should understand how foreclosures work.State laws govern the foreclosure process, and they vary from state to state. You'll want to check with your own state to learn the details, including whether a judicial procedure is required (see box below).Following is a broad-brush summary of the three stages of foreclosure, assuming the homeowner fails to satisfy the repayment obligation along the way.
Pre-foreclosure. This stage begins when the homeowner falls behind on home-loan payments (or sometimes other terms of the loan). Lenders may wait for a second, third or even fourth missed payment before sending the homeowner a "default" notice--which becomes public record. The homeowner then has a given period of time to respond to the notice and/or come up with the outstanding payments and fees--often by selling the home. (If a judicial procedure is required, it occurs after the default notice is given.)
Foreclosure. At this stage, the former homeowner may or may not have been evicted (depending on state law) when the lender puts the home up for public auction (after a judgment of foreclosure in those states requiring judicial procedure). If the home sells at auction, money from the sale is used to pay off the costs of the foreclosure, tax and other prior liens, service charges and advances, interest and principal on the mortgage, late charges or fees, and liens recorded after the first mortgage. Any amount left over is paid to the borrower (former homeowner). Often, however, proceeds of the sale are less than the various amounts owed, in which case the lender may be able to hold the borrower responsible for the difference.
"Real Estate Owned." A foreclosed property that does not sell at auction--either because no one bid on it or bids were too low to cover the outstanding loan--becomes the property of the lender (or government agency that guaranteed the loan--HUD, VA, etc.). Most lenders prefer to list their "real estate owned (REO)" homes for sale through real estate brokers, rather than keeping them or managing the sale of REOs themselves.
HOMEOWNER BEWARE
Avoid Getting Hooked By A Foreclosure-Related ScamThere are lots of people out there willing to victimize people in financial difficulty--especially when their troubles become part of public record. Beware of offers involving signing over your deed to someone else who promises to sell your home for you--whether they do or not, you'll still be responsible for the mortgage.Also, investigate people who offer to buy your property so you can avoid foreclosure. They may be legitimate but, to be on the safe side, check them out by contacting your state Attorney General, the state Real Estate Commission, or the local District Attorney's consumer fraud unit.Finally, consider carefully any "counseling agencies" that offer foreclosure-mitigation services for a fee. In many cases, they offer services you can perform yourself, such as negotiating a workout plan with your lender.If you decide to conduct a pre-foreclosure sale, give us a call. We'll work with you to make sure your interests are protected in the transaction.Keep in mind that if you have a loan ensured by the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD) offers a toll-free number you can call to find a HUD-approved housing counseling agency: (800) 569-4287. For more information about foreclosures provided by HUD, go online to: www.HUD.gov/offices/hsg/sfh/econ/econ.cfm.Foreclosure FactThe type of foreclosure procedure followed in a state depends on whether real property is purchased there using mortgages or deeds of trust. (Some states use both.) In general, states that use mortgages require a judicial procedure through which the lender must get court approval to initiate foreclosure. Where a deed of trust containing a "power of sale" clause is used to purchase property, the lender can initiate a foreclosure sale without going to court.
What It Means, How It Works Foreclosure is the process through which a lender can sell or repossess (take ownership of) a property in order to recover the amount owed on a defaulted loan secured by the property. Anyone worried about missing their home payments--or those thinking about purchasing a foreclosure property--should understand how foreclosures work.State laws govern the foreclosure process, and they vary from state to state. You'll want to check with your own state to learn the details, including whether a judicial procedure is required (see box below).Following is a broad-brush summary of the three stages of foreclosure, assuming the homeowner fails to satisfy the repayment obligation along the way.
Pre-foreclosure. This stage begins when the homeowner falls behind on home-loan payments (or sometimes other terms of the loan). Lenders may wait for a second, third or even fourth missed payment before sending the homeowner a "default" notice--which becomes public record. The homeowner then has a given period of time to respond to the notice and/or come up with the outstanding payments and fees--often by selling the home. (If a judicial procedure is required, it occurs after the default notice is given.)
Foreclosure. At this stage, the former homeowner may or may not have been evicted (depending on state law) when the lender puts the home up for public auction (after a judgment of foreclosure in those states requiring judicial procedure). If the home sells at auction, money from the sale is used to pay off the costs of the foreclosure, tax and other prior liens, service charges and advances, interest and principal on the mortgage, late charges or fees, and liens recorded after the first mortgage. Any amount left over is paid to the borrower (former homeowner). Often, however, proceeds of the sale are less than the various amounts owed, in which case the lender may be able to hold the borrower responsible for the difference.
"Real Estate Owned." A foreclosed property that does not sell at auction--either because no one bid on it or bids were too low to cover the outstanding loan--becomes the property of the lender (or government agency that guaranteed the loan--HUD, VA, etc.). Most lenders prefer to list their "real estate owned (REO)" homes for sale through real estate brokers, rather than keeping them or managing the sale of REOs themselves.
HOMEOWNER BEWARE
Avoid Getting Hooked By A Foreclosure-Related ScamThere are lots of people out there willing to victimize people in financial difficulty--especially when their troubles become part of public record. Beware of offers involving signing over your deed to someone else who promises to sell your home for you--whether they do or not, you'll still be responsible for the mortgage.Also, investigate people who offer to buy your property so you can avoid foreclosure. They may be legitimate but, to be on the safe side, check them out by contacting your state Attorney General, the state Real Estate Commission, or the local District Attorney's consumer fraud unit.Finally, consider carefully any "counseling agencies" that offer foreclosure-mitigation services for a fee. In many cases, they offer services you can perform yourself, such as negotiating a workout plan with your lender.If you decide to conduct a pre-foreclosure sale, give us a call. We'll work with you to make sure your interests are protected in the transaction.Keep in mind that if you have a loan ensured by the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD) offers a toll-free number you can call to find a HUD-approved housing counseling agency: (800) 569-4287. For more information about foreclosures provided by HUD, go online to: www.HUD.gov/offices/hsg/sfh/econ/econ.cfm.Foreclosure FactThe type of foreclosure procedure followed in a state depends on whether real property is purchased there using mortgages or deeds of trust. (Some states use both.) In general, states that use mortgages require a judicial procedure through which the lender must get court approval to initiate foreclosure. Where a deed of trust containing a "power of sale" clause is used to purchase property, the lender can initiate a foreclosure sale without going to court.
Wednesday, January 23, 2008
An Article of Interest
6 Money Dilemmas (Part 1 of 3)
As you invest your money, shop for a home or tackle any one of the many financial decisions you have to make over your lifetime, do you sometimes wish you'd paid more attention in math class? Do you find yourself having to "run the numbers" and wondering how? To help, we've taken six common financial quandaries and done the math for you. As you'll see, the solution isn't always black and white, and the "right" answer may depend on things that you can never know for sure, like your tax bracket in 2020 or how your investments will grow.
Emotional considerations may tip the balance. Even if the math favors buying stocks over prepaying your mortgage, say, you may simply sleep better being out of debt. So this guide will walk you through the caveats as well as the calculations. Come up with your best call.
Pay off a credit card or fund your 401(k)? You should do both. If you can't, pay off the plastic first. In an ideal world, you'd wipe out your costly debts and save for retirement. But in the real world, you may not have enough cash to do both at the same time. Of course, you must pay at least the minimum on your credit card every month. So the question is: Do you put the rest of your available cash in your 401(k) or devote it all to your credit card?
By paying off credit-card debt, you get a guaranteed rate of return equal to your interest rate (the average is 14 percent today). But if your employer matches your 401(k) contributions, that's a 50 percent return (assuming the typical 50¢-to-the-dollar match on the first 6 percent of your salary). Hard to beat. Or is it? The 50 percent match is a one-time gift; the 14 percent interest will compound every year. At some point the cost of that interest will overtake 50 percent. So if you have a big credit-card balance, attack that first.
Let’s say you're deciding what to do with $250 a month. With a $5,000 credit-card balance at a 14 percent rate, your minimum payment is $125 a month. Suppose you put the rest in your 401(k). Because you don't pay taxes on that contribution, you can actually invest $174 a month (assuming a 28 percent tax rate). Keep paying $125 a month on your credit-card balance, and you'll need 55 months to wipe it out. But, if you earn 8 percent annual returns and get the standard 50 percent match, you'll amass $17,271 in your 401(k).
If you plow your entire $250 toward the credit card, you'll pay it off in just 23 months. Then you could devote all your spare cash to your 401(k). By the end of the original 55 months, you'd have $18,515 in your plan. The one-at-a-time approach beats splitting your money because 55 months of paying 14 percent interest outweighs the 50 percent match.
If your credit-card debt isn't that big, and you can pay it off in just a couple of years even if you split your cash, go ahead and fund both goals. You'll get the benefit of the 50 percent match. The bottom line: If you have a big credit-card balance, wipe it out before you open a 401(k).
Save in a Roth 401(k) or a regular 401(k)? Wish you could shelter your retirement savings from taxes, but you make too much to contribute to a Roth IRA? With the recent arrival of the Roth 401(k), you may have, or may soon be getting, a second chance at tax-free income. Grab it. With a traditional 401(k) you invest pretax dollars and pay taxes when you withdraw money; with the Roth you pay taxes on what you put in but nothing on your withdrawals. About a quarter of employers have rolled out this option, and a majority of plans will likely offer it by 2009. Unlike a Roth IRA, a Roth 401(k) has no income caps.
Let's say that you contribute the maximum of $15,500 to your 401(k) and you're in the 28 percent tax bracket. Assuming an 8 percent annual return, you'll end up with $72,245 tax-free in 20 years with a Roth. If you go with the traditional 401(k) instead, you'll also end up with $72,245 in 20 years, but you'll pay taxes on the withdrawals. At the same 28 percent tax rate, you'd be left with $52,016 you could actually spend. When you fund the traditional 401(k), however, you shelter $15,500 from taxes. But even if you invest that $4,340 tax savings outside your plan, you'd have to earn well in excess of 8 percent a year to equal your Roth total after taxes.
By: Janice Revell, www.money.cnn.com
6 Money Dilemmas (Part 1 of 3)
As you invest your money, shop for a home or tackle any one of the many financial decisions you have to make over your lifetime, do you sometimes wish you'd paid more attention in math class? Do you find yourself having to "run the numbers" and wondering how? To help, we've taken six common financial quandaries and done the math for you. As you'll see, the solution isn't always black and white, and the "right" answer may depend on things that you can never know for sure, like your tax bracket in 2020 or how your investments will grow.
Emotional considerations may tip the balance. Even if the math favors buying stocks over prepaying your mortgage, say, you may simply sleep better being out of debt. So this guide will walk you through the caveats as well as the calculations. Come up with your best call.
Pay off a credit card or fund your 401(k)? You should do both. If you can't, pay off the plastic first. In an ideal world, you'd wipe out your costly debts and save for retirement. But in the real world, you may not have enough cash to do both at the same time. Of course, you must pay at least the minimum on your credit card every month. So the question is: Do you put the rest of your available cash in your 401(k) or devote it all to your credit card?
By paying off credit-card debt, you get a guaranteed rate of return equal to your interest rate (the average is 14 percent today). But if your employer matches your 401(k) contributions, that's a 50 percent return (assuming the typical 50¢-to-the-dollar match on the first 6 percent of your salary). Hard to beat. Or is it? The 50 percent match is a one-time gift; the 14 percent interest will compound every year. At some point the cost of that interest will overtake 50 percent. So if you have a big credit-card balance, attack that first.
Let’s say you're deciding what to do with $250 a month. With a $5,000 credit-card balance at a 14 percent rate, your minimum payment is $125 a month. Suppose you put the rest in your 401(k). Because you don't pay taxes on that contribution, you can actually invest $174 a month (assuming a 28 percent tax rate). Keep paying $125 a month on your credit-card balance, and you'll need 55 months to wipe it out. But, if you earn 8 percent annual returns and get the standard 50 percent match, you'll amass $17,271 in your 401(k).
If you plow your entire $250 toward the credit card, you'll pay it off in just 23 months. Then you could devote all your spare cash to your 401(k). By the end of the original 55 months, you'd have $18,515 in your plan. The one-at-a-time approach beats splitting your money because 55 months of paying 14 percent interest outweighs the 50 percent match.
If your credit-card debt isn't that big, and you can pay it off in just a couple of years even if you split your cash, go ahead and fund both goals. You'll get the benefit of the 50 percent match. The bottom line: If you have a big credit-card balance, wipe it out before you open a 401(k).
Save in a Roth 401(k) or a regular 401(k)? Wish you could shelter your retirement savings from taxes, but you make too much to contribute to a Roth IRA? With the recent arrival of the Roth 401(k), you may have, or may soon be getting, a second chance at tax-free income. Grab it. With a traditional 401(k) you invest pretax dollars and pay taxes when you withdraw money; with the Roth you pay taxes on what you put in but nothing on your withdrawals. About a quarter of employers have rolled out this option, and a majority of plans will likely offer it by 2009. Unlike a Roth IRA, a Roth 401(k) has no income caps.
Let's say that you contribute the maximum of $15,500 to your 401(k) and you're in the 28 percent tax bracket. Assuming an 8 percent annual return, you'll end up with $72,245 tax-free in 20 years with a Roth. If you go with the traditional 401(k) instead, you'll also end up with $72,245 in 20 years, but you'll pay taxes on the withdrawals. At the same 28 percent tax rate, you'd be left with $52,016 you could actually spend. When you fund the traditional 401(k), however, you shelter $15,500 from taxes. But even if you invest that $4,340 tax savings outside your plan, you'd have to earn well in excess of 8 percent a year to equal your Roth total after taxes.
By: Janice Revell, www.money.cnn.com
Friday, January 4, 2008
Pressure Mounting for Big Rate Cut
An uptick in the unemployment rate has Wall Street calling for the Fed to lower rates by a half-point.
By Paul R. La Monica, CNNMoney.com editor at large
January 4 2008: 12:27 PM EST
NEW YORK (CNNMoney.com) -- With unemployment rising to 5 percent in December and jobs growth coming in well below forecasts, economists said the Federal Reserve may be forced to slash interest rates when it meets later this month in order to stave off a recession.
In another step to combat the slowing economy, the Fed also announced Friday that it was going to lend up to $60 billion more to banks in two auctions later this month and that it would decide by February 1 if it will conduct more auctions. The auctions are part of a plan the Fed announced in December to to try and restore order to the distressed financial markets.
The government reported December employment figures on Friday. Only 18,000 jobs were added to the nation's payrolls while economists were predicting job growth of 70,000. What's more, the unemployment rate was expected to come in at 4.8 percent, up from 4.7 percent in November.
As a result of these gloomy numbers, expectations for a half-point rate cut grew Friday morning. According to futures listed on the Chicago Board of Trade, investors are pricing in a 78 percent chance that the Fed will lower the federal funds rates by 50 basis points, to 3.75 percent, at the conclusion of its two-day meeting on January 30. There are 100 basis points in a full percentage point.
"The jobs numbers make a half point cut plausible," said Keith Hembre, chief economist with First American Funds in Minneapolis. "The unemployment rate has moved up to 5 percent from 4.4 percent last March and we've usually not had an upward movement of that magnitude outside of a recession."
Prior to the jobs report, investors were pricing in a 67 percent chance of a half-point cut as recession fears have grown in recent days. A report released Wednesday indicated that manufacturing activity is softening while oil prices, which hit $100 this week, have raised concerns that consumers may pull back on spending as a result of higher energy prices.
The Fed last cut the federal funds rate, a key overnight bank lending rate that affects rates for credit card debt, home equity lines of credit and auto loans, by a quarter-point to 4.25 percent on Dec. 11.
In the minutes from that meeting, released on Wednesday, the Fed hinted that more "substantial" rate cuts might be needed if the economy continued to show signs of weakness in the face of the credit crunch caused by last year's subprime mortgage meltdown.
John Lynch, chief market analyst for Evergreen Investments in Charlotte said that he thinks the Fed will now lower rates to at least 3.5 percent by mid-year. He said that despite the spike in oil and other commodities such as gold, the Fed would probably be more comfortable with inflation picking up a bit if it meant that the economy did not go into recession.
With the economy showing so many signs of sluggishness, it's going to be tough for the Fed to argue that inflation is the bigger bugaboo.
"There is no debate with the latest round of numbers. Everything points to a significantly slower economy," said Joe Balestrino, fixed income market strategist with Federated Investors in Pittsburgh.
Still, more rate cuts have the potential to lift oil and other commodity prices further since lower rates likely would further weaken the dollar. With that in mind, there are concerns that the Fed may not be as aggressive as Wall Street wants it to be.
"$100 oil is an unusual factor," Hembre said. "While it doesn't completely change inflation expectations it does complicate things a bit."
Nonetheless, investors are also worried that more rate cuts from the Fed may be too late to save the economy from dipping into a recession.
"A 50 point cut might not make that much difference in stopping a free fall if that is happening," said Oscar Gonzalez, economist with John Hancock Financial Services in Boston.
Gonzalez cautions that he thinks it's still too soon to say that the "sky is falling." But he would be worried if the jobs numbers for January are as bad as they were for December.
"If employment continues to weaken, we could be in for a very rough patch of economic news for at least the next few quarters," Gonzalez said.
Despite the weak numbers, economists said they did not think the Fed would hold an emergency meeting before Jan. 30 to talk about cutting rates.
Hembre said that it would take a "calamity" such as much weaker than expected retail sales figures for December or a lot more volatility in the stock and bond markets to justify an intermeeting move.
Stocks did not react well to the jobs news, with the Dow falling more than 140 points, or 1.1 percent in early afternoon trading and the S&P 500 off by about 1.4 percent .The Nasdaq plunged more than 2.3 percent.
Bonds continued to rally, sending the yield on the benchmark 10-Year U.S. Treasury down to 3.85 percent. Bond prices and yields move in opposite directions and lower yields are typical during a sluggish economic environment.
But Gonzalez suggested that a rate cut before Jan. 30 might actually cause stocks and bond yields to fall further since it could be construed as a sign of desperation by the Fed.
"An intermeeting move would be a cause for alarm," he said.
Instead, Gonzalez thinks the Fed is more likely to use creative ways to try to restore confidence in the markets and economy, such as the Term Auction Facility it announced last month in conjunction with central banks in Canada and Europe.
The Fed devised this proposal in order to encourage banks that need cash to ask for money without having to borrow directly from the Fed at the discount rate, which is higher than the federal funds rate.
The central bank has already loaned a combined $40 billion to financial institutions during two auctions last month. There was strong demand for these auctions and in both cases, the rates for the loans were below the discount rate of 4.75 percent.
The Fed said Friday it would hold its next auction, of up to $30 billion, on January 14 and that another auction of up to $30 billion would take place on January 28.
Balestrino is cautiously optimistic that a half-point cut, combined with the Fed's three rate cuts in 2007, could keep the economy from heading into a recession.
He adds that if the economy continues to slow in the next few months, the Fed could lower rates by a half-point at its March 18 meeting, or even at an unscheduled meeting in February.
Fed lends $20 billion to banks in first auctionBernanke's tightrope actFed cuts rates by quarter-point
An uptick in the unemployment rate has Wall Street calling for the Fed to lower rates by a half-point.
By Paul R. La Monica, CNNMoney.com editor at large
January 4 2008: 12:27 PM EST
NEW YORK (CNNMoney.com) -- With unemployment rising to 5 percent in December and jobs growth coming in well below forecasts, economists said the Federal Reserve may be forced to slash interest rates when it meets later this month in order to stave off a recession.
In another step to combat the slowing economy, the Fed also announced Friday that it was going to lend up to $60 billion more to banks in two auctions later this month and that it would decide by February 1 if it will conduct more auctions. The auctions are part of a plan the Fed announced in December to to try and restore order to the distressed financial markets.
The government reported December employment figures on Friday. Only 18,000 jobs were added to the nation's payrolls while economists were predicting job growth of 70,000. What's more, the unemployment rate was expected to come in at 4.8 percent, up from 4.7 percent in November.
As a result of these gloomy numbers, expectations for a half-point rate cut grew Friday morning. According to futures listed on the Chicago Board of Trade, investors are pricing in a 78 percent chance that the Fed will lower the federal funds rates by 50 basis points, to 3.75 percent, at the conclusion of its two-day meeting on January 30. There are 100 basis points in a full percentage point.
"The jobs numbers make a half point cut plausible," said Keith Hembre, chief economist with First American Funds in Minneapolis. "The unemployment rate has moved up to 5 percent from 4.4 percent last March and we've usually not had an upward movement of that magnitude outside of a recession."
Prior to the jobs report, investors were pricing in a 67 percent chance of a half-point cut as recession fears have grown in recent days. A report released Wednesday indicated that manufacturing activity is softening while oil prices, which hit $100 this week, have raised concerns that consumers may pull back on spending as a result of higher energy prices.
The Fed last cut the federal funds rate, a key overnight bank lending rate that affects rates for credit card debt, home equity lines of credit and auto loans, by a quarter-point to 4.25 percent on Dec. 11.
In the minutes from that meeting, released on Wednesday, the Fed hinted that more "substantial" rate cuts might be needed if the economy continued to show signs of weakness in the face of the credit crunch caused by last year's subprime mortgage meltdown.
John Lynch, chief market analyst for Evergreen Investments in Charlotte said that he thinks the Fed will now lower rates to at least 3.5 percent by mid-year. He said that despite the spike in oil and other commodities such as gold, the Fed would probably be more comfortable with inflation picking up a bit if it meant that the economy did not go into recession.
With the economy showing so many signs of sluggishness, it's going to be tough for the Fed to argue that inflation is the bigger bugaboo.
"There is no debate with the latest round of numbers. Everything points to a significantly slower economy," said Joe Balestrino, fixed income market strategist with Federated Investors in Pittsburgh.
Still, more rate cuts have the potential to lift oil and other commodity prices further since lower rates likely would further weaken the dollar. With that in mind, there are concerns that the Fed may not be as aggressive as Wall Street wants it to be.
"$100 oil is an unusual factor," Hembre said. "While it doesn't completely change inflation expectations it does complicate things a bit."
Nonetheless, investors are also worried that more rate cuts from the Fed may be too late to save the economy from dipping into a recession.
"A 50 point cut might not make that much difference in stopping a free fall if that is happening," said Oscar Gonzalez, economist with John Hancock Financial Services in Boston.
Gonzalez cautions that he thinks it's still too soon to say that the "sky is falling." But he would be worried if the jobs numbers for January are as bad as they were for December.
"If employment continues to weaken, we could be in for a very rough patch of economic news for at least the next few quarters," Gonzalez said.
Despite the weak numbers, economists said they did not think the Fed would hold an emergency meeting before Jan. 30 to talk about cutting rates.
Hembre said that it would take a "calamity" such as much weaker than expected retail sales figures for December or a lot more volatility in the stock and bond markets to justify an intermeeting move.
Stocks did not react well to the jobs news, with the Dow falling more than 140 points, or 1.1 percent in early afternoon trading and the S&P 500 off by about 1.4 percent .The Nasdaq plunged more than 2.3 percent.
Bonds continued to rally, sending the yield on the benchmark 10-Year U.S. Treasury down to 3.85 percent. Bond prices and yields move in opposite directions and lower yields are typical during a sluggish economic environment.
But Gonzalez suggested that a rate cut before Jan. 30 might actually cause stocks and bond yields to fall further since it could be construed as a sign of desperation by the Fed.
"An intermeeting move would be a cause for alarm," he said.
Instead, Gonzalez thinks the Fed is more likely to use creative ways to try to restore confidence in the markets and economy, such as the Term Auction Facility it announced last month in conjunction with central banks in Canada and Europe.
The Fed devised this proposal in order to encourage banks that need cash to ask for money without having to borrow directly from the Fed at the discount rate, which is higher than the federal funds rate.
The central bank has already loaned a combined $40 billion to financial institutions during two auctions last month. There was strong demand for these auctions and in both cases, the rates for the loans were below the discount rate of 4.75 percent.
The Fed said Friday it would hold its next auction, of up to $30 billion, on January 14 and that another auction of up to $30 billion would take place on January 28.
Balestrino is cautiously optimistic that a half-point cut, combined with the Fed's three rate cuts in 2007, could keep the economy from heading into a recession.
He adds that if the economy continues to slow in the next few months, the Fed could lower rates by a half-point at its March 18 meeting, or even at an unscheduled meeting in February.
Fed lends $20 billion to banks in first auctionBernanke's tightrope actFed cuts rates by quarter-point
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