FED Raises "FED Funds Rate"
But while the move will not directly affect home mortgage, credit card or auto loan rates, it was a clear sign to the markets, politicians in Washington and the country as a whole that the era of extraordinarily cheap money necessitated by the crisis was drawing gradually to a close. This rise has helped to strengthen the dollar versus the Euro now trading at $1.35 which is the strongest position in over 9 months. (Have you been to Europe lately? This will make you very happy if you are taking your summer vacation in Italy!)
Having said this, rates are up .125% from last weeks posting. The question most investors have it will the start of this increase signal an increase in interest rates overall. I believe the answer is yes, but, the time period is yet to be determined. Per my analysis, I project interest rates to increase by approximately .5% by fourth quarter 2010 to approximately 5.375 to 5.5% for conforming mortgages.
This is actually a positive movement as it signals that the economy is starting to strengthen. The Philadelphia Federal Reserve Bank said its index of manufacturing activity rose for the sixth straight month in February, to 17.6 from 15.2 the previous month. The new orders index rose to a 5-year high, which suggests future growth.
The program of the week is a 5/1 High Balance Conforming ARM that is at 3.875% today. Great rates are still available. Let those buyers know.
The FED raised the “Fed Funds Rate” (loans made directly to banks) to .75%, up a .25% effective Friday. While the central bank had signaled its intentions to take such a step, the timing was a surprise. The announcement was made in a carefully worded statement that the Fed was not yet ready to begin a broad tightening of credit that would affect businesses and consumers as they struggle to recover from the economic crisis.
The Federal Reserve said yesterday it is raising the rate it charges banks that borrow from the central bank when they run short of funds by a quarter percentage point, or 25 basis points, to 0.75%. The central bank said in a statement it made the move in response to improving financial market conditions. Don't everyone panic here, because the move is largely symbolic - banks do little borrowing at the discount window and the discount rate has no effect on the more widely watched federal funds rate, which measures the rate banks charge each other for overnight loans. That rate is expected to remain between 0% and 0.25% for the foreseeable future, given the slack in the labor market and the still fragile state of the economy. But raising the discount rate allows Federal Reserve chairman Ben Bernanke to take another small step toward normal monetary policy, after the past two last years of financial firefight. The Fed also shortened the term of some discount window loans an d raised the minimum bid in the term auction facilities it uses to supply overnight funds to banks. The central bank said Thursday's increase should "encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds" and added that it will "assess over time whether further increases in the spread are appropriate." It added: "The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy."
Another program, another $1.5 billion
President Obama is expected to announce today another $1.5 billion program to help borrowers in the five states hit hardest by the housing crisis. California, Arizona, Nevada, Florida and Michigan will all share more money to fund programs to prevent foreclosure for people who are unemployed or who owe more than their homes are worth. The funds will be allocated based on a formula that takes into account home price declines and unemployment. The agencies' programs must be approved by the Treasury Department. The move is the administration's latest attempt to fix its signature foreclosure-prevention effort, the Home Affordable Modification Program, which has been widely panned for not doing enough. A senior Obama official cautioned that the new program is just another tool in the White House arsenal, not a full solution to the housing woes facing the unemployed and underwater. "As important as $1.5 billion will be to these five states, it's not going to solve what is a cat astrophically large problem," said the official, speaking to reporters on a conference call. "It's going to help as many of the other programs do." The senior administration official was vague about how the money would help the target audiences, saying mainly that these groups are intimately involved in their local housing markets. In other words, when in doubt, throw more money at it.
DSNews.com - homeowners pessimistic on home value
According to a new report from real estate data provider Zillow, American homeowners’ confidence in their own homes’ values has fallen to the lowest level on record. Just one in five homeowners believe their property value increased during 2009, but Zillow says in fact, 28 percent of homes appreciated during the year. It’s the first time in the history of the Seattle-based company’s survey that such a large percentage of homeowners have underestimated their home’s value. The Zillow Home Value Misperception Index was -2 in the fourth quarter. A Misperception Index of zero would mean homeowners perceptions’ were in line with actual values. The closest it’s ever come to that until now, was in the second quarter of 2008, when the index was at 32. Zillow says a negative Misperception Index indicates that homeowners are “overly cynical” about their own homes’ values when compared with reality. This is the first time the national index was negative. However, Dr. Stan Humphries, Zillow chief economist, noted that almost three times as many people currently believe their home’s value will increase over the next six months as believe it will decrease in value – a level of optimism he says is likely to outpace actual performance in the near-term. Humphries says given recent news about the stabilization of home values in some markets, it’s easy to understand why some homeowners are optimistic. “However, home values in many markets are still under substantial downward pressure from high levels of foreclosures and we don’t believe we’ll see a definitive bottom nationally until the second quarter of this year.
Inflation up over year, down over month
According to the Labor Department, the Consumer Price Index rose 2.6% during the past 12 months. The core CPI, which is more closely watched by economists because it strips out volatile food and energy prices, rose 1.6% over the past year. For the month of January, overall prices rose 0.2%. Economists surveyed by Briefing.com and Reuters had forecast a 0.3% rise. However, prices excluding food and energy fell for the first time since 1982, supporting the Federal Reserve's contention it would keep its benchmark interest rate low for an "extended period." Consumer energy costs soared 2.8 percent last month after rising 0.8 percent in December. Food prices climbed 0.2 percent following a 0.1 percent gain in December. Stripping out volatile energy and food prices, the closely watched core measure of consumer inflation fell 0.1 percent in January, the first decline since December 1982. Core prices rose 0.1 percent the prior month. Analysts had expected core prices to rise 0.
1 percent. Core prices were pulled down by declining costs for new vehicles, shelter and airline fares. High vacancy rates are keeping rentals depressed. Compared to January last year, the core inflation rate rose 1.6 percent after increasing 1.8 percent in December. Quarterly forecasts released by the Fed on Wednesday showed policymakers expect inflation to remain muted through 2012.
Foreclosure and modification scams on the rise
The Financial Crimes Enforcement Network (FinCEN), an overseeer of financial activities for the US Treasury, says it received hundreds of suspicious activity reports (SARs) regarding foreclosure and modification scams. In the third quarter of 2009, depository institution filers submitted 15,697 mortgage loan fraud SARs, a 7.5% increase over the same period in 2008. The primary suspicious activity surrounding loan modifications deal with occupancy misrepresentation, social security number discrepancies, and altered or forged documentation, the government agency said. “Subjects of these reports primarily have been borrowers, though filers also reported industry insiders as subjects, including loan officers, underwriters, and purported loan modification agents,” said a FinCEN statement today updating progress made since April’s red flag advisory. “SARs involving loan modifications described potential fraud in either the application for the loan modification, or in the
older loan which came under review subsequent to the modification application.” California and Florida originated the most overall mortgage loan SARs, at 6,444 and 5,077 respectively. New York is a distant third at 1,614.
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