Home loan rates may fall further

For the past two years, interest rates have been moving northwards, forcing many potential home buyers to either postpone their buying decision or bear the brunt of high home loan costs. Add to that spiralling property prices and no wonder many buyers have been scared off.

Things, however, seem to be to calming down a bit. Says Akshaya Kumar, CEO, Park Lane Property Advisors, "The basic trend of home loan rates is downwards."

According to him, interest rates have already peaked and banks are now looking at the Reserve Bank of India (RBI) to cut its indicative rates as a signal.

Last week, when HDFC announced a festival season rate of 10.5 per cent, executive director Renu Sud Karnad clearly indicated that it was because their cost of borrowing had come down.

Others like State Bank of India (Maharashtra and Goa), Bank of Baroda , IDBI and Allahabad Bank have also cut rates in the range of 25-50 basis points.

But coming on the back of an over-two-per-cent hike in the last one year alone, the cuts do not look spectacular enough to enthuse the potential home buyer.

As a result, many customers are still sitting on the fence expecting rates to go down further. Bankers, meanwhile, have also not been over-aggressive because many are looking at this as a cooling off period.

Therefore, a cautiously optimistic view is being taken, and no one is joining the battle to get customers.

Now that the buying season is in, lenders would like to see the RBI come up with some measures so that sentiments improve further.

Says Harsh Roongta, "With inflation under control and the currency appreciating, there is definitely some pressure on the RBI."

The counter argument is that with oil prices at over $80 per barrel, sooner or later the rising fuel prices will be passed on to the consumers. And that would lead to a rise in inflation.

However, bankers like M Sundararajan, chairman, Indian Bank , believe that there should be no pressure on the apex bank to do anything.

"The RBI had indicated that there should be a deceleration in credit in 2006-07 itself. But because, the industry did not respond, it led to an imbalance in the system and thus, a hike in rates," he explains.

But, subsequently, inflation has been brought under control. "Also, deposit rates have been slashed, so a cut in credit rates is already due," adds Sundararajan. And there is good liquidity in the system, thereby making life simpler for bankers.

Optimists like Kumar believe that the RBI is likely to give the added edge by reducing indicative rates either in October or January. And if that happens, it will be great news for the home buyer.

New home inventory glut worsens

The big news in housing this week was the 8.5% drop in new home sales in March 2008, with sales down more than 36% from March 2007. The worse news was a $16,500 (6.8%) drop in new home prices from February. But the news buried a bit deeper and even more troubling is that the inventory of new homes for sale nationally now represents an 11-month supply at the current sales rate.

A couple of points may mitigate the damage. With the individual economic stimulus payments due out starting in May, bills currently in Congress to potentially give home buyers a $7,000-$7,500 tax credit (details still sketchy) and mortgage markets still experiencing difficulties, some buyers may be waiting. Other buyers may be waiting for bargains, after median home prices for new homes rose $28,100 from January to February - sales could rebound at the lower price point in April .

Some buyers may be holding off until the tax credit proposals are firmed up a bit. The version in the House would give a $7,500 tax credit to any first time home buyer for any home purchased; the Senate version would be $7,000, not limited to first time home buyers, but could only be used to purchase a foreclosed home or an unsold new home. Even if neither passes, eliminating the uncertainty could move some buyers off the sidelines.

Mortgage applications jump 15%, mixed signals abound

Mixed signals continue to abound in the US housing market as the National Association of Realtors announced that March pending home sales fell 1% on the same day that the Mortgage Bankers Association announced a 15% jump in mortgage applications and a better than 12% jump in purchase mortgage applications. The increase in mortgage applications highlights the futility of applying a seasonal adjustment to pending home sales, which are influenced by short term cycles of weather and interest rates and short term consumer planning that don’t fit broad seasonal trends. In the case of March sales, buyers had ample reason to put off buying for a couple of months - adding an $1800 tax rebate for a family of four to the down payment fund, a potential tax credit for buying foreclosure properties as early as this summer and temporary turbulence that drove mortgage interest rates up for a few weeks in March and April. Now that those rate problems have resolved themselves with 30-year Fixed Rate Mortgage (FRM) rates below 6% and 15-year FRM rates below 5.5%, buyers are back at the table.

Average Mortgage Rates

30-year FRM: 5.91%, 1.12 points*
15-year FRM: 5.49%, 1.07 points
1-year ARM: 6.77%, 1.35 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

Mortgage Payments Sending You Reeling? Here’s What to Do

The possibility of losing your home because you can’t make the mortgage payments can be terrifying. Perhaps you are one of the many consumers who took out a mortgage that had a fixed rate for the first two or three years and then had an adjustable rate. Or maybe you’re anticipating an adjustment, and want to know what your payments will be and whether you’ll be able to make them. Or maybe you’re having trouble making ends meet because of an unrelated financial crisis.

Regardless of the reason for your mortgage anxiety, the Federal Trade Commission (FTC), the nation’s consumer protection agency, wants you to know how to help save your home, and how to recognize and avoid foreclosure scams.

Know Your Mortgage

Do you know what kind of mortgage you have? Do you know whether your payments are going to increase? If you can’t tell by reading the mortgage documents you received at settlement, contact your loan servicer and ask. A loan servicer is responsible for collecting your monthly loan payments and crediting your account.

Here are some examples of types of mortgages:

• Hybrid Adjustable Rate Mortgages (ARMs): Mortgages that have fixed payments for a few years, and then turn into adjustable loans. Some are called 2/28 or 3/27 hybrid ARMs: the first number refers to the years the loan has a fixed rate and the second number refers to the years the loan has an adjustable rate. Others are 5/1 or 3/1 hybrid ARMs: the first number refers to the years the loan has a fixed rate, and the second number refers to how often the rate changes. In a 3/1 hybrid ARM, for example, the interest rate is fixed for three years, then adjusts every year thereafter.
• ARMs: Mortgages that have adjustable rates from the start, which means your payments change over time.
• Fixed Rate Mortgages: Mortgages where the rate is fixed for the life of the loan; the only change in your payment would result from changes in your taxes and insurance if you have an escrow account with your loan servicer.

If you have a hybrid ARM or an ARM and the payments will increase — and you have trouble making the increased payments, find out if you can refinance to a fixed-rate loan. Review your contract first, checking for prepayment penalties. Many ARMs carry prepayment penalties that force borrowers to come up with thousands of dollars if they decide to refinance within the first few years of the loan. If you’re planning to sell soon after your adjustment, refinancing may not be worth the cost. But if you’re planning to stay in your home for a while, a fixed-rate mortgage might be the way to go. Online calculators can help you determine your costs and payments.

If You Are Behind On Your Payments

If you are having trouble making your payments, contact your loan servicer to discuss your options as early as you can. Most loan servicers are willing to work with customers they believe are acting in good faith, and those who call them early on. The longer you wait to call, the fewer options you will have. After you’ve missed three or four payments and your loan is in default, most loan servicers won’t accept a partial payment of what you owe. They will start foreclosure unless you can come up with the money to cover all your missed payments, plus any late fees.

Avoiding Default and Foreclosure

If you have fallen behind on your payments, consider discussing the following foreclosure prevention options with your loan servicer:

Reinstatement: You pay the loan servicer the entire past-due amount, plus any late fees or penalties, by a date you both agree to. This option may be appropriate if your problem paying your mortgage is temporary.

Repayment plan: Your servicer gives you a fixed amount of time to repay the amount you are behind by adding a portion of what is past due to your regular payment. This option may be appropriate if you’ve missed only a small number of payments.

Forbearance: Your mortgage payments are reduced or suspended for a period you and your servicer agree to. At the end of that time, you resume making your regular payments as well as a lump sum payment or additional partial payments for a number of months to bring the loan current. Forbearance may be an option if your income is reduced temporarily (for example, you are on disability leave from a job, and you expect to go back to your full time position shortly). Forbearance isn’t going to help you if you’re in a home you can’t afford.

Loan modification: You and your loan servicer agree to permanently change one or more of the terms of the mortgage contract to make your payments more manageable for you. Modifications can include lowering the interest rate, extending the term of the loan, or adding missed payments to the loan balance. A loan modification may be necessary if you are facing a long-term reduction in your income.

Before you ask for forbearance or a loan modification, be prepared to show that you are making a good-faith effort to pay your mortgage. For example, if you can show that you’ve reduced other expenses, your loan servicer may be more likely to negotiate with you.

Selling your home: Depending on the real estate market in your area, selling your home may provide the funds you need to pay off your current mortgage debt in full.

Bankruptcy: Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, and can make it difficult to obtain credit, buy another home, get life insurance, or sometimes, even get a job. Still, it is a legal procedure that can offer a fresh start for people who can’t satisfy their debts.

If you and your loan servicer cannot agree on a repayment plan or other remedy, you may want to investigate filing Chapter 13 bankruptcy. If you have a regular income, Chapter 13 may allow you to keep property, like a mortgaged house or car, that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income toward payment of your debts during a three-to-five-year period, rather than surrender the property. After you have made all the payments under the plan, you receive a discharge of certain debts.

To learn more about Chapter 13, visit www.usdoj.gov/ust; it’s the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

If you have a mortgage through the Federal Housing Administration (FHA) or Veterans Administration (VA), you may have other foreclosure alternatives. Contact the FHA (www.fha.gov) or VA (www.homeloans.va.gov) to discuss your options.

Contacting Your Loan Servicer

Before you have any conversation with your loan servicer, prepare. Record your income and expenses, and calculate the equity in your home. To calculate the equity, estimate the market value less the balance of your first and any second mortgage or home equity loan. Then, write down the answers to the following questions:

• What happened to make you miss your mortgage payment(s)? Do you have any documents to back up your explanation for falling behind? How have you tried to resolve the problem?
• Is your problem temporary, long-term, or permanent? What changes in your situation do you see in the short term, and in the long term? What other financial issues may be stopping you from getting back on track with your mortgage?
• What would you like to see happen? Do you want to keep the home? What type of payment arrangement would be feasible for you?

Throughout the foreclosure prevention process:

• Keep notes of all your communications with the servicer, including date and time of contact, the nature of the contact (face-to-face, by phone, email, fax or postal mail), the name of the representative, and the outcome.
• Follow up any oral requests you make with a letter to the servicer. Send your letter by certified mail, “return receipt requested,” so you can document what the servicer received. Keep copies of your letter and any enclosures.
• Meet all deadlines the servicer gives you.
• Stay in your home during the process, since you may not qualify for certain types of assistance if you move out. Renting your home will change it from a primary residence to an investment property. Most likely, it will disqualify you for any additional “workout” assistance from the servicer. If you choose this route, be sure the rental income is enough to help you get and keep your loan current.

Consider Giving Up Your Home Without Foreclosure

Not every situation can be resolved through your loan servicer’s foreclosure prevention programs. If you’re not able to keep your home, or if you don’t want to keep it, consider:

Selling Your House: Your servicers might postpone foreclosure proceedings if you have a pending sales contract or if you put your home on the market. This approach works if proceeds from the sale can pay off the entire loan balance plus the expenses connected to selling the home (for example, real estate agent fees). Such a sale also would allow you to avoid late and legal fees and damage to your credit rating, and protect your equity in the property.

Short Sale: Your servicers may allow you to sell the home yourself before it forecloses on the property, agreeing to forgive any shortfall between the sale price and the mortgage balance. This approach avoids a damaging foreclosure entry on your credit report. You still may face a tax liability on the amount of debt forgiven. Consider consulting a financial advisor, accountant, or attorney for more information.

Deed in Lieu of Foreclosure: You voluntarily transfer your property title to the servicers (with the servicer’s agreement) in exchange for cancellation of the remainder of your debt. Though you lose the home, a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure. You will lose any equity in the property, and you may face an income tax liability on the amount of debt forgiven. A deed in lieu may not be an option for you if other loans or obligations are secured by the property on your home.

Housing and Credit Counseling

You don’t have to go through the foreclosure prevention process alone. A counselor with a housing counseling agency can assess your situation, answer your questions, go over your options, prioritize your debts, and help you prepare for discussions with your loan servicer. Housing counseling services usually are free or low cost.

While some agencies limit their counseling services to homeowners with FHA mortgages, many others offer free help to any homeowner who is having trouble making mortgage payments. Call the local office of the U.S. Department of Housing and Urban Development (www.hud.gov) or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency nearby. Or consider contacting the NeighborWorks® Center for Foreclosure Solutions at 888-995-HOPE or www.nw.org. The Center is an initiative of NeighborWorks America.

Be Alert to Scams

Scam artists follow the headlines, and know there are homeowners falling behind in their mortgage payments or at risk for foreclosure. Their pitches may sound like a way for you to get out from under, but their intentions are as far away from honorable as they can be. They mean to take your money. Among the predatory scams that have been reported are:

• The foreclosure prevention specialist: The “specialist” really is a phony counselor who charges outrageous fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.
• The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the “rescuer” walks off with most or all of the equity.
• The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don’t know they’ve been scammed until they get an eviction notice.

30-Year Mortgage Rates Fall to 2-Year Low

30-Year Mortgage Rates Fall to 2-Year Low - Concerns that a severe housing downturn and prolonged credit crisis could rattle consumer confidence and hurt the broader economy contributed to a sharp drop in mortgage rates this week, according to Freddie Mac. Interest on 30-year fixed loans sank to 5.96 percent from 6.10 percent last week, landing at the lowest point seen since September 2005.

Borrowing costs on 15-year fixed products fell to 5.65 percent from 5.73 percent over the week and five-year adjustable-rate mortgages were down to 5.75 percent from 5.86 percent, but one-year ARMs bucked the southward trend by bumping up to 5.46 percent from 5.43 percent.

The Recent Interest Rate Reduction

The Federal Reserve to lower key short-term interest rates today, the third consecutive meeting since September it has taken such steps. The Federal Reserve's Open Market Committee lowered its target rate for the federal funds rate by 25 basis points, to 4.25 percent. In a related action, the Fed's board of governors approved a 25 -basis-point decrease in the discount rate, to 4.75 percent.

On Sept. 18, similar concerns prompted the Fed to shave 50 basis points off the federal funds and discount rates. When the Fed governors met next, on Oct. 31, they made smaller, 25 basis point reductions in both rates -- the same action taken today.

One member of the committee, Eric Rosengren -- the president of the Federal Reserve Bank of Boston – today argued in favor of lowering the target for the federal funds rate by 50 basis points.

The federal funds rate is the rate banks charge each other for overnight loans. The Fed can influence the rate be easing or constricting the supply of money. The discount rate is what the Federal Reserve charges banks for short-term loans.

In slashing short-term rates at its last three meetings, the Fed is gradually reversing increases to the federal funds rate made during 17 consecutive meetings between 2004 and 2006. Those increases, instituted to cool the pace of economic growth, left the federal funds rate at 5.25 percent.

Interest Rate Report - May

ast Updated: 4/30/2008

Mortgage Rate News

Through the last eight weeks, mortgage interest rates dropped, then remained stable.

Analysis

We delayed our report because we wanted to see the Consumer Confidence Report which comes out on Tuesday and because the full range of National Association of Realtors is missing (naughty naughty! It was actually a week late). We wanted to wait until Thursday when the next mortgage rate survey comes out, but we could not do that.

Oops, Consumer Confidence slipped to a five-year low. The reading is 62.3. The base is 100, from 1985.

Tax rebates have gone out. They are in the bank accounts of some of us. But (and this is a BIG but), we have to spend that money on gas and groceries which are going up at a fantastic rate. Then, before the end of the year, some folks have to buy fancy converter boxes or televisions that get a digital signal. And we owe money to practically everyone.

We aren't getting any free money. "There ain't no such thing as a free lunch (TANSTAAFL)," according to Robert Heinlein, If you're rich, though, the spending does not stop (boats, motorcars, mansions, diamond bracelets...).

Sales of Sport Utility Vehicles (SUVs) were down 28% for the first quarter of the year.

Not counting rental homes, 2.9% of all other homes for sale were vacant in the first quarter. That beat the fourth quarter of 2007 by .!%. To find worse figures, you have to go back to when Eisenhower was president.

New homes sales fell to their lowest rate in almost seventeen years.

Europe expects higher inflation. So does the USA. The EU does not expect a recession this year, but a "global slowdown." The USA is not sure.

Venture capital spending is down. Manufacturing is down. Bear Stearns was rescued, due to over-investment in mortgage backed securities. Fewer borrowers qualify for mortgages. Asia has mounting inflation. There is more. There is much more.

Ben Bernanke (the chairman of the the Federal Reserve Board - and the successor to Alan Greenspan) says a recession is possible. It does not take a genius to see that. Nor does it take a genius to see that the stock market may have hit bottom and is on its way back up, six months (or so) in advance of the real market, as usual.

The problem is inflation is here, too.

Interest Rate Prediction

Fixed rates on mortgages may go down a little, then stabilize. Then they should head up a little.

No one can guarantee economic or interest rate predictions, of course.