The Federal Reserve is going to extraordinary lengths to push down long-term interest rates, including home-mortgage rates. But those hoping mortgage rates will fall sharply from current levels, already historically low, may be disappointed.

Mortgage firms Thursday were quoting rates averaging 4.875% on 30-year fixed-rate mortgages, according to Zillow.com, a real-estate information service. That is down from more than 5% two days ago and about 6% in mid-November. But further big declines will be hard to achieve, partly because the mortgage-lending market has grown less competitive in the past year as hundreds of small banks and independent mortgage lenders have collapsed. The big banks that dominate the market are eager to boost their profits margins, not give deeper bargains to consumers.

Many analysts believe rates for borrowers with the strongest credit are likely to be in a range of roughly 4.75% to 5.0% for the rest of this year.  Others say that is too optimistic. Assuming no big change in government policy, Walter Schmidt, an analyst at FTN Financial Capital Markets, sees a range of 4.75% to 5.5% for most of this year.  The Fed began driving mortgage rates down in late November when it announced plans to buy as much as $500 billion of mortgage securities this year. The Fed expanded that program, saying it will spend as much as $1.25 trillion on such securities in 2009. That is enough to provide funding for more than half of all home-mortgage loans likely to be made in the U.S. this year.  The Fed also is buying long-term Treasury bonds to drive down rates on those securities, whose pricing affects mortgage rates.

By historical standards, rates look incredibly low. Until recently, 30-year fixed-rate mortgages hadn’t been below 5% since the 1950s. For the past couple of months, rates have been bobbing between about 5% and 5.25%.

One reason mortgage rates often tick back up after a decline is that a rush of people seeking to refinance quickly causes backlogs at lenders, which frequently don’t have enough employees to process all of the applications. 

The situation highlights a conundrum for the government. It wants low rates to spur the housing market, but also wants the banks to make profits on loans so they can return to financial health.

Many of the small mortgage banks that remain are struggling. Mortgage banks, often small, family-owned companies, aren’t licensed to take deposits and so lack that source of money for their loans. Instead, they typically borrow money for short periods from so-called warehouse lenders. They use this short-term credit to make loans to their customers and then pay back the warehouse lenders after selling the loans to bigger banks or to government-backed mortgage investors Fannie Mae and Freddie Mac.  But this warehouse credit is much harder to obtain than it was a year or two ago because many of the big banks and Wall Street firms that used to provide it have exited that business.

Despite these constraints, the Fed’s action is “going to be a plus” for the housing market, says Thomas Lawler, an economist in Leesburg, Va. Lower rates make it more likely that home prices will hit bottom in many parts of the country later this year, Mr. Lawler says. The recovery, though, is likely to be gradual, partly because rising unemployment reduces housing demand.

Here at PHH Home Loans it continues to be business as usual.  Perhaps, because that statement is so ordinary it gets overlooked.  I would like to give you the facts so that you can better know our capability and commitment.

First, frankly we have access to more funds to lend than we can actually use!  Our warehouse facility has a $350 Million capacity.  I would say we have access to plenty of credit.

Second, mortgage product is widely available.  So far this year we have sold loans to 21 different state and national investors.  Within our investor group we still have more than 450 products to offer.  Furthermore, we constantly seek out new investors and, just as importantly, they seek us out to sell their product!  It is important to remember that we have the best mortgage customers around, the purchase money borrowers who come through our doors every day.  Our investors recognize this fact and want to do business with us.

Third, borrowers can still qualify for a loan.  It is absolutely true that today’s underwriting standards are now stricter than those of the recent past.  However, that is a good thing for our industry.  Borrowers should be able to document their income, their assets and prove that they are credit worthy.  Old fashioned?  Perhaps, but it is certainly prudent.  Furthermore, PHH Home Loans was never a major player in the sub-prime market.  In 2005 when things were getting rather wild and crazy PHH Home Loans did just 3.5% of our closed loan volume in this category.  It was never our stock in trade and this has served us, and our parent company, quite well.  The marketplace is littered with the wreckage of companies who choose the sub-prime path.

Housing affordability is at record highs.   It will certainly do the consumer little good to hold out for that last $5,000.00 on the sales price and then have to pay a half percent or more on their interest rate for the next 30 years. 

Right now may well be the best time to buy!

If you or your clients have questions about the state of home financing, please call me.  I will be happy to answer your questions.

Betsy E. Hanrahan
VP Residential Lending
PHH Home Loans
552 Lincoln Ave.
Winnetka, IL 60093
direct   847-897-1021
fax       847-897-1021
betsy.hanrahan@phhonline.com

Making Dreams Come Home

As a bankruptcy attorney, I have a special interest in the overlapping issues with bankruptcy and divorce. So often, those two problems go hand in hand. Most people hate the thought of going through a bankruptcy proceeding, but in fact the process can really help some people get rid of overwhelming debts from their past and move forward toward a brighter future. Divorcing couples with debt problems may benefit from doing a joint bankruptcy case before a divorce case. This can save money and much anguish fighting over debts that the couple will have no ability to pay once they live in separate households.

Also, often parties after a divorce find themselves in the unfortunate position of being unable to manage the expenses of separate households. Divorce often leaves women financially devastated and they may need to look at various alternatives to resolving debt problems. If one spouse files bankruptcy, this may force the other spouse (or ex spouse) to do the same, because the creditors are likely to pursue the nonfiling spouse for payment of any joint debt.

The good news is that since the bankruptcy laws changed in 2005, debts for support and divorce related property settlement debts cannot be discharged in a Chapter 7 bankruptcy case. This means that it is much more difficult for a person to eliminate debts to a former spouse by filing bankruptcy.

Most bankruptcy attorneys offer free consultations. It is important when choosing an attorney to find someone that is compassionate, available, and very knowledgeable of the particular area of the law.

Diane Brazen Gordon
Law Office of Diane Brazen Gordon

What a year this has been and it’s only the 9^th of March! We had a huge national party on Inauguration Day, a day that filled many hearts with hope. Since then we have watched the economy and the stock market continue to founder. We all know someone who has been laid off, have seen houses in our neighborhoods under foreclosure, and watched our investments shrink. In my accounting practice, I help business owners and individuals on a daily basis as they struggle with these difficult economic forces. On the positive side, we have also seen people reach out to help others, even taking pay cuts so that co-workers won’t be laid off. A large majority of the country remains united behind the new administration, hopeful that their proposed strategies will be successful.

One of the strategies to stimulate the economy is the American Recovery and Reinvestment Act of 2009. This Bill provides aid to distressed states and individuals, funds to improve the nation’s infrastructure, and $300 billion in tax breaks for individuals and businesses, some of which I am listing here:

• A refundable tax credit of $400 ($800 for married couples) phased out at higher income levels. Instead of stimulus checks, payroll withholding will be adjusted to boost paychecks and get money into the economy more quickly.
• $250 economic recovery payment for adults eligible for social security and veterans benefits. Checks will be mailed to these individuals.
• Sales tax deduction on new vehicles purchased by 12/31/09. Higher Education credit of up to $2500, phased out at $90,000 of income for singles and $180,000 for married couples.
• Up to an $8000 tax credit for first time homebuyers buying a house by 11/30/09.
• Tax free treatment of $2400 of unemployment benefits and a Cobra insurance subsidy for eligible individuals.

It has been said that every problem offers opportunities. Now is the time for us to face our fears, make the hard decisions, and grasp those opportunities. In the long history of our country, there have been many difficult periods and we have always emerged stronger and more united. As President Obama said, “This is our time.” Let’s make the most of it.

Jean M. Diamond CPA, Ltd.