Back in the 1980’s, when I was in graduate school, I remember my economics professor comparing the handling of the American economy with navigating a ship through a narrow channel with dangerous rocks on either side. On the starboard side, the rocks represented inflation — runaway prices that can ultimately destroy an economy. On the port side, the rocks represented anemic economic growth — slow consumer spending, high unemployment, and low corporate earnings.

Over the last couple of years the “core” consumer price index (CPI), which excludes volatile food and energy prices, has been hovering around 2.50 percent. But the overall CPI during the same period, has been closer to four percent — a much more uncomfortable number. Although economists like to look at the core rate as the “real” gauge, inflation is inflation to the American consumer. Just because the inflation is coming from “non-core” places (oil prices, the Katrina aftermath, housing prices, Mid-East conflicts, etc.), prices are higher regardless. Can the Fed control these kinds of things by adjusting short term rates? I doubt it. (more…)

search for : economics, economic growth

Hold the fees please. How to save if you’re buying a new home or just refinancing.

With mortgage rates still as low as they are, financing a house is dirt cheap these days, right? Not if you pay a fortune in closing costs. As anyone who has shopped around for a mortgage knows, it’s extremely difficult to compare one lender’s offering to with that of another lender because the up-front fees vary so much and are not guaranteed. Lenders and their venders can, and sometimes do, add or inflate fees in the eleventh hour of a transaction.

If you’re looking into refinancing, the first call you should make is to your existing lender, who already has critical information about you and your house on file, said Keith Gumbinger, vice president for HSH Associates. Since you have an existing relationship, a “streamlined” process might be possible. That can save you a lot of extra paperwork and money on everything from application fees to appraisal fees. (more…)

search for : refinancing, mortgage rates, lender

For most people who fall behind on their mortgage, their first instinct is to avoid all contact with the lender. But that’s a mistake, consumer counselors and others say, because it’s likely those financial problems will only get worse, making it harder to work out the best repayment terms. Many borrowers don’t realize that lenders are as eager as homeowners to avoid foreclosures, which cost lenders $40,000 to $60,000 per house, according to industry estimates. Most lenders offer “workout” programs where they work with the borrower on repayment plans that meet the borrower’s financial circumstances.

But plenty of borrowers — about half, according to some focus-group research — are afraid that divulging their money woes to their lender will prompt the lender to accelerate the foreclosure process. That fear is not surprising: Often, when borrowers fall into financial difficulty, their first contact with the lender may encourage them to run in the other direction the next time the phone rings. That’s because many lenders, if a borrower is 30 to 60 days’ late, initially have the collections department call. “A collection agent’s job is really to get you to pay. They want to know when you’re going to pay, how much you’re going to pay, how you’re going to pay,” said J. Michael Collins, a principal at PolicyLab Consulting Group, LLC, a market-research firm focusing on consumers’ financial decisions, in Ithaca, N.Y. “It’s a very … aggressive approach.” (more…)

search for : lender, consumer counselor, borrower

Do home buyers with reduced-payment option adjustable rate mortgages really understand the big monthly cost increases headed their way? Major lenders who actively pushed option ARMs during the heyday housing boom years have now scaled back, and at least one is concerned enough about the coming payment “reset” dates that it has sent letters directly to thousands of borrowers.

Many option ARMs are scheduled to reset to higher payments this year and next — an estimated half trillion dollars worth during 2006 alone, according to mortgage giant Freddie Mac. Federal and state financial institution regulators, along with some prominent lenders, worry that not all borrowers now making minimum payments are aware of the size of the monthly payment increases they may soon face. Worse yet, some of these loans were made to people who were on the financial bubble to begin with: their credit was stretched to make even the minimum payments necessary to afford the house they purchased. (more…)

search for : reduced-payment option, adjustable rate mortgage, ARM, housing boom

Almost nine of 10 homeowners who refinanced during the second quarter of this year cashed out additional money — often tens of thousands of dollars — according to mortgage investment giant Freddie Mac. The 88 percent cash-out refinancing rate was close to the all-time record and could surpass it later this year.

Cash-outs may be booming, but they are not a new phenomenon. They’ve existed for years as a financial tool to extract equity tied up in real estate and convert it to immediately spendable money. During the refinancing boom of 2003 and 2004, for example, anywhere from a third to half of all refinancers pulled out additional cash. However, the overwhelming majority of borrowers during the go-go refinancing years chose traditional rate-reduction replacement mortgages in which new balances approximated the old balances and the new monthly payments were lower. (more…)

search for : homeowners, Freddie Mac, refinancing

Mortgage demand is down and delinquencies and foreclosures are up, but just as the housing market bust is more of a soft landing, major financial institutions and most households aren’t likely to crumble under the weight of risky loans. While the number of riskier loans has risen in the past few years, lenders still hold more traditional mortgages than subprime and “non-traditional” mortgages.

Most homeowners, however, should weather even a nasty housing market storm. The Federal Reserve’s July 2006 Senior Loan Officer Opinion Survey on Bank Lending Practices, defines subprime mortgages as loans made to borrowers with weakened credit histories stemming from payment delinquencies, charge-offs, judgments, or bankruptcies; loans made to borrowers with reduced repayment capacity as measured by credit scores or debt-to-income ratios; and loans to borrowers with incomplete credit histories. The Feds consider as non-traditional mortgages, adjustable rate mortgages (ARMs) with multiple payment options; interest-only mortgages; mortgages with limited income verification; and mortgages secured by non-owner-occupied properties, among others. (more…)

search for : Mortgage, foreclosures, housing market, Federal Reserve, payment delinquencies, charge-offs, judgments, credit score, debt-to-income ratio, adjustable rate mortgage

Almost nine out of 10 homeowners who refinanced during the second quarter of this year “cashed out” additional money — often tens of thousands of dollars and more — according to mortgage investment giant Freddie Mac. The 88 percent cash-out refi rate was close to the all-time record, and could surpass it later this year.

During the refi boom of 2003 and 2004, for example, anywhere from a third to a half of all refinancers pulled out some additional cash. However, the overwhelming majority of borrowers during the go-go refi years chose traditional rate-reduction replacement mortgages where the new balance approximated the old balance, and the new monthly payment was lower than the old. Scroll ahead to mid-2006: Short-term interest rates no longer hover near 4 percent. Thirty-year fixed-rate first mortgages no longer are in the 5s. Now the prime rate is 8 1/4 percent and could move higher. Standard 30-year mortgage rates are nudging 7 percent. Home equity credit lines are slumping as their adjustable rates — typically set one or more points above the bank prime — start racking up bigger monthly costs. (more…)

Increase for the second consecutive week, according to industry trade group; refinancing demand at highest point since March.

U.S. mortgage applications rose for a second consecutive week as home refinancing demand reached its highest since March, an industry trade group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, last week increased 1.4 percent to 561.2 - its highest level in 11 weeks. Fueling the rise was a 4.6 percent jump in the MBA’s seasonally adjusted refinancing index to 1,640.8, its strongest level since the end of March. The refinance share of mortgage applications also increased to 39.6 percent in the latest MBA weekly survey period, which ended Aug. 11. In the prior week the refinance share was 38.0 percent. Borrowing costs on 30-year fixed-rate mortgages, excluding fees, last week averaged 6.54 percent, up 0.09 percentage point from the previous week when they sunk to their lowest level since March. The rates hit a four-year high of 6.86 percent last June. (more…)

search for : mortgage applications, home refinancing, Mortgage Bankers Association, mortgage application activity, 0-year fixed-rate mortgages