As terrible as it is to lose your house to foreclosure, at least it's a relief to put your biggest financial headache behind you, right?
Wrong.
Former homeowners may still be on the hook if there's a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these "deficiency judgments" are ticking time bombs that can explode years after borrowers lose their homes.
It can even happen to people who got their bank to approve them selling their home for less than it is worth.
Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.
"My understanding was that the deficiency was negotiated away," she said. "Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it."
Many homeowners are now in the same boat. And not just those who took out bigger loans than they could afford or who did so called "liar loans" where they didn't have to verify their income.
Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances -- like unemployment or a job transfer -- can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments.
"After the banks foreclose, it's very common now to have large deficiencies with houses not worth the balances owed," said Don Lampe, a North Carolina real estate attorney.
Lenders mostly declined comment. Although Corey's lender, BB&T did indicate it was pursuing more deficiency judgments.
"They follow the rise and fall of foreclosures," said the spokeswoman, who would not discuss Corey's account.
Can they come after you?
Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there's a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them.
"Once they have a judgment, they can pursue you anywhere," said Richard Zaretsky, a board-certified real estate attorney in West Palm Beach, Fla. "They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail."
In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms.
Some states, such as California, are "non-recourse" and don't allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it may be subject to claims.
Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank.
But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation.
"People shouldn't have a false sense of security that a deficiency judgment may not be later sought," Zaretsky said.
He expects many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount.
"The parties who bought those notes wouldn't have paid money for them unless they had the intention of acting," Zaretsky said.
Ticking time bomb
What can be scary is that the judgments don't have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest.
It doesn't have to be a large amount of debt for a lender or collection agency to come after borrowers. Richard Varno and his wife short sold their Nashville home back in 2004 after he lost his job.
It wasn't until 2008, when the second lien holder asked him for $25,000, that he realized he still was liable.
"I told them, 'Hey, you guys released the title,'" he said. "As far as I know, I'm off the hook."
He wasn't. Releasing title does not necessarily end the debt. It's complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the loan.
Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale.
Zaretsky had one client who was so relieved to have arranged a short sale that he signed every paper his real estate agent shoved at him, even a confession that clearly stated he still owed the debt.
"He had no idea what he was doing," said Zaretsky. "All the lender had to do was go to court to convert the confession into a deficiency judgment."
Lenders are also very inconsistent. One of Zaretsky's short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender always reserves the right to pursue the deficiency.
Strategic defaults
Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky.
"Banks are pulling credit reports to see if it's a strategic default," he said. "If you're behind on all your other payments, you're okay. But if you're not, they'll come after you."
If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu.
"We don't favor any short-sale contracts that leave any deficiency that can be pursued," he said.
Robinson himself knows what can happen. He paid off a deficiency after his own New Jersey house went through foreclosure 11 years ago.
Are Bi-Weekly Mortgages All They’re Cut Out to Be?
You may have heard of bi-weekly mortgages that are supposed to save thousands of dollars over the life of your loan. But are bi-weekly mortgages all they’re cut out to be? What’s surprising is that this type of structured loan actually can save you money.
Structuring your mortgage where you’re paying two half-payments instead of one large payment a month means you’ll pay more toward principle with each payment. Consider this: You would normally pay a total of 12 payments over the course of the year. If you’re paying $1,000 per month that means you’ll pay $12,000 toward your mortgage (well, principle for the first portion of your loan).
With a bi-weekly payment plan, you’ll actually be paying more each year toward your loan. There are 52 weeks in a year, so making payments every two weeks means you’ll end up paying 26 half-payments per year. This extra monthly payment you can pay directly to principle which can reduce the length of your loan, depending upon your interest rate, sometimes from 30 years to less than 10.
Your mortgage lender can set this type of payment plan but don’t expect it to be cheap. You’ll want to keep in mind that you’ll be paying out $13,000 toward your loan each year which will be over $500 per payment, along with a little extra for transferring the funds if you have it taken out directly each time.
Half-payments through your mortgage company aren’t the only option. You can also set up your own plan by dividing your payment by 12 and adding that amount to each payment. Again, if your payment is $1,000 that means you’d send them $1,083 each month. This would mean you’re still making an extra payment each month. You can also request that anything paid over and above your normal payment be applied directly to principle.
Another thing you can do is make an extra whole payment each year if you normally receive a tax refund or lump sum bonus. By doing this yourself, you’re saving start up or transaction fees associated with payments set up by your mortgage. Paying bi-weekly payments you can save $40,000 in interest on a $150,000 mortgage.If you think bi-weekly payments might be something you’d like to use when you purchase a home, this requires a great deal of self-discipline to maintain over the course of your loan. You may also want to reconsider if you’re not going to stay in the home for the duration of the loan. Making bi-weekly payments in this case may not be considered the best use of your money.
Buying a new home is exciting but there are many things to consider. You may be considering bi-weekly payments, but are bi-weekly mortgages all they’re cut out to be? Depending upon your situation they may be a good choice for you. Remember, however, this type of arrangement takes discipline.
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Quote of the week. “We are happy when we are growing.” – William Butler Yeats
Fed: “economic activity is leveling out”. Does that sound mildly bullish? It doesn’t seem bearish. In addition to that pronouncement, last week’s Federal Reserve policy statement contained the opinion that inflation will be “subdued for some time” and said that the key interest rate will remain at “exceptionally low levels” for the near future. In another hopeful sign, it said it would end its emergency program to buy $300 billion worth of Treasuries in October.1
Surprise drop in confidence. Consumer confidence, that is. The August Reuters/University of Michigan consumer sentiment survey came in at 63.2, down from 66.0 in July and way below the 69.0 forecast by economists polled by MarketWatch. The August number is the lowest since March.2
Friday reports raise hopes. Countering the consumer sentiment figures, we got better news at the end of last week. Industrial output rose 0.5% for July – the first increase in nine months. Consumer prices did not rise - the Consumer Price Index was flat for July, after gaining 0.7% in June. Consumer prices were down 2.1% from 2008 levels.3,4
Refinancing Your Mortgage?
Maximize the Tax Breaks
Interest rates may be falling slowly, but they are falling, as the Federal Reserve seeks to ease credit. As of this writing, the average rate on a 30-year fixed-rate mortgage is below 6%, according to Freddie Mac.
As recently as July 2007, the average rate was 6.7%. Therefore, you might want to refinance your mortgage to save on interest expenses.
Payoff for good behavior: Today, lenders are penalizing borrowers with subpar credit scores by making them pay higher interest rates. Conversely, borrowers with good scores pay lower rates.
Example: According to Fair Isaac, developer of the FICO credit score used by most lenders, someone with a 680 credit score might pay 6.063% for a 30-year loan. With a 720 score (around the national median), you would likely pay 5.8%, and 5.6% with a superior 760 score.
You can purchase your credit score at myFICO.com (www.myfico.com).
Bottom line: If your credit score has improved since you took out your mortgage, perhaps because late mortgage or late credit card payments from prior years no longer count in your score, you might be able to trim your costs by refinancing now.
Tax Tactics
If you’re refinancing your mortgage, knowing the tax rules can help you make the most of available tax deductions.
Strategy: To be sure that all of your interest will be deductible, refinance with a dollar-for-dollar replacement loan.
Example: Your current loan balance is $200,000 on a 6.7% loan. If you refinance with a $200,000, 5.7% loan, all of the interest will be tax deductible as long as the total of your home loans is $1 million or less.
Cashing out: Even after the recent slump in home prices, many houses are still worth far more than the outstanding balances on their mortgages. In such cases, home owners often refinance for larger amounts, pulling out cash.
Example: Your home is appraised at $300,000, and your current loan balance is $200,000. You find a lender willing to provide you with an 80% loan-to-value mortgage, so you borrow $240,000.
Thus, you pay off the old $200,000 loan and pocket $40,000.
Strategy: The best time to get a cash-out mortgage is when you’re planning an addition to your home, or if you plan a substantial renovation. If you spend the cash from the home loan in this manner, all the interest on the refinanced loan will be deductible.
If you don’t use any or all of the cash for home improvement, the excess will be considered home-equity debt.
Example: You refinance a $200,000 loan with a $240,000 loan, as above, and spend $20,000 putting in a new bathroom. You use the other $20,000 to buy a car.
Result: Of your new loan, $220,000 is considered "home-acquisition debt," so interest on this amount is deductible. The other $20,000 is considered "home-equity debt," which falls under different rules.
How it works: The interest on home-equity debt of $100,000 or less is deductible no matter how it’s spent. If you use the $20,000 from your cash-out mortgage to buy a car, the interest on that $20,000 probably will be fully deductible (as long you don’t owe more than $80,000 on a home-equity loan or line of credit, which would push you over the $100,000 deductibility threshold).
Trap: For home-equity debt to be fully deductible, the total mortgage debt on the house cannot exceed its value.
In the above example, where the home is appraised at $300,000 and home-acquisition debt after refinancing is $220,000, interest on only $80,000 of home-equity debt will be deductible.
Caution: Be especially careful about using cash-out mortgage money for expenses other than home improvements if you must pay the alternative minimum tax (AMT).
Why: If you are subject to the AMT, home-equity debt is subject to the same $100,000 limit for deducting the interest. However, the deduction is available only if the money is used for home improvement.
If you are subject to the AMT and use home-equity debt to pay off consumer debt, buy a boat, etc., you can’t take a deduction for the interest.
ahead on points
When you refinance a mortgage, you may pay "points" up front.
Example: You refinance a $200,000 loan and pay two points (2%), or $4,000. Paying points will reduce the interest on a loan, so it may be worthwhile if you’ll be in the house for at least several years.
Tax treatment: When a mortgage is refinanced, points you pay can be deducted over the life of the loan.
Example: You pay $4,000 in points for a 30-year (360-month) loan. Every month that this loan is outstanding, you can deduct $11.
Payoff: If the loan is paid off early, all of the not-yet-deducted points can be deducted at once. This might be the case when the house is sold or when the refinanced loan is refinanced once more.
In the case of a re-refinance, the old points can be deducted immediately and you can begin a monthly schedule for deducting points on the new loan.
Exception: If you refinance with the same lender, you can’t deduct the old points. Instead, those points are folded into the new point-deduction schedule.
Example: You have $3,000 worth of nondeducted points when you refinance with the same lender and pay $4,000 in points on the new loan.
Now you have $7,000 in points to deduct. On a 30-year loan, you would deduct $19 ($7,000 divided by 360) each month.
Loophole: If you use a cash-out mortgage and use some of the proceeds to improve your principal residence, a corresponding portion of the points can be deducted up front.
Example: You refinance a loan secured by your principal residence, borrowing $240,000 and paying $4,800 in points. Of the $240,000 that you borrow, $40,000 (one-sixth) is used for home improvements.
Result: You can deduct $800 (one-sixth of $4,800) immediately. The other $4,000 paid for points can be written off over 360 months (30 years).
However, if the refinancing and home improvements were done on a second home, the entire $4,800 would have to be written off over the life of the loan.
In all cases, you take deductions for points paid on Schedule A of your tax return -- as an interest expense -- so the tax break is available only if you itemize deductions.
Source: BottomLineSecrets, Diane Kennedy, CPA, TaxLoopholes, LLC
By Maria Patterson
Harris survey shows 55% of U.S. adults would consider buying foreclosed home
RISMEDIA, May 21, 2009-According to the results of a new survey from Harris Interactive, there is a notable gain in consumers’ willingness to buy foreclosed properties, with 55% of U.S. adults indicating that they are at least somewhat likely to consider purchasing a foreclosed home in the future, compared to the 47% of U.S. adults who indicated the same in November 2008. The tracking survey was conducted on behalf of national real estate search engine, Trulia.com, and RealtyTrac, an online marketplace for foreclosure properties.
“Foreclosures are at the heart of the housing crisis and monitoring consumer attitudes toward foreclosures is extremely relevant,” explained Pete Flint, co-founder and CEO of Trulia. “A lot of foreclosure inventory is being taken off the market. The results of this survey show that this is clearly good news for the economy.”
Flint ads that about one quarter of all homes on the market, have witnessed a price cut at least once.
According to the survey, in the current market, U.S. adults believe foreclosed homes are an even greater bargain opportunity than before, with 40% expecting to pay at least 50% less for a foreclosed home, compared to only 31% of U.S. adults surveyed in November 2008 who expected that type of discount. This could explain why site traffic is peaking at RealtyTrac.
“In some cases, people are overestimating what they might expect in the form of a discount on a foreclosure property,” said Rick Sharga, senior vice president of RealtyTrac. “There is a discount percentage of about 31% nationally, but these are national numbers that will vary dramatically from market to market.” In San Bernadino, California, for example, some assets are currently selling at 20% of their original sales price, explained Sharga, who added that well over half of what’s moving on today’s market is some sort of distressed asset.
Survey results also revealed that first-time homebuyers represent the group most interested in purchasing foreclosure property. Two-thirds of U.S. adults between the ages 18-44 (66%)-comprised largely of first-time homebuyers-would consider purchasing a foreclosed home, compared to a little more than one third of those ages 55 and older (38%). Respondents aged 45-54 fell in between, with 53% indicating that they would be at least somewhat likely to consider a foreclosed property.
“First-time homebuyers are a big part of the (foreclosure) market,” said Sharga. “Probably between 50 and 60 percent of foreclosure sales are going to first-time homebuyers; another 30 percent is probably going to investors who are reselling them at another discount or hanging onto them as rental properties. Most of the financing for foreclosures is cash from investors and FHA loans for first-time homebuyers.”
Although survey results indicate that 85% of U.S. adults are concerned with the negative aspects of buying a foreclosure, with 71% citing hidden costs as their top concern, most people are “still underestimating the price it will take to repair the home,” says Sharga.
The May 2009 survey also found that 74% of U.S. adults familiar with President Barack Obama’s Mortgage Relief Program are at least somewhat confident it will give homeowners the incentive to renegotiate with mortgage lenders in order to prevent their homes from going into foreclosure.
“The government is trying to take action,” says Sharga. “The Obama plan might not be perfect, but it’s the most comprehensive plan to date.” Sharga adds that the administration’s recently introduced plans to streamline the short sale process and encourage deeds-in-lieu are also signs that the government is “looking at more creative ways to address the problem.”
While Flint and Sharga agree that there is a long road ahead toward full recovery in the housing market, the survey’s results are promising.
“Across the US, 24 percent of existing homes for sale on the market have seen at least one price reduction in order to stay competitive, creating a tremendous opportunity for consumers to buy homes at significantly lower prices,” said Flint. “Consumers are bargain hunting; they’re aware of the changes in affordability. The bad news is, we don’t quite see the bottom yet; the good news is, things are getting less worse.”
Other survey results include:
• Current renters (68%) are more likely to consider purchasing foreclosed homes than current homeowners (49%).• U.S. adults with children under 18 living in their household also show an increased likelihood to consider foreclosure properties, with 66% indicating they would be at least somewhat likely to purchase one, compared to 49% of those without children under 18 in the household.• U.S. adults aged 18-34 familiar with the program have the highest confidence level in the Mortgage Relief Program; 84% are least somewhat confident in the plan, compared to 71% of those aged 35-44, 69% of those aged 45-54, and 71% of those aged 55+.• Women familiar with the program are more likely to be at least somewhat confident in its ability to give homeowners the incentive to renegotiate with their mortgage lender in order to prevent their home from going into foreclosure than men familiar with the program (79% vs. 69%, respectively).
*This May 2009 survey was conducted online within the United States by Harris Interactive via its QuickQuery(SM) online omnibus service on behalf of Trulia between May 1-5, 2009 among 2,397 U.S. adults aged 18 years and older. Results were weighted to be representative of the total U.S. adult population on the basis of region, age within gender, education, household income, race/ethnicity, and propensity to be online.
For more information about Trulia, please visit http://www.trulia.com/. For more information about RealtyTrac and to access its nationwide foreclosure data, please visit http://www.realtytrac.com/.
FHA's Energy Efficient Mortgage program (EEM) helps you, the future homeowner save money on utility bills by enabling you to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA insured home purchase or refinancing mortgage (1)
Type of Mortgage:
EEM is one of many FHA programs that insure mortgage loans--and thus encourage lenders to make mortgage credit available to borrowers who would not otherwise qualify for conventional loans on affordable terms (such as first time homebuyers) and to residents of disadvantaged neighborhoods (where mortgages may be hard to get). Borrowers who obtain FHA's popular Section 203(b) Mortgage Insurance for One to Four Family Homes are eligible for approximately 97 percent financing, and are able to fold closing costs and the upfront mortgage insurance premium into the mortgage. The borrower must also pay an annual premium (2).
EEM can also be used with the FHA Section 203(k) rehabilitation program and generally follows that program's financing guidelines. For energy efficient housing rehabilitation activities that do not also require buying or refinancing the property, borrowers may also consider HUD's Title I Home Improvement Loan program (3).
For an Energy Efficient Home Owner Guide (Click Here).
Your Mortgage Advisor For Life,
Sylvester 'wojo' Wojtowicz
623-225-8727
USDA Changes Make "Rural" Homes More Accessible
Zero-down loan programs are few and far between these days, but one that remains available might be of interest to you – especially given some changes that make it more accessible.
USDA Guaranteed Rural Development loans offer 100% financing with no monthly Private Mortgage Insurance. Seriously, I said NO monthly PMI. While there are some geographic limitations for this program, if you are interested in eligible properties, you should take notice.
Income restrictions for this program are based on the number of people living in your household, however these limits were loosened beginning April 20, 2009, which means more people may now qualify and be able to afford higher value homes under this program.
Previously, the income limits were based on the exact number of people living in the home. For example, the limit for two people was different from the limit for one person; the limit for three people was different from the limit for two people, etc.
As of April 20, the household income limitations are grouped into two categories: 1-4 Person Households and 5-8 Person Households. This is great news! It means that higher income earners with fewer people in the household may be more likely to qualify.
In non high-cost counties, where 1-4 people reside in a home, the income limit will now be $70,750. In homes where 5-8 people reside, the limit is $93,400. While these figures serve as a guide, there are certain situations in which people can earn more and still qualify.
Now just because you see the word "rural" in the program name, it doesn't mean we're talking farmland here. No, you don't have to raise cattle or chickens to qualify. Rural generally is defined as areas that are not densely populated and have fewer neighborhoods – but you might be surprised at how many neighborhoods qualify. To check eligibility on a property you may be interested in, (click here) email me with this subject: Is this property eligible for USDA Guaranteed Rural Housing financing?
I am very excited about what this can represent to you. More buyers will have the ability to buy a home without a down payment and that could be you. Also, when it comes to USDA Rural Housing loans, the seller can pay closing costs up to 6%.
When you combine these benefits with the available tax credit of up to $8,000 for eligible first time home buyers, buying that
"house in the country" – or even the suburbs – is suddenly a lot easier.
To learn more about how this program, give me a call. This is a great opportunity and I hope you can take advantage of it.
Sincerely,
Sylvester Wojo Wojtowicz
"Your Mortgage Advisor For Life"
New $8,000 Tax Credit for First-time Home Buyers Expires on December 1, 2009
The $8,000 tax credit is available for qualifying home purchases made from Jan. 1, 2009, until Dec. 1, 2009. THIS IS NOT A TYPO. To receive the credit you must purchase a qualified home before December 1st, 2009 – not the end of the year.
Great news for first-time home buyers in 2009! The stimulus plan that President Obama signed into law contains a new $8,000 tax credit for qualified first-time home buyers. And, unlike the $7,500 tax credit from last year, this credit does NOT have to be repaid to the government, as long as you stay in the home for at least 36 months after the purchase date.
Remember, a tax credit is much more valuable than a tax deduction. A tax credit reduces dollar for dollar the amount of tax you owe. A deduction merely reduces the amount of your income that is taxable. This means the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.
Who?
First-time buyers or anyone who hasn't owned a home in the 3 years prior to a purchase of a primary residence may qualify for a tax credit of up to 10% of the purchase price or $8,000, whichever is less. To qualify for the full credit, the buyer's modified adjusted gross income must be less than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. Partial credit is proportionally reduced for incomes under $95,000 (single) or $170,000 (married).
For married taxpayers, the homeownership history of both the home buyer and his/her spouse are taken into account. This means if you or your spouse has owned a principal residence in the last 3 years, neither you nor your spouse qualifies for the credit.
What?
According to the IRS, a primary residence is the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence. If you constructed your main home, you are treated as having purchased it on the date you first occupied it.
When?
Closed by December 1, 2009!
How?
Unfortunately, you can NOT use the credit as a down payment. To receive the credit, you must purchase a qualified home first and then claim it on either your 2008 or 2009 taxes. If you make a qualified purchase after April 15, or after having already filed your 2008 taxes, you and your tax professional can submit an amendment to your return. To claim the credit, use form 5405.
Why?
The current combination of lower home prices and lower interest rates makes for an amazing opportunity to buy real estate. Add to that this $8,000 gift from the government, and renting a home just doesn't make much sense. If you or someone you know is ready to stop paying the landlord's mortgage and start building equity in your own home, give us a call. We'll run the numbers and see what makes sense for your individual financial needs.
888-397-1777
Buying a Home? New Appraisal Rules Could Impact You
In the last several years, significant changes have impacted financing for residential real estate. The issue I would like to bring to your attention today could impact the value that will be used to underwrite your loan.
The Home Valuation Code of Conduct (HVCC), effective May 1, 2009, governs the way in which appraisals must be ordered for all residential real estate transactions, where the loans are sold to Fannie Mae and Freddie Mac. The purpose of this new regulation is to ensure that the value of the home - on which a mortgage is being issued - is arrived at both independently and objectively.
While I have traditionally been able to order appraisals directly from local appraisers whom I know are familiar with the neighborhood or region, this legislation will prohibit this practice and will instead randomly assign an appraiser, potentially to someone not in the immediate area. The new legislation also eliminates my ability to discuss the property with the appraiser.
As a result, the task of providing information that will help the appraiser arrive at an accurate value now falls upon the seller and the real estate agents involved. While your real estate agent may already be providing this assistance, I thought it would be appropriate to stress how important this becomes in light of HVCC.
If any issues occur in arriving at a fair value for your home, I will work with you to resolve them. While I don't expect any problems, being prepared is always a best practice.
Mortgage rates are still holding near historical lows. The reason for their recent narrow range is that the outlook for two of the most primary influences on mortgage rates, inflation and demand. Short-term inflation concerns are staying extremely low, and regular Fed purchases of mortgage-backed securities (MBS), although down a little this week, are still sizeable
The two big monthly inflation reports that affect interest rates are:
1. Consumer Price Index (CPI) March CPI dropped slightly from February, compared to the consensus forecast for a small increase, and fell at a -0.4% annual rate. This was the first annual decline in CPI since 1955. Core CPI, which excludes the food and energy components, rose at a modest 1.8% annual rate. (1)
2. Producer Price Index (PPI). PPI showed tame results as well. Overall, inflation is low, and the current economic weakness provides little pressure for it to increase. (2)
However, when investors begin to believe that the economy is gaining strength, inflation expectations may move higher. Statements from the Fed released during the week were generally more optimistic than the consensus view about how soon this will take place. The Fed's Beige Book provided a degree of hope that the economy may be near its bottom, meaning that conditions may not get much worse. Fed Chief Bernanke stated that there have been "tentative signs" that the economic decline may be slowing, while the Fed's Lockhart forecasted that the recession will end during the second half of 2009. When solid signs emerge to support a turnaround, it's likely that the inflation outlook will increase, which may push mortgage rates higher. (3)
I hope this helps you to realize the importance of taking advantage of the market and either refinancing your home or purchasing that first home before the interest rates go up.
Yours truly,
Sylvester ‘Wojo’ Wojtowicz
“Your Mortgage Advisor For Life”
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