LOW rates!

Rates Hit the Lowest Point of My Lifetime

Friday, mortgage rates dropped to the low point of our generation with the 30 year fixed hitting 4.25% in the morning before rising by day's end back up to 4.625% where it stands today. Rates rose Friday afternoon out of sheer reaction to how many people locked in to rates in the morning. These dramatically low rates are the reaction of the following series of events that occurred earlier in the week:

1. Tuesday's very favorable CPI inflation report showed prices dropping sharply and, for now, inflation is not a concern for investors.

2. Tuesday's Housing Starts report showed a 19% decline to a record low of 625K annual units, far below the consensus forecast of 730K. Building Permits, a leading indicator, showed a similar decline. To give you a contrast, Housing Starts were running at a 2.2 million unit annual pace in early 2006. On a favorable note, the slowdown in the building of new homes will help reduce the inventory of unsold homes on the market.

3. Friday, the Fed cut the Fed Fund rate from 1.0% to nearly 0.0% and suggested that they might purchase large quantities of Mortgage Backed Securities and Treasuries (over and above the previously announced $500 billion plan) to help keep mortgage rates low. The Fed's statement confirmed that economic conditions have worsened recently and suggested that rates will remain at extremely low levels for an extended period of time.

Article Courtesy of James Williamson, Fairfield Mortgage

Possible Rate Drop to 4.5%!!!

From the WSJ today:
WASHINGTON -- Financial industry lobbyists are urging the Treasury Department to take steps to lower mortgage rates and help stabilize the battered U.S. housing market.
Under one proposal, Treasury would seek to lower the rate on a 30-year mortgage to 4.5 percent by purchasing mortgage-backed securities from Fannie Mae and Freddie Mac, Scott Talbott, chief lobbyist at the Financial Services Roundtable, said Wednesday.
If enacted, such a plan would be an unprecedented opportunity for anyone with good credit and a solid income who could qualify for a mortgage at the lowest rates on records dating to the early 1960s, said Keith Gumbinger, senior vice president at financial publisher HSH Associates.
"You would have the mother of all re-fi booms," said mortgage industry consultant Howard Glaser.
The goal of the industry's proposal would be to take advantage of the unusually large difference, or spread, between mortgage rates and yields on government debt. On Wednesday, the yield on the 10-year Treasury note yield sank as low as 2.65 percent, while the national average rate on a 30-year fixed rate mortgages was 5.75 percent, according to HSH Associates.
In recent years, there has been about a 1.8 percentage point difference between the yield on a 10-year Treasury note and a 30-year mortgage rate, but that spread currently hovers around 3 percentage points.
Analysts said that the government could use its ability to borrow money at low rates to in essence flood the market for mortgage-backed securities. This increased demand would tend to push down the yield on mortgage securities sold by Fannie and Freddie, which now average about 5.5 percent because of investor concerns about default risks. Once those yields fall, the theory goes, lower mortgage rates should follow.
That would have two benefits for the economy: Immediately adding money to the pocketbooks of homeowners who can refinance their mortgages and reduce their monthly payments, and eventually help arrest the slide in home prices since much lower mortgage rates would allow more potential buyers to qualify for loans.
"The goal is drive mortgage rates so low that home prices not only stop falling but begin to rebound," said Greg McBride, senior financial analyst at Bankrate.com.
If the government does buy up mortgage securities, it would be similar to the effort announced last week by the Federal Reserve to purchase up to $500 billion of mortgage-backed securities from Fannie and Freddie. The two mortgage giants, which were seized by federal regulators in September, own or guarantee about half of the $11.5 trillion in U.S. outstanding home loan debt.
The Fed, however, did not announce a specific target for mortgage rates, which plunged about a half percentage point after the announcement.
That caused new mortgage applications to more than double last week, according to the Mortgage Bankers Association's weekly survey released Wednesday. Refinance volume more than tripled, and made up for nearly 70 percent of all applications.
Still, the industry plan is not likely to help borrowers whose credit is so damaged that banks don't want to lend to them.
"It doesn't do anything to help all the borrowers facing foreclosures," said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. "It's going to benefit the people who have equity in their home, who have decent credit and can refinance."
Treasury is considering several options, and could announce a decision as early as next week, industry sources said.
Treasury spokeswoman Brookly McLaughlin said she would not comment on speculation about actions the department may take in the future.
The proposal was reported Wednesday afternoon on The Wall Street Journal's Web site.Treasury could make such a proposal as part of a request for the second $350 billion of the $700 billion financial rescue fund, industry sources said.
Treasury Secretary Henry Paulson has been criticized by members of Congress for using the bailout money to shore up Wall Street banks, while not doing enough to help homeowners facing foreclosure.
In recent weeks, a diverse set of industry groups from real estate agents to carpet makers have called on lawmakers and the incoming administration of President-elect Barack Obama to subsidize lower mortgage rates and beef up tax credits to help stimulate housing demand.
The National Association of Realtors has been pushing a plan under which the federal government would spend $50 billion to lower mortgage rates. It says doing so would yield about 500,000 more home sales.
Meanwhile, the National Association of Home Builders is leading a new "Fix Housing First" coalition to push for aid to the ailing housing sector, including a tax credit of up to $22,000 for anyone who buys a home before the end of 2009.

World Markets Soar After Last Week's Plunge

HONG KONG — Global stock markets rebounded strongly on Monday after last week's historic sell-off as governments from Europe to Australia and the U.S. intensified efforts to ease a financial crisis that threatened to the throw the world into recession.
Hong Kong's Hang Seng Index, which tumbled more than 7 percent Friday, soared 1,434.33 points, or 9.69 percent, to finish at 16,231.20.
Australian and Singapore indices jumped more than 5 percent, while South Korean and Chinese benchmarks added around 3.7 percent.
As markets opened in Europe, Britain's FTSE-100 shot up 5.6 percent, Germany's DAX climbed 6.4 percent and France's CAC-40 advanced 7 percent.
In Japan, where the Nikkei 225 tanked nearly 10 percent Friday to close out its worst week in history, trading was closed for a public holiday.
Markets around the world sprung to life as nations expanded their efforts to save a financial system, reeling from seizing credit markets and risky debt, that threatened to throw the global economy into recession.
On Monday five central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. The Bank of England, the European Central Bank and the Swiss National Bank said they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.
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In Britain, three of the country's largest banks — Royal Bank of Scotland Group PLC, Lloyds TSB Group PLC and HBOS PLC — announced plans to take up to 37 billion pounds (US$63 billion) of government money to boost their balance sheets.
Earlier in the day, Australia said it would guarantee bank and other lender deposits for three years.
The moves came after leaders of the 15 euro-zone countries said Sunday they would guarantee new bank debt until the end of 2009, allow governments to help banks by buying preferred shares, and vowed to rescue important failing banks through emergency recapitalizion.
The global effort brought a measure of relief after investor panic sent world equities markets spiraling last week in one of the steepest declines in decades.
"The government measures genuinely do help market confidence," said Daniel McCormack, a strategist for Macquarie Securities in Hong Kong. "We are reaching a point where policy could soon start to have an impact on the credit markets and once it does that will help the equity markets."
In the U.S., investors were waiting to see if the Treasury Department's newly announced plan buy equity in troubled banks would help stabilize the volatility on Wall Street. Lawmakers have urged quick action by President George W. Bush on the effort, to be funded by the US$700 billion bailout he signed Oct. 3.
Wall Street stock futures showed a rebound was in store for the major indexes ahead of the opening bell on Monday. Dow Jones industrials futures rose 331 points, or 3.9 percent, to 8,701. Nasdaq 100 futures rose 51.7, or 4 percent, to 1,334; and Standard & Poor's 500 futures added 43, or 4.8 percent, to 934.04.
In a volatile session Friday in New York, the Dow Jones industrial average fell 128, or 1.49 percent, to 8,451.49, gyrating within a 1,000 point range. The average had its worst week on record in both point and percentage terms.
Financials helped lead Monday's advance in Asia, with leading Chinese lender Industrial & Commercial Bank of China, or ICBC, soaring 13.6 percent. Leading Australian banks such as Commonwealth Bank of Australia and ANZ Banking Group Ltd were also up sharply. Commodity issues gained as well.
Elsewhere in the region, Indonesia's key index, down sharply in early trade, gained 0.9 percent after the lifting of a trading suspension, imposed last Wednesday amid a freefall in share prices. The upswing followed government measures to free up liquidity, including easing regulations for share buybacks and corporate financial reserve limits.
Taiwan's benchmark index closed down 2.15 percent after the market was shut Friday for a national holiday.
Oil prices recovered, with light, sweet crude for November delivery up US$3.33 at US$81.03. The contract fell Friday US$8.89 to US$77.70, the lowest price since Sept. 10, 2007.
In currencies, the greenback gained against the yen to 100.57. The 15-nation euro bought US$1.3532.
** Article posted on www.FoxNews.com

Senate Passes "Bail Out Bill"

The Senate passed the $700 billion economic-rescue package by a 74-25 margin on Wednesday night, just two days after the House had rejected a similar bill.
Legislators had spent a feverish two days putting together this revised package, hoping to appease both liberal Democrats and conservative Republicans, who had expressed major reservations about the legislation.
Congressional leaders, as well as President George W. Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, had pressed over the past week for this package, which they said was necessary to stop a financial meltdown.
Paulson released a statement on Wednesday night saying, “I commend the Senate for tonight’s strong, bipartisan vote. This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going. I urge the House to act promptly to pass this bill.”
Both major presidential candidates, Republican John McCain and Democrat Barack Obama, voted in favor of the bill.
Click here to see how your state legislators voted
While the legislation is fairly complex, in basic form it offers a way for financial institutions to get some of their most-toxic securities off their books, with the federal government taking them over. This bill authorizes the Treasury Secretary to have up to $700 billion of securities “outstanding at any one time,” though the approval for the full $700 billion would come in stages.
The bill passed in the Senate differed from the rejected House legislation in a number of ways. Federal Deposit Insurance Corp. insurance will be raised temporarily to $250,000 from $100,000. In addition, there were changes to the Alternative Minimum Tax and incentives for small business, among other things.

Click Here to Read
Because the bill had to be one that was already under consideration, it was basically substituted in for a mental-health parity bill, a measure the Senate voted on before considering the legislation itself, and approved by a vote of 74-25. However, some mental-health parity provisions were included in the measure.
Sen. Bernie Sanders (I-Vt.) had proposed an amendment that would create a surtax on those making over $500,000 a year, but it was defeated.
The bill will now journey to the House. A vote there is expected sometime on Friday, Rep. Barney Frank (D-Mass.) told FOX Business. It’s still expected to have a much tougher run there. Every House seat is contested in the early-November election, which means the Representatives are more mindful than their Senate counterparts of the opposition from constituents.
That opposition is still strong. The Web site survey on FOXBusiness.com, which is not a scientific poll, indicates that only 12% of respondents support passage of the rescue package, while 15% want a better explanation of what’s in it. A full 73% say they understand what’s in it and just don’t want it.
Part of the challenge for those in favor of the bill is that it’s meant to help the credit markets, which are less visible. The stock market, which suffered one of its worst days in history on the day the House rejected the bill, is suffering but still liquid.
Activity in the credit markets is extremely low, with banks hesitant to lend to each other, or to customers. The fear of market and economic experts is that such a lack of money flow will devastate an already weak economy.

Market Drop

Congress Debates Rescue Plan What a day it has been, again! On a historic day, the House unexpectedly failed to pass the $700 billion rescue plan, and investors embarked on a flight to safety. Money flowed out of the stock market in tidal wave fashion with the Dow losing over 750 points! The lack of a systemic action to help credit markets leaves a lot of questions. Until a solution is agreed upon, financial institutions will be even more reluctant to make loans. At the same time, confidence in the ability of lawmakers to fix the problem is dropping. Needless to say, investors will be waiting and watching closely to see if lawmakers come up with an alternative rescue plan in the days ahead. In the meantime today, as money flowed out of the stock market, a good bit of it flowed into the bond market, which helped drive mortgage rates lower. Oil prices also fell $11 to $96 per barrel. If we can get some gas into Atlanta, then maybe we'll see gas prices take a significant drop. And almost as a footnote with everything else going on today, Wachovia finally went under and was bought by Citigroup. Just two and a half years ago, Wachovia was an extremely healthy bank, that is until they got wrapped up in the sub-prime business through their $25 Billion acquisition of Golden West Financial. Talk about the kiss of death. And the Wachovia bank failure comes just two business days after the largest US bank failure ever as Washington Mutual collapsed, was seized by the FDIC, and then sold to JP Morgan Chase to prevent the FDIC from depleting its insurance fund. Citigroup and JP Morgan Chase now join Bank of America as the three largest banks in America. To Bail Out or Not to Bail Out? So, what’s the $700 Billion Bailout all about anyway? Make no mistake about it, the credit markets are dragging down the economy, and the basic problem is clear. Many financial institutions hold large quantities of complex mortgage securities which have declined in value. The precise value of these securities is difficult to determine, since there are few buyers and the market is not functioning efficiently. Amid the uncertainty, it's very difficult and costly to raise additional capital, so financial institutions are conserving their remaining capital. These institutions are very reluctant to make new loans of any kind. If businesses have no capital to grow and consumers have trouble purchasing homes and cars, the economy suffers and jobs are lost.

Fed Chief Bernanke and Treasury Secretary Paulson spent two long days last week presenting a $700 billion rescue plan to Congress. Much of the testimony noted that the rescue plan would be an acquisition of assets. Mortgages and mortgage backed securities will be purchased at a significant discount to the face amount of the underlying mortgages. Many of the mortgages will be performing, while some will not, and they will have houses as collateral. Ultimately, the orderly liquidation of the acquired assets could recover most, if not all, of the purchase price. The plan would provide much needed capital to institutions, which is expected to be used to make more loans. Hopefully, Congress can work out the details and pass something soon so we can begin moving in the right direction! In other news last week:
Bernanke called this the most significant financial crisis in the postwar period
Continuing Jobless Claims rose to the highest level since 2001

August Existing Home Sales fell a little from July, while inventories declined FHA Limits 'Buy and Bail' PurchasesFHA announced last week that home buyers who want to rent out their current home and use the rental income to offset their mortgage payment to enable them to qualify for a new home are going to be able to do so only if they have 25% equity in their current home or if they provide proof of a job relocation. Unless one of these conditions is met, buyers are going to be forced to sell their current home first or qualify for both mortgages at the same time. FHA hopes this new rule, which was implemented effective Sept 19, will prevent buyers from purchasing a less expensive home and then walking away from their current mortgage. This has become a major trend in certain parts of the country. Whatever the reason, there is no doubt that this is going to push even more people out of the home purchase market.

Update from James Williamson-

Relief Program Boosts Confidence
This has been quite the historic week in the financial markets. One major investment bank declared bankruptcy, another sold itself, and the world's largest insurance company needed a government bailout. Central banks around the world had to inject hundreds of billions of dollars into the banking system to calm the markets.
The government's primary response to the market turmoil was a broad relief program. The program includes major elements intended to stabilize credit markets and restore confidence. Directly affecting the mortgage market, a government entity will be established to acquire underperforming mortgage assets, manage the assets, and sell them in an orderly fashion. This will remove troubled assets from financial institutions and replace them with fresh capital, which will then be available for future lending opportunities. In addition, the Treasury doubled the amount of mortgage securities that it will buy in the open market for its own holdings. Fannie Mae and Freddie Mac will be allowed to increase their mortgage portfolios, as well. One result of these actions should be increased liquidity for future investment in mortgage assets.
A Fed meeting is usually the most significant event in a week, but last week it took a back seat to the other news. While many investors expected a rate cut on Tuesday to relieve credit markets, the Fed held the fed funds rate unchanged at 2.0% in a unanimous vote. According to its statement, the Fed expects inflation to moderate later this year, but they are concerned about the upside risks. The Fed also noted slower economic growth, partly due to tight credit, weakness in the housing market, and a slowdown in exports.
In other news last week:
Some good news as the August Consumer Price Index (CPI) showed a small decline from July
The government also announced that it will provide guarantees for the $2 trillion in assets in money market mutual funds
And, oil prices fell as low as $90 per barrel, down 40% from the high, before ending at $100 per barrel. Unfortunately, the prices are rising this week.
Update on Down Payment Assistance
Last week the House Financial Services Committee adopted H.R. 6694, which is designed to reauthorize and reform down payment assistance programs that the Housing Bill banned in July. A last-ditch effort to head off the Oct. 1 ban on the use of seller-funded down-payment assistance with FHA-backed loans is picking up steam as a compromise bill that would mend rather than end the practice of down payment assistance. HR 6694 would allow qualified borrowers with credit scores of 680 or above to use seller-funded down-payment assistance on FHA-backed loans. Borrowers with scores between 620-680 will be subject to risk-based pricing and higher insurance premium fees. We should find out this week if Congress and the President will also approve of this legislation. Rate Update With all of the volatility in the financial markets last week, mortgage rates remain very low but are as much as .5% higher than last Monday. Needless to say, expect more volatility in the days ahead.

Freddie and Fannie Taken Over

Government takes control of Fannie, Freddie
Move is intended to prevent major financial turmoil


BREAKING NEWS
MSNBC News Services
updated 54 minutes ago

WASHINGTON - The U.S. government announced on Sunday that it was taking control of troubled mortgage finance giants Fannie Mae and Freddie Mac, effectively wiping out shareholders' interest in the publicly traded companies.
The regulator of the two companies, the Federal Housing Finance Agency (FHFA) will manage the two companies on a temporary basis.
The takeover is the second rescue bid engineered by the U.S. Treasury Department in little more than six weeks. It came as confidence in the firms' ability to keep operating amid a deepening housing crisis continued to erode.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart, regulator for the so-called GSEs or government-sponsored enterprises, called a Sunday-morning news conference to spell out the latest rescue effort.
Officials said the executives of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.
Paulson said the actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
The announcement followed an intense round of meetings on Friday and Saturday with directors and top leaders of the GSEs, who are expected to be dismissed after having come under stiff criticism for their high pay and management shortcomings.
The two mortgage companies are a vital cog in the United States housing industry because they own or guarantee almost half the nation's $12 trillion in outstanding home mortgage debt. The housing sector would have difficulty recovering from its deepest slump since the Great Depression unless Fannie or Freddie are stabilized and able to continue their role in buying mortgage loans and packaging them into securities sold around the world.