Marc's Mortgage Matter's

My boss told me that I should take an "anger management" class in 2010. I told her that I was already angry enough with management.

And what do Eddie Bauer Holdings and Dunkin’ Donuts have in common? They, along with literally one million other businesses, have both received loans from commercial lender CIT Group. CIT filed for Chapter 11 bankruptcy protection, which analysts say will help bondholders and customers but not stockholders and taxpayers. Apparently we’ve put about $2.33 billion of our money into CIT, which is now the largest firm to go bankrupt after getting a federal bailout.

What are Fed Funds? These are cash balances held by banks with their local Federal Reserve Bank, typically involved in an “inter-bank sale” of a Fed fund deposit for one business day - overnight. And the Fed Funds Rate is the overnight interest rate charged by those banks with excess reserves on hand. Why would this impact the mortgage rate that James & Jen Borrower pay on their mortgage? They don’t, directly, since the credit profile of a borrower, or house, is more complicated and riskier than a bank with excess funds, and an overnight rate is obviously different than a 30 year rate.

As was expected, the FOMC kept its central message and the Fed Funds rate unchanged, noting that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period." Of course the current economic conditions are low rates of resource utilization, subdued inflation trends, questionable housing situation, a weak labor market, and stable inflation expectations. The FOMC (Federal Open Market Committee) reduced the size of their Agency debt (bonds issued by the agencies, not directly backed by mortgages) purchase program to "about" $175 billion from $200 billion, but is still set on purchasing $1.25 trillion of agency mortgage-backed securities. Even with this adjustment the Fed balance sheet should peak above $2.6 trillion at the end of March 2010.

The Fed sees some signs of life, just like all of us do, in certain parts of the economy, and inflation not being an issue. Conditions in financial markets were roughly unchanged, but activity in the housing sector has increased over recent months. “Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”

Well, the tax credit extension is about to be signed. Yesterday the House voted 403-12 to extend and expand the tax credit to include many buyers who already own homes. The Senate approved the measure Wednesday, and the White House said President Barack Obama would sign it today. “Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn't owned a home in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30. The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.” As usual, consult with your accountant for further details.

Bottom Line: The Federal Reserve re-committed to keeping the short-term interest rates it controls at "exceptionally low" levels for an undefined "extended period of time." Along with the extension and expansion of the homebuyer tax credit, these important supports should help the housing market to continue to stabilize, and may even serve to promote some refinancing activity, too. However, the job market remains troubled enough as to warrant concern that there just may not be all that many people who are eligible to refinance or purchase a home in the months ahead.

A guy was sitting quietly reading his paper when his wife walked up behind him and whacked him on the head with a magazine.
“What was that for?” he asked.
“That was for the piece of paper in your pants pocket with the name Laura Lou written on it,” she replied.
“Two weeks ago when I went to the races, Laura Lou was the name of one of the horses I bet on,” he explained.
“Oh honey, I'm sorry,” she said. “I should have known there was a good explanation.”
Three days later he was watching a ball game on TV when she walked up and hit him in the head again, this time with the iron skillet, which knocked him out cold.
When he came to, he asked, “What the heck was that for?”
She replied...”Your horse called!”