Tuesday, March 24, 2009

Fed Announces More Stimulus

The Fed’s Announcement and What It Means to You

On Wednesday, after the Federal Open Market Committee meeting, the Fed announced a plan to expand their
purchasing of Mortgage Backed Securities to $1.25 trillion from the previously targeted amount of $500 billion set forth in early December.

Media translation: Rates are dropping to four percent tomorrow!

Realistic translation: The Fed’s ongoing commitment to purchase Fannie Mae and Freddie Mac mortgage backed
securities should help keep mortgage rates low and stable for several more months.

I have received a number of emails and calls asking me what I think will happen with mortgage rates based on
this latest announcement. Here are some of the most common questions I am receiving and the information
I am sharing with my clients.

I’m thinking of refinancing. Will the Fed’s announcement drive interest rates lower?

Answer: The initial reaction in the market was a slight drop in rates from Wednesday morning’s rate sheets. But this was tempered mildly Thursday with a small move higher. Keep in mind that the Fed’s actions expand on a program it unveiled late last year. That program drove down the average rate on a conforming 30 year fixed mortgage to the low 5% range and even into the high 4% range if a consumer was willing to pay closing costs and/or points. Rates have been bouncing around in this narrow range since then. Wednesday’s announcement suggests the Fed is making an enduring commitment to keep rates that low, possibly through the end of the year. But it’s not as if this announcement ensures the average rate will drop tomorrow to 4% at zero points.

Is there any risk to waiting for a lower rate?

Answer: There are a number of risks to consider. Unemployment numbers are increasing and I have already
had loans in progress where a borrower falls victim to corporate down sizing or lay offs that squash their opportunity to refinance. Foreclosures and distressed sales have also caused values to plummet in what seemed to be stable neighborhoods. This trend looks like it could be getting worse before it gets better. Lenders have become very tough on appraisals and require the most current data in a borrower’s neighborhood to establish value. Also, lender guidelines have changed overnight and caused deals to fall out. Clearly, the opportunity costs can be severe while waiting for that extra $20 - $50 per month savings versus taking the bird in hand while rates are at historic lows.

Is there any opportunity for me to refinance my Jumbo loan?

Answer: While we are still seeing liquidity issues keep a strangle hold on Jumbo money, we are getting indications of some lenders starting to open up this market again. The pricing for loans in the range from $417,000 up to $625,500 was recently expanded to include loan amounts up to $729,000. The pricing in this range is getting very close to the normal conforming loan pricing under $417,000. For loans above $729,000, I will keep you posted on new
developments as they come around … hopefully very soon.

Please feel free to contact me directly by replying to this message or calling me with any specific questions about your loan scenario, and I’ll be happy to help you.

1 comment:

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    Lifestyle Engineer