Jorge Merlos

Global Banks Unite in Unprecedented Rate Cuts

Ben Bernanke and the Fed brought financial aid to the streets, lowering the Federal Funds Rate and Discount Rate by 0.50%. In an unprecedented emergency move, central banks across the globe joined in lowering interest rates.

This move follows Washington's passing of the $700 billion Rescue Plan. From Wall Street to Main Street, a common concern has been heard by Washington. "We need money... no, let me rephrase that...we need cheap money."

Rates Could Rise From Here
Home loan rates have benefited from the weakness in the financial markets. Fixed rate mortgages remain very attractive. However, the Fed lowers short term interest rates to shore up financial markets. This could cause home loan rates to rise in the coming weeks and months if confidence returns to the stock markets.

ARM Holders Take Notice!
Anyone that has an Adjustable Rate Mortgage (ARM), take note. The London Interbank Offered Rate (LIBOR) has soared from uncertainty in financial companies...And six million home loans in the United States are tied to LIBOR which determines the interest rate at the time of adjustment.

If you know someone with an ARM, let them know potential trouble lies ahead and the time to act is now.

What Should You Do Now?
Call me. We can go over your situation to determine how you can benefit from the actions. I look forward to hearing from you.

Recently Fannie Mae & Freddie Mac issued guidelines with the intent to stop buyers from conducting a "buy and bail" strategy, which applied to ALL Conventional loans. A "buy and bail" strategy is when a buyer purchases a new home using their current residence as a "rental property" to qualify for the new mortgage, with the intent of never leasing out their home and letting it go into foreclosure. Up until Thursday 9/18, FHA had not adopted any of the policies issued by Fannie Mae & Freddie Mac. But as of Friday September 19th, HUD issued new guidelines regarding these transactions and has provided a Mortgagee Letter with some of the changes to FHA loans.

There are only two exceptions in order for the borrower to defray the payments on their primary residence if it is being converted into a rental property. The two ways the rental income can be used is if the borrower meets one of the following two requirements; the borrower is relocating or the current primary residence has at least 25% equity. Attached you will find a copy of the Mortgagee Letter for you to reference.
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-25ml.doc

Although this will limit the ability of some potential buyers, it will hopefully bring some much needed stability to the declining housing markets. Please feel free to contact us at Integrity Home Finance if you have any questions, comments or concerns about how this and other industry related news affects you.

(909) 945-8621 Office

www.JorgeMerlos.com

Fannie Mae announced today new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee. Starting June 1, 2008, Fannie Mae will accept up to 97% LTV ratios for conventional, conforming mortgages processed through DU, and 95% LTV ratios for loans underwritten outside of DU, in all geographic locations in the United States. "The new national down payment requirements of 3 or 5 percent will apply to loans for purchase of single-family, primary residences. Down payment requirements will vary for other occupancy, property and transaction types. The company will implement systems and operational changes over the summer to accommodate the new national policy. ‘We are able to adopt this new, national down payment requirement, even in markets where home prices are declining, because our new automated underwriting risk assessment model DU Version 7.0 will limit risk layering and assess each loan more precisely.""

Those hoping for lower overnight rates got them. "The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3.5%. The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets. The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. Appreciable downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

The markets in the United States were closed yesterday, but stock markets around the world declined 5-10% due to fears of a recession, both here and abroad, and the impact of the housing slump on consumer spending. The Fed move is the first inter-meeting move since September 2001, and comes one week ahead of their meeting next Tuesday & Wednesday. In addition to the Fed announcement, U.S. Treasury Secretary Paulson spoke this morning on the economy, housing and credit markets in a scheduled speech. On Friday, the White House unveiled their economic stimulus plan to boost the economy and avert recession, but many have viewed it as too limited to prevent economic contraction: "putting out embers as the forest fire rages" one analyst suggested.

Where do interest rates stand at the moment? The yield on the 2-yr Treasury is down to 2.05%, the 10-yr is 3.53%, and 30-yr conforming conventional loans have improved by .250-.375 in price.

There is mounting pressure for increased limits from a number of groups for California. We will see if this will finally carry the day, or California becomes a permanent high cost state, like Hawaii and Alaska.

Raising the Fannie Mae and Freddie Mac loan limit to $625,000 as part of a stimulus package could help 140,000 to 210,000 families escape foreclosure, increase home sales, and boost economic activity by $42 billion, according to the National Association of Realtors. "We believe that any stimulus package must address housing issues and increasing the conforming loan limits for these two government-sponsored enterprises," NAR president Dick Gaylord said. Congress and the Bush administration are trying to put together a $100-150 billion stimulus package that features mainly tax rebates for consumers and accelerated writeoffs for businesses. President Bush called for quick passage of a Federal Housing Administration reform bill on Friday in discussing his approach to a stimulus package. But he did not mention the GSEs. The Realtors want the GSE loan limit raised from $417,000 to $625,000 to address the lack of liquidity and the high interest rates in the jumbo mortgage market. "This is the quickest way to help the hurting housing market," Mr. Gaylord said.