Keith & Jason Renno

Act Now, Before the Fed Does

The Federal Reserve is scheduled to meet this week and announce its new Policy Statement and Interest Rate Decision Wednesday...and will cut the Fed Funds Rate once again. This is no big surprise. Throughout 2008, the Fed has lowered key interest rates in an effort to stimulate the economy - including cuts in its Fed Funds and Discount Rates earlier this month in an unscheduled meeting. As we know however, cuts in these interest rates do not translate into lower home loan rates. In fact, they typically move in the exact opposite direction.

That's the reason I wanted to share this information with you today. If you want to secure a lower mortgage rate, the best time to act could be before the Fed meets and announces its latest cut.

In the chart below, notice the pink line. That line represents the interest rate the Fed impacts with its financial policy. As you can see, the line has been consistently lower since January. The blue line, which represents 30-year fixed-rate mortgages, shows that mortgage rates have risen since the first Fed rate cut announcement.

So don't wait until Wednesday. Whether you're considering buying a home or refinancing your existing property, call us today. We'll review your individual situation and see what's best for you and your family. And don't believe the hype about credit being impossible to get. Credit standards for many loans have tightened up, but mortgage money is widely available on home purchases for borrowers who can provide documentation and support their mortgage application.

And even if you don't have a home loan need at the present time, feel free to check in with us anyway. We can discuss your current situation, plan for the future, and make sure you are in the best possible position for any financial needs that may be coming down the road.

The Housing and Economic Recovery Act of 2008 is a $300 Billion rescue plan aimed at helping struggling homeowners avoid foreclosure. Although the bill is several hundred pages long and contains a number of far-reaching provisions, here are the top three changes that may benefit you:

1. Tax credits. First-time home buyers who purchase their primary residence between April 8, 2008 and July 1, 2009 are eligible for up to $7,500 in tax credit, provided they haven't owned a home in the last three years and fit certain income parameters. The credit is generous, but it is actually an interest-free loan that is paid back over 15 years at $500 per year when taxes are filed.

2. Larger loans at lower rates. This is a great benefit for homeowners with "jumbo" mortgages, which range between $417,000 and $625,000. If you are considering purchasing a home in that price range, this provision may be ideal for you. Please call or email to schedule a meeting to discuss your options.

3. FHA Hope for Homeowners. This provision is designed to help homeowners who are "upside down" on their mortgage - that is, people who owe more on their house than they can sell it for in today's market. Essentially, this plan allows borrowers who meet specific requirements to refinance their mortgages to new 30-year fixed FHA mortgages. If you're upside down on your mortgage and struggling in today's economy, this is an option worth exploring.

The phrase "Buy and Bail" refers to a current home owner who purchases another home then stops (bails) on their current mortgage obligation. During the first part of 2008 banks caught on that this was a popular situation and saw the need to prevent it. This was happening across the country, including the Santa Clarita real estate market.

Fannie Mae, Freddie Mac and FHA have all come out with guidelines preventing this act. For the most part they require both the current and proposed mortgage payments to be included in the debt to income ratios when qualifying. (Cannot offset payments with rental income).

The only time rental income can be used is:

Fannie- when the home owner has 30% equity.

Freddie- when the home owner has 30% equity or has 12 months PITI (principle, interest, taxes and insurance) as reserves plus a singed lease agreement with proof of deposit.

FHA- when the home owner has 25% equity or is being relocated with a new employer not within reasonable driving distance.

Now more the ever future homeowners and realtors need to work with experienced professionals dedicated to their fields. If any one has a question please visit our site at www.santaclaritarealestatelender.com and feel comfortable contacting us!

A new blog will be posted once or twice per week. We're keeping them short and to the point, if anyone has a topic they would like to discuss please let us know.

Interest rates have showed little movement thus far today. After a 238 point drop in US Mortgage Backed Securities (Mortgage Bonds) last week causing rates to rise, Mortgage Bonds should be oversold and ready for a bounce back helping lower rates.

The Government announced a plan to use $250 Billion of the $700 Billion from the bail out budget to buy directly into US banks with 125 Billion going to 9 of the largest such as B of A, JP Morgan Chase, and Citigroup. Many feel this is a good move for the Fed because there are 2 main ways for financial institutions to deleverage their high balance sheets 1) Market to Market, which is basically a fire sell that does not accurately portray the banks real value or 2) Raise Capital, which has been tough in this market (this is where the Fed has stepped in buying non-voting shares).

I would advise clients to hold off on locking their rate today and wait to see if Mortgage Bonds bounce back.