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The Federal Open Market Committee ends a scheduled, 2-day meeting today in Washington. It's the first of 8 scheduled meetings for the policy-setting group in 2010.
The group adjourns at 2:15 PM ET.
As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country's current economic condition, and the outlook for the near-term future.
The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up. Every word, sentence and phrase is carefully disected in the hope of gaining an investment edge over other active traders.
It's for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically rebalancing its bets.
Today should be no different.
The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it's been in history. However, it's what the Fed says Wednesday that will matter more than what it does.
After the Fed's last meeting in December, it made several observations:
The economy is gradually improving, the Fed told us, but there are still risks to the economy ahead. Furthermore, inflation remains in check.
As compared to December's press release, today’s FOMC statement will be closely watched. If the Fed changes its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates in Northwest Indiana to rise as Wall Street moves its money from bonds to stocks.
Conversely, reference to slower growth in 2010 should lead rates lower.
We can't know what the Fed will say so if you’re floating a mortgage rate right now or wondering whether the time is right to lock, the safe approach would be to lock prior to 2:15 PM ET Wednesday. After that, what happens to rates is anyone's guess.
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Just one month after from blowing away Wall Street, December's Existing Home Sales hit the skids, shedding nearly 17 percent and falling to a 4-month low.
Don't be alarmed, though. The plunge was expected. And not just because Pending Home Sales cratered last month.
When November's Existing Home Sales surged, it was clear to observers that an expiring $8,000 federal tax credit was the catalyst. At the time, the tax program was slated to expire November 30 and the looming deadline pushed a lot of would-be buyers in Northwest Indiana from a December time frame into November.
The expiration date has a cannibalizing effect on December's sales figures. It was only later that Congress extended the tax credit to June 30, 2010.
So, with home sales plunging in December, it's no surprise that home supplies rose for the first time in 9 months. Home Supply is calculating by dividing the number of homes for sale by the current sales pace.
The national housing supply now rests at 7.2 months.
Despite December's Existing Home Sales report appearing shaky, it's actually terrific new for home buyers.
See, for the past few months, as housing has been improving, sellers nationwide have been bombarded by messages of "hot markets" and rising home prices by the media. Psychologically, a seller is more likely to hold firm on price if he believes the housing market is improving and now December's data is deflating that argument.
This is why we say there's always two sides to a housing story -- the buyers' side and the sellers' side. And, usually, what's good for one party is bad for the other. It's what we're seeing now.
Because of soft data like December's Existing Home Sales, buyers may retake some negotiation leverage that's been lost since Spring 2009, helping to improve home affordability and, perhaps, spur more sales.
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Conforming and FHA mortgage rates improved last week on the combination of weaker-than-expected economic data and new anti-banking rhetoric from the White House.
The S&P 500 shed nearly 4 percent in its worst weekly showing since October 2009 as all 10 sectors fell. As the money left stock markets, it made its way to bonds -- including the mortgage-backed variety.
As a result, Northwest Indiana mortgage rates fell for the third straight week.
Since shedding 300 basis points in December, mortgage bond pricing has recovered a bit more than half of those losses. It's helping with home affordability and opening new refinance opportunities in Northwest Indiana and around the country.
This week, though, mortgage rates could rise back up. There's a lot going on.
First, on Monday, the December Existing Homes Sales report will be released. The report is expected to be extremely weak as compared to November. This is because of a combination of factors including:
Therefore, don't be surprised by the newspaper headlines you see Tuesday morning.
Other data this week includes the Case-Shiller Index -- a measure of home prices nationwide -- and the New Home Sales report. The Case-Shiller Index has registered mild home price improvement over the past 8 months and its latest report is expected to show the same. New Home Sales should be similarly strong.
But, the biggest news of the week is the first Federal Open Market Committee meeting of 2010.
The Fed meets Tuesday and Wednesday this week and Wall Street will be watching closely. The Fed is not expected to change the Fed Funds Rate from its current target range of 0.000-0.250 percent, so, instead, markets will watching for the Fed's post-meeting press release.
What the Fed says about the economy will be much more important that what it specifically does about the economy for now. If the Fed says the economy is growing as expected, look for mortgage rates to rise. Conversely, if the Fed says the economy is at risk, expect mortgage rates to fall.
The safest rate lock strategy this week is to lock your mortgage rate before the Fed's 2:15 PM ET adjournment Wednesday. Rates will be bouncy all week, but once the Fed's press release hits the wires, it's anyone's guess what will happen.
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A "Housing Start" is a privately-owned home on which construction has started. It's an important gauge of housing health because it tracks new housing stock nationwide.
In December 2009, starts fell by nearly 7 percent.
The news is mildly disappointing but not too bad. The likely cause for the Housing Starts drop is December's rough weather conditions. It's tough to break ground when Mother Nature won't coordinate and last month was especially hazardous in a lot of parts of the country.
More cheery, however, is that for the second straight month, Housing Permits exploded.
A housing permit is an certification from local government that authorizes construction. After posting a 7 percent gain in November, permits rose by another 8 percent in December.
It's a signal that housing is, indeed, in recovery -- despite the falling number of actual starts. More permits mean that builders plan to bring more homes on the market for what's expected to be a very busy spring home-shopping season.
According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance. Therefore, Housing Starts should start rising soon anyway.
For home buyers, the news couldn't be better.
With more homes coming online, competition among home sellers should increase, and that will suppress the rise in home prices in Northwest Indiana and nationwide.
It's basic economics. When home supplies grow faster than home demand, prices fall.
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Securing an FHA mortgage in Northwest Indiana is about to get more expensive.
In a statement issued Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group's portfolio risk while strengthening its overall financials.
For consumers, the changes mean higher costs.
As listed in the official announcement, there are 3 major guideline updates for the FHA:
Furthermore, the FHA has appealed to Congress to raise an FHA borrowers' monthly mortgage insurance premiums.
To read the FHA's statement, it's clear what the group is trying to balance. On one side, the FHA wants to provide affordable financing to families that need it. That's its mission statement. On the other side, though, the FHA must manage the risk that comes with insuring lesser-quality loans.
To that end, the FHA is stepping up its enforcement of "bad lenders" in hopes of stopping problems where they start.
Also in its new policies, the FHA is introducing a "termination clause". If banks or loan officers that produce more than their fair share of bad loans, they lose their right to originate FHA mortgages.
As a result, homebuyers in Northwest Indiana should expect tougher FHA underwriting in 2010. Not because the FHA says so, necessarily, but because banks don't want to do "bad loans". Lenders are incented to turn down at-risk applicants and, already, we're seeing examples of this. Despite FHA allowing 580 FICOs and lower, many banks have made 620 their minimum.
Some have other guideline overlays, too.
The FHA's new guidelines don't go into effect until spring. So, between now and then, the old guidelines will apply. Therefore, if you know you're going to need an FHA home loan in the next few months, consider moving up your time-frame.
If nothing else, you'll save some money at closing.
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My Dyer, IN office is southeast of Chicago. Interested in meeting, networking, and masterminding with quality Realtors who serve the Northwest Indiana market w/their clients' best interests in mind.
"Hi, my name is Larry Penilla. I've been a home loan consultant for the past 21 years. 99% of the thousands of homes I've financed are in Northwest Indiana or the Chicagoland area. I help individuals and families to a better lifestyle to realize the American Dream. I specialize in helping renters who want to live a better lifestyle as a homeowner and just don't know how to go about getting a mortgage and buying a home.
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When you've been helping arrange home loans for mortgage clients from First Time Home Buyers to Move Up Buyers, Investors and Refinances for over 21 years, you accumulate a lot of 'know how' to share with and benefit all of your clients. It's not all about having the best interest rates. My 21 years of experience is a valuable succession of lessons I gather up and draw from so your experience with my home loan service will be a good one - in fact, I guarantee it! And you don't have to take my word for it. I have a big binder full of hundreds of client testimonials available to prove it."
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Larry Penilla 219-865-0505 x305 or Larry@LarryPenilla.com
First Mortgage Corporation
1467 W US Highway 30 Dyer, IN 46311
www.LarryPenilla.com
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"We started out with another company, because a friend worked there and we were having nothing but trouble. So, we called Larry Penilla. He was able to do the type of job for us that I thought a friend of ten years should have done. The company for the people buying our house set a closing date and had a two-week head start on Larry. Larry gave his all and was ready to close on that date! Too bad the other company wasn't ready for another week and a half. We were happy with our rate, and our closing costs were lower than anyone else I talked to. We couldn't be happier and have already started telling people about Larry Penilla!" Rocky & Elaine Jordan, Wheatfield, IN
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"We didn't want to lose the home we chose, but made a contingent offer. If a firm offer came in, I wanted to be able to buy the new home without selling my old home. I spoke to 4 lenders and only Larry Penilla...could come up with possibilities. He was the only one who seemed interested in discussing creative financing options with me. Luckily, we did sell our home, but Larry had both options planned out so our loan could go conventional or creative. Don't lose this guy, he's really good!!!" -- Russell & Pamela Madson, Lake Station, IN
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I am VERY pleased with the service that I received, and I was 300 miles away from my mortgage consultant! After finding a home that my wife and I "agreed to", we were closing the loan in 3 weeks! There was no additional information required which slows down the process. My consultant knew what was needed, and asked for this information on a checklist from, again to speed up the process. This consultant is a keeper!!!" -- Donald E. Scholebo, Santa Claus, IN
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"Larry, we wanted to send a special note to let you know just how much we care. Thank you! You help get (us) qualified for the first time and was patient with our many questions & concerns. Your manner was cordial & warm. We needed it that way, especially because we were new to it all. Again, thank you kindly for your efforts. If we know we will be staying in the area, we will surely look you up to help us again..."
Charmaine & Jim Hines, Merrillville, IN
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