Home >> California Current >> Archive for the 'Home equity' CategoryHow Did The Historical Fed Rate Cut Affect Your Mortgage?

Archive for the 'Home equity' Category

Home Equity Loans

How Did The Historical Fed Rate Cut Affect Your Mortgage?
Published
by
Heindrick
on December 17, 2008
in Home equity
. 0 Comments

For a while it seemed like the Federal Funds target rate had no where to go but up. Well, after today’s move to slash the target rate to a historically low zero to .25 percent, we’ve really hit a bottom. (And no, as crazy as things may seem, the Fed Rate cannot go into negative territory)

Cheaper Home Equity Loans and Traditional Mortgages
Normally, when the Federal Reserve makes a change to this target rate, the most popular interest rates to be affected are on home equity loans, auto loans, and credit card loans. But given this historical rate cut was everything but ordinary, the effect it had on the mortgage market followed suit. As stocks soared after the news of this of rate cut, interest rates on traditional 30 year fixed mortgages also improved significantly.

Furthermore, as the interest rates on mortgage rates continue to improve, analysts still see more room for improvement on lender’s rate sheets. The end result has been borrowers and potential homeowners lighting up their mortgage broker and lender’s phone lines.

Mortgage Backed Securities Improve After Fed Statements
After a statement to purchase “large quantities of agency debt and mortgage backed securities“, the Fed also added that it would continue such actions as long as the conditions called for this response. For those of you keeping a close eye on mortgage rates, mortgage backed securities are one of the many followed indicators to evaluate trends and predictions for future mortgage rates.

If you’re unsure how the Fed’s Target Rate affects your mortgages, you can view this post which explains the correlation to interest rates on home equity lines of credit. As for traditional mortgages, the effect is usually not as direct, but today, homeowners were fortunate to see an improvement in rates quite quickly.

If you’re considering a home equity loan because of this recent rate drop, here are some resources that should help you shop around for a HELOC

1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5 out of 5)
Loading ... Loading ...
Home Equity Loans

Say It Ain’t So - Are Prime Borrowers Not Immune To The Housing Crisis?
Published
by
Heindrick
on December 3, 2008
in Home equity
. 0 Comments

In a recent article by the LATimes and a study by the Mortgage Bankers Association, the latest findings show that foreclosures and mortgage delinquencies have been “skyrocketing among prime borrowers”. It’s a daunting reality, but the current economy has shown no mercy to any homeowners, subprime and prime borrowers alike.

In California, we’re facing an even harsher reality as the rising unemployment rates have surpassed 8%. Combine this with the average 30-40% decline in home prices and we’ve got ourselves a real set of problems. While prime borrowers typically document their income and can actually afford their mortgages, the problems of a struggling housing market have no bias. Slipping values, troubled neighborhoods, and rising foreclosures affect everyone; even those labeled as prime borrowers by the mortgage markets.

In California, the situation among prime borrowers proves to be worse as 4.15% of prime loans are delinquent, compared to the nationwide statistic of 3.07%. These statistics were compiled by the Mortgage Bankers Association, and delinquencies were defined as mortgages late on their payments by at least 60 days or already in the foreclosure process.

An unfortunate problems remains that homeowners simply have less options to turn to when things go sour nowadays. In past years, if homeowners suffered a job loss or were tight on cash, many could turn towards refinancing and cashing out the home equity in their home for support. But with mortgage lending options severely cut back, even prime borrowers are having a hard time refinancing or taking out a home equity line of credit.

And even if these prime borrowers meet the qualifications for a mortgage, many still have to deal with the drastic home price reductions here in California. While toxic mortgages and loose lending have dealt their blow to these subprime borrowers, the overall economy has been taking its toll on the remaining homeowners.  The forecast for the subprime markets has already been realized, but the true worry is that the problem will spread further among Alt-A and Prime borrowers.

If you’re having trouble with your mortgage, one of the best resources you can find in California is CalHFA and the Hope Now organization supported by HUD and its approved members. You’ll find tips on foreclosure avoidance, loan modifications, as well as necessary contact numbers for lenders in your area.

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...
Home Equity Loans

Two Largest Home Insurers In California Will Soon Increase Premiums
Published
by
Heindrick
on November 27, 2008
in Home equity
. 1 Comment

State Farm and Farmers to Raise Homeowners Insurance Rates
Although both these companies are expected to cover the claims from our recent Southern California Wildfires, insurers have been relying on rate hikes to keep up their profits during this tough economy. At a time where homeowners need to keep costs down, these two large insurers of California homes have been approved to increase their premiums by about $115 million.  In a report by Market Watch, it’s estimated that State Farm and Farmer’s policyholder’s could face an average increase of 6.9% and 4.1% respectively. Realistically speaking, this means affected homeowners can expect to see an increase of around $50 per year on their insurance policies.

Help for Consumers and Homeowners in California
Consumers have found ways to fight back, but unfortunately, the requests to petition this most recent rate hike were rejected by California Insurance Commissioner Steve Poizner. For those of you that are interested, Consumer Watchdog has been the non-profit and non-partisan organization helping consumers fight back.

In the meantime, keep in mind that your mortgage isn’t the only housing expense you can minimize. Here are 5 ways you can save money by lowering your home insurance costs:

  1. Raise Your Deductible. If you can afford it, raising your deductible from the typical $500 could significantly reduce your annual premiums.
  2. All in One Package. Check to see if you can combine your home’s insurance with your auto insurance policy. Combining the two could mean discounts on both annual premiums.
  3. Protect Your Own Home. Stay up to date and install smoke detectors, alarm systems, window locks, and door security systems. You’ll be less of a risk to insurance companies, and you could qualify for a discount
  4. Review Your Policy. Find out if you’re paying for coverage you don’t need. Also consider that some items may have depreciated in value and may not need as much coverage as you originally thought.
  5. Shop Around. Check out reviews of insurance companies, and see if anyone you know can give you a solid referral. Don’t forget that finding the best insurer is more than just money itself. You’ll want to find a company that delivers great service and coverage, all at a price that you can afford.

Don’t neglect the costs of homeowner’s insurance.

You won’t see your homeowner’s insurance bills as often as you see your monthly mortgage statements, but it’s still one of the significant expenses of owning a home. Considering the current economy and the actions that these home insurers are resorting to, now would be a good time to see if you could possibly save some money by minimizing these insurance costs.

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...
Home Equity Loans

3 Mortgage Trends To Look For In California
Published
by
Heindrick
on November 24, 2008
in Home equity
. 0 Comments

As we’re nearing the end of the year, there are a few mortgage trends that we should all keep a close eye on. By analyzing some of these trends, current homeowners and potential homebuyers alike may have a better understanding of their local housing markets.

Here are three trends worth considering:

1. Housing Plunge - Predicting That “Bottom”
The L.A. Times had an interesting column earlier this month, and they brought up a disappointing, but realistic possibility. In the column, they pointed out that the majority of our mortgage problems stemmed from toxic mortgages going bad and other non performing loans.  Here in California, home loans were especially toxic since higher median home prices and inflated stated incomes went hand in hand. But, looking back at history, the major cause of housing slumps has typically been “higher interest rates, rising unemployment, salary cuts, depression, and recession.” With the holidays rounding the corner, and consumer confidence still posting dismal numbers, these factors have just started to affect the housing markets.

2. The End of Subprime Era Opens Up Alt-A Vulnerabilities
Mortgage lenders and housing markets have since suffered the blow of the subprime mortgage mess, but the next wave of hurt could come from the Alt-A loans. Some even fear these Alt-A loans more than subprime loans because of how common they were and their dates of origination. Specifically, most 3/1 and 5/1 adjustable rate mortgages peaked around 2005 to 2006. In addition to the regular ARMs was the Option ARM mortgage which often recasts after a period of negative amortization. Given the timeline, these Alt-A mortgages continue to be a potential risk.

3. Modified Mortgages At Risk of Defaulting
Refinancing a mortgage in California has never been tougher. Full documentation and good credit has just been the beginning–the most difficult factor for most homeowners in California has been the issue of falling home prices. As a substitute for refinancing, mortgage modifications have become quite prevalent among many mortgage lenders. However, a recent study by Lender Processing Services showed an alarming number of mortgage modifications simply end up re-defaulting. According to their numbers, about 25% of mortgage modifications default after only one post modification payment, while more than 50% re-default after several post modification payments.

If you’re one of the many looking to pick up a bargain home, be sure to consider these factors as they can easily affect a given area’s housing market stability. For current homeowners, learn from the mistake of so many others and make sure you find a loan that you can really afford.

 For more information, check out our other posts:

- Mortgage Survival Guide, Who’s Left out there?

- California Housing Crisis Lures Investors

- Give Mortgage Lenders Stronger Appraisals

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...
Home Equity Loans

Max Your HELOC and Stash the Cash – Is this Dangerous Advice?
Published
by
Heindrick
on November 9, 2008
in Home equity
. 0 Comments

 Lender’s nowadays are looking at all avenues to cut their risk and minimize their losses. Aside from tightening their guidelines for new home equity loans, it’s been no secret that many lenders have reviewed their existing loans only to freeze these credit lines. Well, there’s been some advice stirring up in the mainstream media proposing the idea of maxing out your home equity line and stashing the cash away to protect your liquidity. The Silicon Valley Examiner and San Francisco Chronicle had two recent articles this week talking about this strange new advice.

Back in August, I wrote a bit about the problem of Frozen HELOCs and much of the response was how to avoid this frustrating problem. Now, this “mattress-stuffing” financial advice could help you protect your HELOC funds, but today I wanted to just point out a few caveats before one considers this option.

Your Bottom Line
It always comes to down simple dollars and cents, and this method is going to cost you money. Even with the Fed funds rate sitting at 1% and Prime Rate at 4%, you’ll most likely be losing money by putting away this cash into CDs paying in the range of 3%. Now on a $100,000 HELOC, your spread is likely to be a loss of 1-2% which equates to a one to two thousand dollar annual loss. With many lenders still freezing HELOCs in California, you could consider this “loss” as your investment to secure your liquidity. For individuals who absolutely need access to this cash, this loss could be a well spent investment and protection against your lender.

Potential Credit Affects: Utilization Debt to Available Credit
One of the factors that make up your credit score is based on how much of your available credit you use. If you max out your HELOC and stash the cash away, your credit report will show you that you’ve used 100% of your home equity line of credit. The ding to your credit will vary depending on your other accounts, but the loss should be considered. In a market where credit is examined so closely, suffering this penalty could cost you in other areas in the future.

Assessing Your Risk
Before jumping into any decisions, you should assess your risk to see how vulnerable you are to potential freezes in your mortgage. Most lenders will freeze these credit lines based on price drops in your surrounding area, with many justifying this freezes if your available equity drops by 50%. In the Bay Area for example, 90% of all zip codes have suffered a price drop recently, with drops ranging anywhere from 10-30 percent. Given the widespread drop in value across California, a 50% reduction in available equity is not too difficult after considering the total of your existing mortgages.

Take a look at your neighborhood areas and analyze some of the recent comparable sales. An appraiser charges anywhere from $350 to $500, so you may want to hold off until you actually need an appraisal. For example, if a lender does freeze your HELOC, hiring an appraiser would be the best method to protest any reductions in your home’s value. Also, don’t forget to contact your existing lender to find out if they plan on making any changes to their existing loans and on what basis they will be doing so.

So, is this dangerous advice? Well given the circumstances and the trend of recent lenders, it’s still a little strange for most people. If you really need the cash and can justify some of these mentioned warnings, it may be worth a shot. If you have any input on this advice, I’d like to hear your opinions in the comments section.

1 Star2 Stars3 Stars4 Stars5 Stars (5 votes, average: 4.8 out of 5)
Loading ... Loading ...
Home Equity Loans

California Mortgage Rate Weekend Roundup
Published
by
Heindrick
on November 1, 2008
in Home equity
. 1 Comment

Federal rate cut
Earlier this week, the fed initiated another rate cut of 50 basis points to the federal funds rate, bringing it to a 5 year low of 1%. Remember, a drop in the federal funds rate means that it will be cheaper for banks to borrow money from other banks and the government. For you rate watchers, this rate cut has a stronger correlation with short term loans rather than long term loans such as 30 year fixed mortgages.

While dropping rates are usually good news for consumers, a drop in the fed rate cut is unlikely to guarantee any drops in traditional mortgage rates. Instead, consumers will most likely notice these rate cuts to affect the interest rates on short term loans such as car loans, credit cards, home equity lines of credit. In addition, the fed rate cut also impacts consumer cash such as the interest paid on savings accounts, money-market accounts, and certificate of deposits.

Bottom Line: The Federal Reserve issued this funds rate cut in hopes of stimulating our economy by making credit available at even lower rates.

Woman Chains Herself to Foreclosed Home In California
Down south, a struggling homeowner chained herself to her home after living there for 19 years.  Her story echos many of the problems homeowners have had with adjustable rate mortgages in California. During the housing boom, ARM mortgages were rampantly advertised as low rate & low payment monthly mortgage options; with many unaware of the possible consequences in the future. Unfortunately, this woman is facing foreclosure because of her adjustable rate mortgage and has responded with a desperate move to save her home.

Bottom Line: If you are having trouble with your mortgage, your best move is to speak with your lender as early as you can. In addition, there are helpful foreclosure avoidance resources on CalHFA , HopeNow, and even CMR.

1 Star2 Stars3 Stars4 Stars5 Stars (9 votes, average: 4.89 out of 5)
Loading ... Loading ...
Home Equity Loans

Peak Time Home Purchases In California Struggle For Help
Published
by
Heindrick
on October 27, 2008
in Home equity
. 1 Comment

DQNews’ last quarter report had some pretty interesting numbers on mortgage statistics in California.  In the report, mortgages that were made during the height of the market, or at their peak price, proved to be harder for lenders to work out. Due to the higher loan amounts and lower home equity, loan modifications and general negotiations were more difficult to work out with these struggling borrowers. In addition, multiple financing was at an all time high during this peak period. Unfortunately, this only adds further difficulty as lenders need to cooperate with each other to reach an agreement.

While the mortgage default filings did drop in California, many of the troubled mortgages were found to be originated from October 2005 to February 2007. Another interesting statistic was that of those homeowners in default; only 20 percent were able to escape the foreclosure process by refinancing, selling, or bringing their payments current. A year ago, this number was at 46 percent, and these peak-time purchases are likely responsible for the significant drop in numbers. While lenders and programs are working towards helping homeowners throughout the nation, the peak time purchases in California just don’t give lenders enough room to work with.

Of those in default, DQNews also found that California borrowers were on average 5 months behind on their primary mortgage and 8 months behind on home equity loans or lines of credit.  At the time, multiple loan financing peaked in 2006, accounting for almost 61 percent of all home purchases. As of right now, with credit markets tightened, multiple loan financing accounted for only 6.5 percent of purchases in California.

For those of you currently in the market for a home in California, it’s definitely tough to predict the best times to buy; and I know most of you are shooting for prices to hit rock bottom. But, one thing we can see from mortgages made in the past is that you need to make sure you aren’t getting in over your head. Granted that credit guidelines are more strictly enforced nowadays, it is always in your best interest to make sure you consider all the possibilities. This could include adjusting interest rates, slipping home prices, or various financial emergencies. By taking all of this into account, you stand a much better chance of dealing with any unknowns in the future. Of course, you can’t prepare for everything, but typical loan guidelines are calculated to give you some breathing room in case something does happen. Unfortunately for the folks who bought during the peak prices in California, one can only hope they find a way to manage with today’s struggling housing market.

1 Star2 Stars3 Stars4 Stars5 Stars (6 votes, average: 4.83 out of 5)
Loading ... Loading ...
Home Equity Loans

California Counties Receive Their Slice of $529 Million Pie
Published
by
Heindrick
on October 23, 2008
in Home equity
. 5 Comments

Recently, the Housing and Economic and Recovery Act authorized HUD to distribute $3.92 billion to states to help fix the neighborhoods and communities infected by the wave of foreclosures.  The funds were distributed based on foreclosure rates and California received the second largest amount at $529 million; Florida received $541 million.  As of last week, the $529 million has been split amongst counties and cities in California.

Some counties that stood out were Sacramento and Los Angeles, each receiving $32 and $18.6 million respectively. Interestingly, Sacramento’s $32 million is larger than some 20 states entire share of the $3.92 billion. According to an interview with HUD Secretary Steve Preston, state and local governments will be able to buy foreclosed homes and offer down payment and closing cost assistance to low income buyers. Through these methods, the goal is to eventually rehabilitate some of these damaged neighborhoods and make them more attractive to potential buyers.

In Sacramento, 40 percent of the funds will be used to buy, fix, and then sell such distressed properties. Another portion will be used to hire developers who will buy multiplexes and create affordable rentals for low income tenants.

Will this work?
First of all, even with counties getting as much as $32 million, Sacramento officials agree that this will only help to rehabilitate about 400 properties.  With other counties in California only receiving a fraction of that amount, these funds could dry up quite quickly. In addition, some feel that something is fundamentally wrong with state and local governments now in the business of real estate flipping. As for the neighborhoods themselves, if investors manage to attract the low income buyers and tenants as they hope, the surrounding homes will end up losing significant value anyway.

So what do you think? Some suggest, counties should choose investors and developers carefully, especially considering non profit agencies. Others suggest they should leave the rehabilitations and real state flipping to the new owners. For more information, read the full coverage at Sacramento Bee and SFGate.

1 Star2 Stars3 Stars4 Stars5 Stars (20 votes, average: 4.95 out of 5)
Loading ... Loading ...
Home Equity Loans

What Does Today’s Fed Rate Cut Mean for Mortgage Rates
Published
by
Heindrick
on October 8, 2008
in Home equity
. 0 Comments

This morning, the Federal Reserve cut the fed funds rate by half a percentage point to 1.5%. Today’s rate cut is making more news than usual because it was done in coordination with banks around the world.

Why the Rate Cut?
When the Fed cuts interest rates, it eventually trickles into the economy with hopes to rejuvenate spirits during this tough time. Essentially, by reducing these key interest rates, it becomes less expensive for consumers and businesses to spend money. Remember that the fed funds rate generally has a direct correlation between credit cards, automobile loans, business loans, and home equity lines. As for mortgage rates, the effects are a bit tougher to predict. 

Fed Rates and Mortgage Rates
Historically, a reduction in these rates will eventually yield to lower mortgage rates - but this is no guarantee. In fact, during our last round of rate cutting, thirty year fixed mortgages saw an initial increase in mortgage rates. As of right now, investors are wary of investing in mortgage debt because of the recent toxic mortgages that have been plaguing banks.  It is also worth noting that the current spread between mortgage rates and the fed funds rate is unusually high.

Global Rate Cut and Fears of Inflation
In this past year, there were a series of rate reductions which brought us to a 2% fed fund rate seemingly overnight. It’s been awhile since we’ve seen another rate cut and the reason is primarily due to fears of inflation.  Well, people are still worried about inflation, but as of right now, this mortgage crisis has presented greater problems at hand. In order to uplift this economy, without exacerbating inflation fears, central banks around the world have cut their rates at the same time. These central banks include banks in the UK, European Union, Switzerland, Sweden, Canada, and China.

Back in August, I had written a post titled “Next Move For Fed Fund Rate Will Be an Increase“.  And here we are today. So what does this all mean? We’re starting to see the mortgage crisis spread well past localized markets. The increase in foreclosures in California isn’t just affecting California. Its reach has spread well past the U.S. Economy and into our global economy.

Had their not be a worldwide central bank rate cut, the fed fund rate would have likely stayed at 2% due to inflation fears. But the crunch is just too strong, and something had to give. For those of you who followed the series of fed rate cuts, you should know by now that the fed fund rate is tied directly to home equity loan mortgage rates.  While this rate cut comes during a tough time in our economy, it may also be the right time for you to looking into relatively cheap home equity loans.

Quick Links:

New York Times - Q&A about Fed Rate Cut

The Guardian - See What Economists Have to Say About Today’s Cut

1 Star2 Stars3 Stars4 Stars5 Stars (5 votes, average: 4.4 out of 5)
Loading ... Loading ...
Home Equity Loans

California Bailout Spreads Beyond Housing and Mortgage Sectors
Published
by
Heindrick
on October 4, 2008
in Home equity
. 7 Comments

The problems that home owners and lenders have been facing in California have begun spreading into various industries throughout our state. Most recently, Governor Schwarzenegger sent a letter to Treasury Secretary Henry Paulson letting him know that California is running out of money. Typically, California would access short-term loans from private banks to help fund these “day-to-day” government operations.

But with the credit crunch and liquidity crisis, Schwarzenegger’s letter informs Paulson that it is in need of an emergency federal loan bailout.  Except in this case, congress isn’t just dealing with some cash strapped teenager looking for some weekend money. No, when California is short on cash we do it in the traditional California fashion and go BIG–7 billion dollars to be exact.

More than Homes and Mortgages

According to Schwarzenegger, the money is needed to avoid having to shut down state operations such as payments to school and other government entities. Such operations would be suspended and state employees could be laid off. California State Treasurer Bill Lockyer states that “unless the national economic crisis subsides and California can secure private short-term loans, the states cash reserves could dry by up the end of October.”

Personally, I’m against any bailout that would essentially prop up the value of bad debt and toxic mortgages still labeled as “assets”.  But when it comes down to it, I don’t think many are ready to face the devastation that would occur without bailing out entities which are too big to fail, including the state of California. Either way, California will have to present the case to Congress, as Chairman Charles Rangel already responded “there is no way that the federal government can give away taxpayer’s money without coming to Congress. No way.” A few interviewed Congressman had their share of opinions, but the general consensus is such a request will unlikely be welcomed with open arms.

One thing is for sure, home owners who’ve managed to sidestep the ongoing housing downturn in California will have trouble avoiding this statewide financial crisis.  And unfortunately, those who are employed by government entities could be facing a double whammy if they’ve already been dealing with these troubled mortgages.

For more information about this request by Gov. Schwarzenegger, here are a few quick links to get you up to speed:

CNN

LA Times

SFGate

1 Star2 Stars3 Stars4 Stars5 Stars (6 votes, average: 4.83 out of 5)
Loading ... Loading ...
Heindrick So

About the Author:

Heindrick So is a mortgage consultant at a local Bay Area Real Estate Brokerage - specializing in residential wholesale lending.



Like our blog?

Get the widget!





Today's Mortgage Rates

5/1 Adjustable Rate:
30-Yr Fixed Rate:

Find Your Lowest Rate!


What type of loan do you need?
Mortgage Refinance
Home Equity Loan
Debt Consolidation
New Home Loan

In what state is the property in question located?


What is the property type?


Credit Rating?




A GuideToLenders.com Partner


0

Start your Mortgage Search Now

Step 1

Select a loan type:
Mortgage Refinancing
Home Equity Loan or Line
Debt Consolidation
New Home Loans
 Property State:

Property Type:
Credit Rating:

Home | Site Map | Privacy Policy | California Privacy Policy
© 2008 CMR. All rights reserved.