FED Meets….Holds Rates Steady!!

The Federal Reserve Board left short-term interest rates unchanged today, ending a ten-month spate of cuts.  Signaling that inflation is now a greater threat to the economy than recession, the “FED” left the benchmark federal funds rate at 2%.   The commercial prime lending rate, a benchmark for millions of business and consumer loans—such as auto loan rates, home equity 2nd mortgages and credit card interest rates—will remain unchanged at 5%.  The Fed voted 9-1 to keep rates the same, the one lone dissenter being Dallas Fed President, Richard Fisher.   I’m surprised the vote was that close, given that three other Fed presidents, most notably the ones from Virginia and San Francisco, openly stated their support to raising rates to stem inflation, just a few weeks ago.  Their comments, along with the same sentiment openly echoed by Fed Chairman Ben Bernanke, was the impetus for consumer interest rates to rise over a quarter % the past couple of weeks.

ILLINOIS FILES SUIT AGAINST COUNTRYWIDE

Remember my rant against the lobbyists (mostly from call-center banks) who are preventing legislation for mortgage licensing?  Well, this is what happens when you incent “call-center L.O.s”, to write loans in volume, with no regard to consumer suitability:

Illinois Attorney General, Lisa Madigan, is suing Countrywide Financial, and CEO Angelo Mozilo, contending that the company and its executives defrauded borrowers in the state by selling them costly and defective loans that quickly went into foreclosure.  Amongst the most damning evidence, were e-mail messages sent to borrowers on their one year anniversary date, stating “Happy Anniversary—home values skyrocketed over the past year.  That means you may have thousands of dollars of home equity to borrow from at rates much lower than most credit cards”.   This created an atmosphere of refinancing the same people, over and over again, with loan costs that were repeated, all while adding to what was owed on the house.  For me, I’m not one who is crying for individual consumers who made bad choices—we’ve all done that one time or another.  But when you read that Countrywide’s call centers closed 60% of their loans on either sub-prime (poor credit) and Hybrid ARMS (negative amortization loans), one who knows this business can see that they were predators to the less educated or vulnerable borrowers.  I have been frustrated  because at one point a lender was calling three different clients of mine who had just closed loans four months earlier.  The problem?? I got them the loans through this particular lender and all 3 clients had a one year pre-pay penalty, due to prior credit issues.  Rather than wait for the one year to pass before putting them in an FHA loan (the plan), the lender tried to refinance them into a similar loan and deceived them into thinking their pre-pay penalty was waived.  It wasn’t.  It was rolled into their $14,000 of closing costs!!  OUCH!!  Now, they are getting sued.  KARMA Lives on!!

Well, the big development, coming out just today, was that Fannie Mae has chosen to relax it’s standards to allow conventional financing up to 97% even in distressed sales market.  The affect of this new change is that for the past few months, most borrowers had to have a minimum of 5% and many lenders even insisted on 10% down.  Now that Fannie Mae has said they will once again purchase mortgages with conventional financing and only 3% down, borrowers are not forced to get an FHA loan if they are looking for minimum down payment.  That allows them to avoid the 1.5% FHA “funding fee” that must be charged on FHA loans.  Obviously, these borrowers will still have monthly mortgage insurance but they are allowed higher purchase prices than FHA allows.   All in all, a good Loan Consultant can still help to guide perspective borrowers into the right choice for them.

The other big piece of news today was that Consumer Confidence has dropped to a low not seen since the Carter administration.  This is most likely due to the fact that consumers at large feel that there is still more difficulty coming in the economic markets. 

My summary??  Rates are still really good.  The thing that is stopping most borrowers is that there is now a shortage of ‘niche’ programs that fit borrowers that do not fit conventional guidelines.  While I understand that many programs should not have been so easy, I think there needs to be a balace that can accomodate those that are not conventional but still good credit risks.  Until we begin to see some of those programs coming back, difficulties will continue. 

If I can be of any help to you, please do not hesitate to call/email me!!