Mortgage Rates For December 18 2008

30 Fixed Mortgage Rate: 5.17% – Lowest in 37 Years

15 Fixed Mortgage Rate: 4.92%

5 Year ARM: 5.60%

1 Year ARM: 4.94%

Source: Freddie Macs Primary Mortgage Market Survey

Troubled Asset Relief Program Bails Out Over 100 Institutions

The Troubled Asset Relief Program (TARP) has surpassed the 100 bank and institution bailout point totaling $167,756,852,000 in taxpayer money under the Capital Purchase Program according to the December 16th, 2008 Transaction Report by the Treasury.

The first bailout recorded on the Capital Purchase Program was on October 28, 2008 for a total of $15,000,000,000 awarded to Bank of America. On that same day Citigroup, JP Morgan Chase and Wells Fargo have recorded the largest single transaction of $25,000,000,000. Since then the Treasury has eased its spending somewhat with the largest single transaction for the month of December in the amount of $935,000,000 to Popular, Inc. of San Juan Puerto Rico.

The Capital Purchase Program is equivalent to investing in the stock market. What happens is the Treasury purchases stock in these companies, in return this frees up cash for these institutions to lend to the general public on mortgage loans, car loan etc. If the Treasury places money into the right institutions there is a very good chance your money would turn a profit for the government. Money placed in the wrong institutions is basically chalked up as a loss.

However, there seems to be consensuses out there that these institutions are hoarding the cash for the Capital Purchase Program as the market continue to deteriorate. In the meantime the Treasury continues to put pressure on these institutions to make new loans that would in return revive the housing market.

The only problem right now is home values continue to deteriorate at a rapid pace; you can almost compare it to the drop in value of a new car after you drive it off the lot. This has led to The National Association of Realtors and National Association of Home Builders to push Congress into approving another stimulus package, dubbed “Fix Housing First” , that would give homebuyers tax incentives and subsidized mortgage rates, as low as 2.99 percent 30 year fixed, to help stabilize home values.

It could be speculation but the next round of foreclosures may be on the horizon, and it has already been dubbed the Option Arm round. 60 minutes did a piece on how Option Arms are about to reset and many homeowners with these loans are having troubles paying their 1 percent teaser rate which will reset at a much higher rate.

It may not be as much as banks hoarding cash as they are preparing to hold the cards for the next round of bailouts that will be facing the U.S. housing market. Only time will be able to tell if the banks receiving and hoarding funds from the Capital Purchase Program are doing so wisely or selfishly.

US Central Bank Cuts Short-term Interest Rates to Nearly Zero

Saying the economy is continuing to weaken, the U.S. central bank Tuesday cut short-term interest rates to nearly zero.

The Federal Reserve is taking short-term rates to their lowest level since the central bank was founded in 1913. It is cutting rates by three quarters of one percent to 0.25 percent.

Following its two-day meeting, the 12 member policy-making committee said the central bank will use all available tools to stimulate economic activity and combat the financial crisis. It was tenth cut in short-term rates in the past 12 months.

Bill Poole was until earlier this year a Federal Reserve governor. “The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding,” he said.

In its statement, the Fed said that the economic outlook has weakened further since the committee’s last meeting in late October. The U.S. economy has been in recession for one year. The gross domestic product expanded by a meager 0.5 percent annual rate in the three months ending in September.

And some analysts expect negative growth at a six percent annual rate in the current three-month quarter. The economy has lost nearly two million jobs in the past year and the recession is already the longest in 25 years. Some analysts worry that the downturn will be worst in the post-World War II period.

The global outlook is not much better as Japan and parts of Western Europe have entered recession. And growth in China-the fastest growing emerging economy is decelerating from the rapid 12 percent rate of earlier this year.

Analysts say the central bank’s challenge is greatly compounded by the 15-month old credit squeeze that has essentially frozen some sectors of the credit markets. Thus, no matter how low interest rates are, creditors are reluctant to lend, while businesses and consumers are reluctant to borrow.

The stock market responded favorably to the news of the larger than expected rate cut. A rally that had seen the Dow industrials up 100 points quickly changed to a 200 point advance.

Federal Reserve Cuts Rate To 0.25%

The Federal Reserve has decided to cut interest rates once again. The time the key interest rate was cut by 0.75 percent dropping it to 0.25 percent.

With the US economy all but down the toilet, the Federal Reserve is taking measures that will hopefully put some life back into the markets.

The first step to reviving the market is to make money between banks virtually free of interest with the rate cut they announced today. The Federal Reserve also reiterated that they will be purchasing large amounts of mortgage backed securities to help revive the mortgage and real estate markets.

Will this rate cut be what mortgage lenders needed to feel more confident about lending out their money or are they just going to hoard the money like the have been doing for months? Either way, lending standards will continue to be very tight as foreclosure numbers and re-default numbers continue to sour.

The rate cut may also reverse the downward trend of mortgage rates as of late. However, there are many efforts out there by organizations pushing Congress and The Feds to get the 30 year fixed rate down to 4.5 percent, even 2.99 percent in some cases.

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Mortgage Rates – December 16, 2008

The 30 year fixed mortgage rate is pushing closer to the Treasury’s 4.5 percent mark in the latest reading. With the Federal Reserve expected to cut rates will it have a negative impact on mortgage rates?

According to Zillow Mortgage Marketplace 30 fixed mortgage rates fell 0.19 percent from last week to an average of 5.15 percent. The 15 year fixed mortgage rate also fell week over week and now averages an even 5 percent.

The 5 year adjustable mortgage rate showed a slight increase week over week of 0.01 percent to average 5.94 percent. With expectations of a Fed rate cut of short term rates however, the 5 year arm may show improvement over the coming days and weeks.

Speculation is that the Federal Reserve is going to be cutting interest rates by at least 0.50 percent. If that happens, the key interest rate will be sitting at 0.50 percent, the lowest since the 60s.

The downside to an interest rate cut is that investors will begin to pull their money out of bonds and place it into other investments. What this does is drive long term mortgage rates up as mortgage rates are tied into the bond market. When bonds go down, mortgage rates go up and vice versa.

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Mortgage Rates – Dec. 11, 2008

30 Year Fixed Mortgage Rate – 5.47% *4.5 Year Low 15 Year Fixed Mortgage Rate – 5.20% 5 Year Adjustable Mortgage Rate – 5.82% 1 Year Adjustable Mortgage Rate – 5.09% Source: Freddie Mac Primary Mortgage Market Survey

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GAO Reports On TARP – High Risk

A “heightened risk that the interest of the government and taxpayers may not be adequately protected,” is what the Government Accountability Office stated about the TARP program.

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The TARP program which was designed by the Treasury to purchase toxic mortgage loans quickly switched over into a program called the Capital Purchase Program (CPP) which is now used to inject capital into banks and other financial institutions.

Since the $700 billion TARP program began, $195 billion has been disbursed to 87 institutions through the CPP program. Oversight of this money once it leaves the Treasury is virtually nonexistent according to the report by the GAO.

Currently there are no requirements that institutions receiving funds from the government track or report how the funds are being used. The requirement of the Treasury is for the institutions receiving the funds are to increase the flow of credit.

Since the Treasury has not yet determined how it will monitor compliance with executive compensation or any other compliances or requirements, the Treasury’s ability to ensure accountability of the institutions receiving your money is very limited.

In response to the GAO report released today, Interim Assistant Secretary for Financial Stability Neel Kashkari said “The GAO report is just one example of our compliance with the tough oversight Congress has appropriately established over the TARP.” It may be that Congress’s oversight of the TARP program is tough but the Treasury’s oversight of your money to these institutions is rather pathetic.

Also disturbing is that the Treasury has not turned down one institution that has applied for the TARP program. Instead banks and institutions who appear unlikely to win approval are encouraged to withdraw from the process. Without knowing which financial institutions, if any, have been turned away from the capital purchase program — and why — taxpayers have no way to assess whether their money is being directed in the most effective manner.

Mortgage Rates For December 10, 2008

30 year fixed rate: 5.45%

15 year fixed rate: 5.09%

1 year ARM: 6.76%

Source: Mortgage Bankers Association

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Mortgage Finance Officials Defend Actions on Risky Loans

U.S. lawmakers challenged former top executives of major government-backed mortgage finance companies to explain why they took on billions of dollars in risky loans. Questioning of the former heads of Fannie Mae and Freddie Mac came as a House of Representatives committee released documents showing that the executives ignored warnings about the dangers the investments could pose.

The federal government assumed control of both companies this past September in the early days of the meltdown in the U.S. financial system driven by a collapse of the housing market.

Known as Government Sponsored Enterprises, they are public-government hybrids and together own or guarantee half of the more than $11 trillion in outstanding mortgage-based debt in the United States.




House Oversight and Government Reform Committee Chairman Henry Waxman, a Democrat from California called decisions by the former executives, in some cases made despite internal warnings, irresponsible.

“Their own risk managers raised warning after warning about the dangers of investing heavily in the sub prime and alternative mortgage market,” said Henry Waxman. “But these warnings were ignored”

The former officials defended actions they took as the companies ventured deeper and deeper in the sub-prime mortgage market, saying they did so to remain competitive in the larger lending market.

Richard Syron headed Freddie Mac:

“If it had not done so it could not have remained competitive or even relevant in the residential mortgage market we were designed to serve,” said Richard Syron.

Franklin Raines, former head of Fannie Mae, asserted that  federal regulators encouraged the companies to expand risker loans, while failing to exert enough oversight.

“It is remarkable that during the period that Fannie Mae substantially increased its exposure to credit risk its regulator made no visible effort to enforce any limits,” said Franklin Raines.

But while Republicans and Democrats differ on the root causes of the problems at Fannie Mae and Freddie Mac, there was bipartisan impatience with these and other explanations.

Republican Daryl Issa said the four men were, in his words, in complete denial of any responsibility.

“Your whole excuse for going to risky and unreasonable loans that are defaulting at an incredibly high rate is that everyone is doing it,” said Daryl Issa. “If we don’t do it, we’ll be left out.”

 


Representative Dennis Kucinich, a Democrat, pressed former Fannie Mae executive Daniel Mudd on why he didn’t follow the advice of the company’s risk officer:

KUCINICH: “Do you take responsibility for the risks that your company took when you ignored the advice of your credit risk officer and when you cut the budget, do you take that responsibility?”

MUDD: “I followed the process to listen to all of my staff, not just the chief risk officer.”

KUCINICH: “But what did you do though. What did you do. Did you cut the budget of your credit risk officer?”

MUDD: “Just liked all budgets, as long as I have been involved in business we negotiated the right number for the people that he could hire.”

KUCINICH: “Is the answer yes or no, did you cut your credit risk officer’s budget?”

Edward Pinto, Chief Credit Officer for Fannie Mae from 1987 to 1989 said the companies played more than a minor role in the sub-prime lending crisis and collapse of the housing market.

“They loosened credit standards for mortgages, which encouraged and extended the housing bubble,” said Edward Pinto. “They trapped millions of people into loans they knew were unsustainable. And they destroyed the equity savings of tens of millions of homeowners spread through every congressional district in the United States.”

Charles Calomiris, Professor of Financial Institutions at Columbia University Business School, says while the companies goal of promoting affordable housing was a motivating factor, executives took actions they knew were dangerous.

“They were experienced in this area, they knew the dangers of no docs lending [loans without sufficient proof of ability to pay] and they did it anyway,” said Charles Calomiris.

Calomiris adds that both companies also acted in line with what he calls the political deal with the federal government that was well-understood in the marketplace.

Had they not relaxed their standards, which had a ripple effect through the market tripling risky lending, he says the sub-prime crisis might been half as severe as it has been.




Source: VOA

December 09, 2008 Mortgage Rates

National Mortgage Rate Average
Week ending 12/7/08
30-year fixed 5.34%
15-year fixed 5.16%
5-1 ARM 5.93%

Source: Zillow Mortgage Market Place