How long will refinance rates stay low?
Record low mortgage rates have been a great boost to home owners who have been able to refinance their mortgages and lock in long term fixed rate loans at historically low levels. The mortgage industry has seen a tremendous boost since early December as the Fed help orchestrate a record drop with mortgage rates. The burning question remains, how long will interest rates remain this low?
The reality is that todays economy is definitely in unchartered territory. Mortgage rates historically have always moved up or down with the stock market and corresponding economic news as investors have moved in and out of bonds and mortgage bonds, helping to raise and lower these rates. The current market will react to news (such as the dismal housing report this week) as well as corporate earnings, such as the news from Microsoft, Wells Fargo and Ford Motor company this week. The news tends to move the stock market and helps guide investors as they move large investment pools in and out of the stock market.
Todays market has one major difference from a traditional marketplace, the involvement of the Federal Reserve. The FOMC has made it very clear they are deteremined to help keep mortgage rates at very attractive levels. They moved in this direction in late December of 2008 and again in March of 2009. Their involvement will likely become more resilient as they continue to digest the challenges in the current economy to help restore the housing market. The March existing home sales report came in well below expectations, a signal that the low mortgage rates have helped to spur home owners to refinance, but have yet to make a significant impact on home sales. The housing market is one of the key areas that the Fed is focussed on in an effort to try to end the U.S. economic led recession. They will be very determined to leave no stones unturned as they work to try and jump start home buying, including working within the secondary market to help keep mortgage rates at very attractive levels. Home buyers should feel confident that the low mortgage rates that are available today, should be around through the end of the summer. These attractive interest rates, combined with a government tax credit and surplus of affordable housing could provide for one of the greatest home buying opportunities of all time. Home owners who are not in a position to move, should definitely look into refinancing their mortgage loan to lock into a low fixed rate, as the window for refinancing could begin to narrow by the end of the year.
Bank stocks lead market rally as earnings season begins
The stock market has moved past the 8000 point level, thanks in large part to a surge in bank and financial related stocks. A number of large banks and financial stocks have seen their share price surge in excess of 50% over the past forty five days. The market has rallied steadily since early March as investors have gained confidence that the worst of the economic recession may soon be over. The market has pinned much of the optimism on a belief that the first quarter of 2009 would be the worst period for the U.S. economy, and a number of recent economic reports (CPI, PPI, Beige Book) have all indicated weakness with the U.S. economy and growth.
Corporate earning reports have been a critical factor in the market over the past two weeks and some of the nations largest companies have reported earnings that indicate the economy is not falling off of a cliff. This past week earnings reports from companies such as Citigroup, JP Morgan, Wells Fargo have all been above most analysts exectations. The banking industry has seen a significant boost in there business from low mortgage rates that have helped to spur a wave of refinance activity. Home owners have taken advantage of the low refinance rates that the FOMC has helped to create through their mortgage policy over the past six months. The refinance boom has been a key ingredient in helping banks gain some earnings momentum during the first quarter of 2009. Wells Fargo, indicated their mortgage activity has topped one hundred billion dollars for the first quarter, a record for their business and primarily all made up of home refinance loans.
The stock market is looking to gain further momentum as we head into the summer months. Economists now appear to be offering different expectations as to how quickly the U.S. should expect to be out of one of the worst economic recessions. Most economists believe that the end of a recession occurs with positive GDP growth. This would help to indicate that the economy is growing as opposed to contracting. Positive growth is not likely to occur until job losses have significantly slowed down and confidence has returned. The dismal retail sales report for the month of March is a sign for the economists who believe that 2010 is the earliest the economy should expect to recover, while the optimists are hoping for a recover towards the latter part of 2009.
The U.S. housing market could be one of the areas that helps to boost the economy. With record low mortgage rates, government refinance programs and lender loan modifications gaining momentum, there is a glimmer of hope that the excess market inventory should begin to disappear and home prices will finally hit their bottom in 2009. The mortgage industry has benefitted from record low refinance rates, but certainly would like to see purchase mortgage applications begin to grow as the market heads into peak home buying season.
Government promises to help prevent refinance and loan modification scams
President Obama pledged on Monday that the government would begin working to help home owners who are being taken advantage of in mortgage refinance and home loan modification scams. The mortgage industry has seen a large increase in the volume of refinance loans thanks in part to the federal reserve purchasing mortgage bonds and bringing interest rates down to historically low levels. The drop with rates has been a major boost in helping strugling home owners refinace their mortgages out of adjustable rates into low fixed interest rates. The challenge for the government is to help home owners who owe more than the value of their homes, may have bruised credit or are currently behind on their mortgage payment. This segment of the housing industry has been susceptible to the majority of fraud that has occurred over the past twelve months.
Home owners who have fallen behind on their house payments and are struggling to pay their mortgages are often the individuals who are most likely to be the victim of a scam as they are desperate for help and often find working with their mortgage lender or servicer to be an intimidating process. There are a large number of companies that have come to the marketplace over the past 24 months offering to help home owners lower their payments or resolve their credit issues with their mortgage lender. Not all of these companies are out to take advantage of consumers and some of them may truly offer a benefit. Their are some red flags you should be on the lookout for if you are trying to work with one of these companies:
- Do they charge a fee upfront and will they refund this if they are not successful in lowering your payment
- Do they want you to sign over the title of your home
- Do they tell you to stop making payments or not to contact your lender
- They indicate they are a government approved vendor
- They promise to help you refinance at a zero percent rate
The governments mortgage modification program is designed to help home owners who have fallen behind with their payments due to job loss or economic hardship. Home owners who have mortgages that are securitized through Fannie Mae or Freddie Mac may be eligible to explore a refinance or loan modification with their servicer or lender directly. The lender does not have to participate in the government recent program but their is a financial incentive for them to do so as well as good business sense to help their customers avoid home foreclosure as each foreclosure the lender loses at a higher rate than almost every other alternative.