Archive for the ‘Federal Reserve’ Category




Things really are getting better. English: Mortgage debt

The mortgage delinquency rate (the rate of borrowers 60 days or more delinquent on their mortgage) dropped 23.3 percent in the past year, ending the third quarter at 4.09 percent, down from a year earlier when the rate stood at 5.33 percent, according to data gathered from TransUnion’s proprietary Industry Insights Report. The mortgage delinquency rate also dropped on a quarterly basis, down 5.3 percent from 4.32 percent in the second quarter, the seventh straight quarterly decline.

All 50 states and the District of Columbia experienced a decline in their mortgage delinquency rate between third quarter 2012 and third quarter 2013. Five states – California, Arizona, Nevada, Colorado, and Utah – experienced declines of 30 percent or more in their mortgage delinquency rate. Three states – California, Florida, and Nevada – had double-digit percentage drops in the last quarter.

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The ratio between pending sales and listed properties is the best single indicator of future market direction.
Silicon Valleys Pending Home Sales Index (PHSI) has now improved for 16 months in a row from from February 2011 to May 2012.
A PENDING SALE is defined as a Signed Purchase Contract.
Given the Federal Reserves commitment to keep rates down for at least another year this trend seems sure to continue with a steady increase of home prices.


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Did you hear about the Seller who posted weekly progress reports on her Facebook Wall, including the fact that she would be willing to go as low as $450,000 for a strong buyer. Property had been listed at $510,000 for 9 weeks with no offers. Next day she got an offer of $425,000 from a cash buyer. Could have been co-incidence I suppose!

If selling your house through a REALTOR you will probably have been told never to get into conversation with buyers or Agents viewing your home, and refer ALL questions to your Realtor.  

If you are typical you will ignore this advice the 1st time someone asks a simple question such as “where are you moving to”. Where’s the harm in telling this friendly guy you just got notice that your 5 year adjustable mortgage is going up to 6.75%,  and since you got laid off 9 months ago and your unemployment benefits are coming to an end  you won’t be able to pay that for much longer. In other words you’re pretty desperate and it’s only going to get worse.

Is it likely that this friendly fellow is going to feel sorry for you and offer you his top price? Or is it more likely he smells blood in the water and is going to give you a low ball take it or leave it bid? 

And just what benefit did you get from the conversation that made it worth ignoring the good advice you Realtor had given you?

Neither a potential buyer or buyers agent can tell you anything your advantage, but by talking to them you can give a considerable amount of useful information away.


Allways remember that Social Media web sites are not designed to keep your conversations and opinions private. Quite the opposite.

Inside Job. Must see movie. Very Interesting

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If you truly want to understand how our economy got into it’s current mess, who’s responsible, and where they are now this is a must movie.

It does a great job of pulling together the threads and showing the whole cloth.

Higher interest rates likely Soon??

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The Federal Reserve (the Fed) took aggressive steps during 2009 and early 2010 to drive mortgage interest rates down in order to encourage more people to buy homes and revive the real estate industry.

To understand how they did this we need to know what actually controls mortgage interest rates for the home buyer.

 It is the price of Mortgage Backed Bonds (MMB’s)and NOTHING else. The bulk of these are created by Fannie Mae and Freddy Mac who buy your mortgage from the Bank or Mortgage Broker who originally made it. They then package hundreds of mortgages together as a Bond and sell it off to private investors (Pension and Insurance companies are typical buyers). The proceeds from the sale are used to buy new mortgages from the Banks and Brokers. This virtuous circle is the motor that drives the Real Estate market.

The Private Investors stopped buying when they realized that a lot of the individual mortgages inside the Bonds were badly designed (Sub-Prime) and payments from were less reliable than they had been told.

When investors stop buying MMB’s the Mortgage Lenders have no money to lend and the Real Estate Market freezes up.

One solution would have been to increase the interest rate on new mortgages in order to offer a higher rate to the investors to compensate for the higher risk. In normal times this is how the market works. In the current circumstances the Investors were not going to buy at any price.

In early 2009 the Fed came to the rescue to avoid a total shut down of the housing market. They began buying these MMB’s in huge numbers and aaccepted very low interest rates. This restored the supply of money available to make new mortgages at historically low rates, and stabilized the whole residential real estate industry.

These Fed purchases have been completed and the challenge now is to attract Private Investors back as buyers for MBB’s. They are there, but will not accept the low rates that the Fed did. Therefore the interest rates paid to get a mortgage will have to go up.

Potential Buyers need to be getting serious if they want to take advantage of these historically low rates.

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Mortgage interest rate have remainded at historically low levels for longer than we can remember. This has not been an accident. The largest factor has been the Federal Reserve program under which they have bought about $1.25 TRILLION of Mortgage Backed Securities (MBS’s) on the open market.

 MBSs are simply BONDS. Their prices go up and down based on our old friends Supply and Demand. As with all Bonds,  when   pricies go up the Interest Rate on them goes down, and vise-versa.

So in order to see where Mortgage Interest Rates are going we simply track the prices of the Bonds known as MBS’s.

You can safely ignore the uninformed pundits of the media repeating the ridiculous mantra that Mortgage interes rates are driven by the 10 year Treasury. The MBS’s deal only with Mortgages. The 10 year Treasury is an indicator of the entire U.S. financial system and will often point in the opposite direction to the MBS market.

Now let’s come back to the $1.25 Trillion worth of MBS’s bought by the Federal Reserve as part of the Governments Financial Stimulus program. Having this much money looking to buy MBS’s (DEMAND) has artificially kept the price of them up, and as a result kept Mortgage Interest Rates down. As of the last day of March this program is finished. Now there is a reduced demand for MBS’s and an inevitable inrease in Mortgage Interest Rates.

This will begin to happen right away and continue until the market stabilizes at the level dictated by regular market forces. This will be at a higher rate than we are at now.

For an excellent summary of this process check out the following link

The lesson here is that if you want to become a homeowner it’s time to get serious before these rate increases get too far away from what you can afford.

The Fed and the Crisis

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The Fed and the Crisis

For anyone wishing to understand what the Federal Reserve actually did, and will continue to do in dealing with our current financial problems, here is a link to a San Francisco Fed web site where you will find a goldmine of facts and commentary.

It’s a great resource dealing with the process of digging out of the hole and getting back on track.

Maybe one day they will do an equally good job on their failure to prevent all this from happening. As far as I can see they did not have the courage to take away the cookie jar when this Bubble was so obviously getting seriously inflated.

Turns out that Mr. Greenspan really let us down by failing to spell out what was happening, and take the risk of being unpopular with his Political Masters. Like many before him he seemed to buy into the “New Paradigm” myth. Remember that phrase during the run up to the Dot Com bust.