Friday, August 31, 2007

BEN BERNANKE'S SPEECH

JACKSON HOLE, Wyo. -- The Federal Reserve must take the effects of recent financial market disruptions into account in setting monetary policy and is ready to act as needed to ease their impact on the economy, Fed Chairman Ben Bernanke said Friday.
Mr. Bernanke's prepared remarks to the Kansas City Fed's annual Jackson Hole seminar suggest the central bank is set to lower rates unless short-term credit market conditions improve.

"Developments in financial markets can have broad economic effects felt by many outside the markets, and the Federal Reserve must take those effects into account when determining policy," Mr. Bernanke said, The Fed "stands ready to take additional actions" to boost liquidity, "will act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets."

Mr. Bernanke went further Friday, saying "the further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effects on consumer spending and the economy more generally." In fact, "global financial losses (triggered largely by subprime mortgage concerns) have far exceeded even the most pessimistic projections of credit losses on those loans," Mr. Bernanke said.

To be sure, Mr. Bernanke's words weren't entirely soothing to investors. "It is not the responsibility of the Federal Reserve -- nor would it be appropriate -- to protect lenders and investors from the consequences of their financial decisions," Mr. Bernanke said.
Still, there was little in Mr. Bernanke's speech that would cause investors to pull back from expectations for reductions in the Fed's primary tool, the federal-funds target rate, which has stood at 5.25% for more than one year. Futures markets are pricing in multiple fed-funds rate cuts by the end of the year.

To read the full article click on this link: http://online.wsj.com/public/article_print/SB118856681612814632.html
BUSH OFFERS RELIEF FOR SOME ON HOME LOANS

WASHINGTON, Aug. 31 — President Bush, in his first response to families hit by the subprime mortgage crisis, announced several steps today to help Americans who have credit problems meet the rising cost of their housing loans. First, to change the federal mortgage insurance program in a way that would let an additional 80,000 homeowners with spotty credit records sign up, beyond the 160,000 likely to use it this year and next. Second, to endorse proposals backed by Democrats in Congress that would raise the ceiling on the amount of a mortgage that can be refinanced with federal insurance and to support legislation that would provide tax breaks to homeowners whose mortgage debt is forgiven, in whole or in part, by lenders.

“It’s not the government’s job to bail out speculators or those who made the decision to buy a home they knew they could never afford,” Mr. Bush said. “Yet there are many American homeowners who can get through this difficult time with a little flexibility from their lenders or little help from their government.”

To read the full article click here: http://www.nytimes.com/2007/08/31/business/31home.html?pagewanted=2&_r=1&th&emc=th

Monday, August 20, 2007

FED CUTS DISCOUNT RATE, ADMITS CONCERN

Last Friday the Fed, acknowledging for the first time "the risk of an economic downturn," cut its discount rate from 6.25% to 5.75%, "encouraging the nation’s banks to borrow directly from the Fed." Following the announcement, the Dow Jones changed direction and shot up 1.8 percent on Friday morning.

The move came at the realization that even creditworthy homebuyers are now having trouble obtaining mortgages, and is particularly notable given that "the Fed’s standard practice, for more than a decade, has been to change rates and issue statements only at scheduled meetings of policy makers." But as the stock market continues to falter, the Fed's chairman Ben Bernanke scheduled a conference call during which the policy makers voted unanimously on the lowered discount rate.

While the cut signals that even the Fed has found it necessary to admit economic fears, at the consumer level, it seems people--for the moment--are more frustrated with the high prices of food and gas than they are suffering from a dread of economic crises, according to a recent study done by the University of Michigan.

To read the New York Times article in its entirety, go to Fearing Slide in the Economy, Fed Cuts Its Discount Rate

Monday, August 13, 2007

"THE MORTGAGE MAZE"

Perhaps you've heard of "securitization"? It goes something like this: "The process begins with the entity that originates the loan, either a mortgage broker or lender. The loan is assigned to a company that will service it — collecting borrowers’ payments and distributing them to investors. Sometimes the servicer is affiliated with the lender, creating potential conflicts if a loan goes bad. A Wall Street firm then pools thousands of loans to be sold to investors who want a steady stream of cash from loan payments. The underwriters separate them into segments based on risk. Once a trust is sold, a trustee bank oversees its operations on behalf of investors. The trustee makes sure that the terms of the pooling and servicing agreement are met; this document determines what a servicer can do to help distressed borrowers."

Maybe this is why so many distressed borrowers are finding it so difficult to get loan modifications, or even figure out simply who holds the mortgages. Dianne Brimmage of Alton, IL, refinanced her home's mortgage (the home she has lived in since 1998) in order to consolidate car and medical bills. Now she struggles with a high interest rate and would like to modify the terms of her loan.

Though in the past this might have been easy to do because it was in every one's best interest, the only concern now is making a profit and there are so many different parties involved in the mortgage process that each one can deny information and manage to put off a solution that is helpful to the homeowner indefinitely.

To read the article in its entirety, go to "The Mortgage Maze May Increase Foreclosures"

Tuesday, August 07, 2007

ADDICTED TO ONLINE REAL ESTATE INFORMATION?

Well, you're not alone. According to The New York Times' Michelle Slatalla, "in June... more than 39 million people visited the 20 most popular real estate Web sites, a 22.4 percent increase in visitors over the same period in the previous year, according to Nielsen/NetRatings Inc. Not only that, but a lot of those people are becoming addicted. At Zillow.com, for instance, 44 percent of the site’s users visited five or more times in June, and 25 percent of them 10 or more times, according to a spokeswoman for the site."

Unfortunately, the information one can glean from these sites often seems so contradictory that it's hardly worth the emotional stress or rash decisions that can be triggered by the numbers. For example, the difference between the highest and lowest values of Ms. Slatalla's home as stated by two different appraisal sites was $699,974. On top of that, when a real-life appraiser came to see her home he quoted her a value that was "$100,000 more than the highest online estimate."

So don't be sucked into the check-your-neighbor's-home-value-every-five-minutes spiral; and if you can't help yourself, remember to take it all with a grain of salt.

For a thoughtful, reliable, in-person estimate of your home's current market value, please email me, or give me a call at 831-457-5550.

To read Ms. Slatalla's article in its entirety, go to What's My House Worth? And Now...?