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As of 9/18--News Update: Rates to Trend Down "Fed shocks market, decides not to taper bond Purchases"
Rates will be declining over the next 30+ days, investors had been raising rates in anticipation of the Fed tapering off bond purchases.
The Federal Open Market Committee decided Wednesday to keep purchasing additional agency mortgage-backed securities at its current pace to foster the ongoing housing recovery and fight unemployment.
In other words, the market was tricked -- no tapering just yet -- despite numerous predictions of a $10 billion reduction in monthly asset purchases by the Fed.
The FOMC made that conclusion after members met this week and announced that although the housing sector is strengthening, "mortgage rates continues to rise further and fiscal policy is restraining economic growth."
As a result, the central bank will continue purchasing agency MBS at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion
Yields on 10-year Treasurys' dipped from a daily high of 2.9% to below 2.8% on the news.
Yields on Fannie Mae and Freddie Mac bonds also dropped, according to Bloomberg, with spreads
between MBS and the 10-year swap winding 6 basis points closer.
"The committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy," FOMC members said.
They added, "However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."
The vote for the statement was 11 to 1 with Esther George, president of the Federal Reserve Bank of Kansas
City dissenting because she was concerned that the continued high level of bond-buying program increased future economic risks.
The majority of mortgage analysts noted that the Fed’s decision to not begin scaling back its monetary stimulus wasn’t bad news - it was just not what was desired.
"Concerns over budgets, deficits and payments along with other news are tending to keep consumer and business confidence from expanding as rapidly as one would expect," explained NAR economist Jed Smith.
The decision not to start tapering reflects the Fed’s view on the health of the overall economy, specifically the state of the housing market.
Trulia (TRLA) chief economist Jed Kolko believes the central bank’s choice to not begin winding down its MBS purchases for two reasons.
"Mortgage rates will rise less, or fall more, than if they had started tapering, and economic growth should be faster with the tapering delay, which could help
housing demand if young adult’s job prospects improve,” Kolko noted.
In August, FOMC members confirmed that they were ‘broadly comfortable’ with the timeline Fed chairman Ben Bernanke put into action for tapering its monetary
stimulus as long as economic conditions continued to improve.
However, with a volatile market since May into Sept. changing the pace of asset purchases did not seem appropriate given the recent rise in mortgage rates, drop in refinance volumes and debate over who will head the Federal Reserve.
Overall,the Federal Reserve has been committed to low rates for some time and the recent announcement is a continuation of that.
"Ultimately mortgage rates will continue to drift upwards, with some downward pressure on price increases," pointed out Cato Institute director of financial regulation studies.
He concluded, "Mortgage rates also incorporate inflation expectations, so to the extent the Fed does not keep those expectations in line, rates will also increase."
Taking Over a Seller’s Loan
By LISA PREVOST
Published: September 19, 2013
Homeowners with a mortgage insured by the FHAor the Department of Veterans Affairs should consider using their loan terms as a marketing tool when it comes time to sell.
During periods when interest rates are rising, homes offered for sale with an assumable, lower-rate mortgage may have extra appeal for certain buyers.
“You could now have a seller saying, ‘I have a great house to sell you and a great mortgage to go with it, which is better than my neighbor, who only has a great house,’ ” said Marc Israel, an executive vice president of Kensington Vanguard National Land Services and a real estate lawyer. “It’s a very clever idea.”
The savings for home buyers assuming a loan extend beyond a lower interest rate. Assuming a loan is cheaper than applying for a new one because there are fewer settlement fees. An appraisal is not required (though a buyer may want to obtain one anyway). And in New York, borrowers assuming a loan do not have to pay the hefty mortgage recording tax a second time, Mr. Israel said.
F.H.A. loans do demand that the borrower pay for mortgage insurance over the life of the loan. But when assuming a loan, borrowers do not have to pay the upfront mortgage insurance premium required on a new loan, according to John Walsh, the president of Total Mortgage Services in Milford, Conn.
And, he noted, because the original mortgage holder would have been paying the loan for a number of years, the buyer assuming the loan will start at a point deeper into the amortization schedule than on a new loan. That means more of the monthly payment will go toward principal.
“In a rising rate environment, assumability is a very attractive option,” said Katie Miller, the vice president of mortgage products for Navy Federal Credit Union. “It ends up making homes that much more affordable.”
She emphasized, however, that loan assumptions are often not a viable option for first-time buyers if the seller has accumulated substantial equity in the home.
Say, for example, that the seller’s loan balance is $150,000, and the sale price for the property is $200,000. The borrower assuming the loan must come up with the $50,000 difference, either in cash or through some type of subordinate financing.
That can be too big a hurdle for first time buyers. The more attractive option at Navy Federal is the HomeBuyers Choice loan, which offers 100 percent financing. These loans currently account for about a quarter of the credit union’s purchase volume, and 65 percent of those borrowers are first-time buyers, Ms. Miller said.
Borrowers seeking to assume a loan must also prove their creditworthiness as they would for any F.H.A. or V.A. loan.
Under F.H.A. rules, once a new borrower is found to be creditworthy enough to assume a loan, the lender must release the seller from any future liability for payment of that loan.
Borrowers considering loan assumption should weigh the costs against other loan options, paying attention to the principal and interest payment, the amount of cash required upfront, and the private mortgage insurance premium. “At the end of the day,” Mr. Walsh said, “if the prospective buyer can come up with the down payment and qualify for the loan assumption, then it could be a huge benefit.”
More 'Whisper Listings' Than Ever Before?
Daily Real Estate News | Tuesday, September 24, 2013
In Manhattan, for example, "sellers feel cocky. Sellers feel like they have the ball," Brian K. Lewis, an associate broker at Halstead Property, told The New York Times. He says he has taken on seven whisper listings in the past six months from clients who did not want to list their apartments on the open market. The sellers, however, were still willing to accept offers from all potential buyers. "In an improving economy with no inventory, they have the asset people want," Lewis says.
Off-market listings seem to be rising most in markets with inventories that are particularly stretched thin, such as San Francisco, Los Angeles, and Miami, the Times reports.
"There's more of it now than ever before," says Shaun Osher, CEO of New York brokerage CORE. "We as brokers know everything is always for sale at a price."
Some sellers are opting to go the route of pocket listings because they believe, by keeping their homes off the open market, they won’t have to deal with the hassle of constantly getting their homes ready for showings.
New technology also is causing a growth in whisper listings. Yapmo, a mobile software company, is one such innovation. Its mobile app allows brokers to share information about properties with each other before the properties hit the market. Chicago firm @properties, which adopted the software in January, says an average of 41 properties per month — or 5 percent of the firm's transactions — have gone into contract before being put on the market.
Still, some real estate professionals say they have a distaste for these under-the-radar deals. Those who represent buyers may like that there's less competition, but on the seller side, some brokerage firms argue that these deals inevitably shut some brokers out. Also, sellers hoping for a quick full-price sale are limiting their buyer pool and their chance of securing the highest price possible.
"It's sort of like saying, 'Achieve this great price and do all of this, but don't tell anybody about it,'" says Brown Harris Stevens President Hall F. Willkie.
But sometimes you just have to do what the client wants, other real estate professionals say.
“It’s really up to the seller in terms of how they want a real estate broker to represent them,” says Neil Garfinkel, broker counsel to the Real Estate Board of New York.
Source: “For Your Ears Only,” The New York Times (Sept. 20, 2013)
August 28, 2013
California REALTORS® urge passage of bill to help underwater homeowners get much-needed financial relief
LOS ANGELES (Aug. 28) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) is sponsoring Senate Bill 30 to provide relief to distressed homeowners attempting to sell their homes in a “short sale.” Under current state law, when a lender forgives mortgage debt in a short sale, the seller must pay state income tax on the amount of forgiven debt. The federal government does not charge federal income tax, and neither should the state. These sellers are already in financial trouble, and SB 30 is necessary to give sellers relief from an inequitable and unfair situation.
SB 30 is currently on the Assembly Appropriations Committee’s “Suspense” file. If the committee doesn’t approve the bill by Friday, it may be stalled until January, and homeowners will be subject to state taxes. C.A.R. is asking that the Appropriations Committee vote “yes” on the bill and for the Legislature to pass the bill before adjournment in September.
Here’s why SB 30 is critical to California:
• Distressed homeowners are faced with a no-win situation -- either pay taxes on money they don't get or let the home go to foreclosure. Distressed homeowners often only have two choices – closing a short sale or allowing their home to be foreclosed upon. If they fear state income tax liability on their short sale, they will opt for foreclosure instead in order to avoid state tax liability. Foreclosures are bad for communities, bad for homeowners and damage housing values more than short sales.
• Families deserve to know if they will be taxed. Homeowners currently in short sale negotiations can’t finalize these transactions without potentially incurring state tax liability. Sellers who are involved in short sales or contemplating a short sale need to know now that the debt forgiven is not going to be treated as income for state tax purposes.
• It’s the right thing to do. Families forced to make the difficult decision to sell their home as a short sale are already in financial trouble. They simply should not have tax liability on “phantom” income or debt forgiveness – money they’ve never actually received.
Political Tricks Threaten Homeowner Relief
Unfortunately, Senate leadership, in an act of political gamesmanship, has linked the enactment of SB 30 to SB 391, an unrelated new recording tax. SB 391 does not have the support necessary to pass on its own merits, so they are holding distressed homeowners hostage to promote the tax increase. These are real families in real financial need who may well be forced into bankruptcy by an irresponsible legislature.
Leading the way...® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 155,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.