Fannie Mae’s and Freddie Mac’s impact on the mortgage market can’t be understated. Both borrow huge sums of money to buy mortgages. Their demand is a major force in setting the overall rate on standard mortgages, particularly now that many other sources of financing have evaporated. And even though both companies have recently been purchasing larger amounts of mortgages, rates on mortgage loans have stayed relatively high.
If the government believes cheaper borrowing costs are central to a housing recovery, it will have to do something to get mortgage rates to decline in line with Treasury rates. One guaranteed way to lower the spread between Treasury and mortgage rates is for the government to take over Fannie and Freddie. A takeover would lower Fannie’s and Freddie’s borrowing costs, which, in turn, would lower mortgage rates.
More competition from the private sector is another, though less timely, solution. Nationalizing Fannie and Freddie would drop mortgage rates immediately, to be sure, but few private firms would be able to match Fannie’s and Freddie’s borrowing costs. That would mean less innovation and fewer mortgage options for borrowers, and that could hurt the housing and mortgage markets in the long run.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Monday, August 25, 2008
Monday, August 4, 2008
Housing Recap
Yesterday’s housing bill is today’s housing law. Among the highlights, first-time home buyers will receive a tax credit of 10% of the purchase price of their home, up to $7,500. If you are wondering how Congress defines a first-time home buyer, it’s someone who hasn’t owned a house in the past three years. The validity and efficacy of the credit has to be questioned, because it’s really not a credit; it must be repaid in equal installments over the subsequent 15 years.
Another highlight helps people who have fallen behind on their mortgages and who owe more than their houses are worth. In such situations, refinancing is difficult, if not impossible. The law seeks to resolve this dilemma by encouraging lenders to forgive delinquent borrowers’ debt down to 87% of the property’s current appraised value. At that point the homeowner can than refinance under an FHA plan (though he or she will be expected to pay higher FHA insurance premiums).
The new law imposes few changes on Fannie Mae and Freddie Mac. Both institutions are a mess, yet the law oddly imposes no changes in management or business approach and no penalties on shareholders. Taxpayers instead are given two dubious protections: The first is that the treasury secretary will have the right to dictate terms if the government has to stump up equity capital for the firms. The second is the creation of a new regulator, whose effectiveness one must question, considering the effectiveness of past regulators.
Outside of the housing market, general economic health is waning. U.S. second-quarter gross domestic product came in below expectations, rising 1.9% versus expectations for a 2.2% rise. Slowing GDP, in turn, is impacting employment, and not in a good way. On Friday, the employment situation showed that payrolls declined by 51,000, pushing the unemployment rate up to 5.7%.
Eric P. Egeland
RE/MAX United
847.337.7090
HomesInBG.com
Another highlight helps people who have fallen behind on their mortgages and who owe more than their houses are worth. In such situations, refinancing is difficult, if not impossible. The law seeks to resolve this dilemma by encouraging lenders to forgive delinquent borrowers’ debt down to 87% of the property’s current appraised value. At that point the homeowner can than refinance under an FHA plan (though he or she will be expected to pay higher FHA insurance premiums).
The new law imposes few changes on Fannie Mae and Freddie Mac. Both institutions are a mess, yet the law oddly imposes no changes in management or business approach and no penalties on shareholders. Taxpayers instead are given two dubious protections: The first is that the treasury secretary will have the right to dictate terms if the government has to stump up equity capital for the firms. The second is the creation of a new regulator, whose effectiveness one must question, considering the effectiveness of past regulators.
Outside of the housing market, general economic health is waning. U.S. second-quarter gross domestic product came in below expectations, rising 1.9% versus expectations for a 2.2% rise. Slowing GDP, in turn, is impacting employment, and not in a good way. On Friday, the employment situation showed that payrolls declined by 51,000, pushing the unemployment rate up to 5.7%.
Eric P. Egeland
RE/MAX United
847.337.7090
HomesInBG.com
Sunday, July 27, 2008
Housing Bill
We saw a lot of coverage to last week’s House vote to offer $300 billion in assistance to troubled homeowners and to throw government support behind Fannie Mae and Freddie Mac. The bill has won endorsements from key senators in both parties and convinced President Bush to withdraw his long-standing veto threat.
Major provisions of the bill for mortgage markets include permanently increasing the cap on the size of mortgages guaranteed by Fannie Mae and Freddie Mac to a maximum of $625,000 from $417,000. It would also raise the FHA maximum loan limits for high-cost areas to $625,000. For first-time home buyers, the bill includes a tax refund worth up to 10% of a home’s purchase price but no more than $7,500. That said, the refund really isn’t a refund – it’s more of an interest-free loan, because the “refund” has to be repaid over 15 years in equal installments.
The bill will likely give the mortgage and housing markets an immediate boost, but let’s not get carried away with the back-slapping. Artificial stimulus packages are fickle; you can’t be assured that what you want stimulated is actually being stimulated. Besides, markets, if left to their own devices, eventually get it right, though sometimes not as quickly as we’d like. But when they do get it right, they tend to get it right on a more permanent footing.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Major provisions of the bill for mortgage markets include permanently increasing the cap on the size of mortgages guaranteed by Fannie Mae and Freddie Mac to a maximum of $625,000 from $417,000. It would also raise the FHA maximum loan limits for high-cost areas to $625,000. For first-time home buyers, the bill includes a tax refund worth up to 10% of a home’s purchase price but no more than $7,500. That said, the refund really isn’t a refund – it’s more of an interest-free loan, because the “refund” has to be repaid over 15 years in equal installments.
The bill will likely give the mortgage and housing markets an immediate boost, but let’s not get carried away with the back-slapping. Artificial stimulus packages are fickle; you can’t be assured that what you want stimulated is actually being stimulated. Besides, markets, if left to their own devices, eventually get it right, though sometimes not as quickly as we’d like. But when they do get it right, they tend to get it right on a more permanent footing.
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Monday, July 14, 2008
Old Farm Village Activity (6 months)
Old Farm Village (Buffalo Grove) Market activity
Active on the market
1301 MADISON DR $429,900 3 Beds 2.1 Baths
1366 DEVONWOOD DR $439,500 3 Beds 2.1 Baths
225 Stanton DR $440,000 3 Beds 2 Baths
136 COPPERWOOD DR $460,000 3 Beds 2.1 Baths
1502 Quaker Hollow CT $524,900 4 Beds 2.2 Baths
1176 Sandhurst DR $539,900 4 Beds 2.1 Baths
23 LONGRIDGE CT $542,900 4 Beds 2.1 Baths
1537 Madison DR $629,000 3 Beds 3.1 Baths
Under Contract
1402 Madison DR $484,900 4 Beds 2.1 Baths
103 Newfield DR $554,000 4 Beds 2.1 Baths
Closed
142 Thompson BLVD $399,900 closed for $378,000 4 Beds 2.1 Baths
1408 MARGATE DR $438,900 closed for $402,000 3 Beds 2.1 Baths
95 Newfield DR $424,500 closed for $410,000 3 Beds 2.1 Baths
250 Stanton CT $499,900 closed for $460,000 3 Beds 2.1 Baths
11 COPPERWOOD DR $489,000 closed for $477,000 4 Beds 2.1 Baths
85 NEWFIELD DR $524,900 closed for $510,000 4 Beds 3.1 Baths
393 THOMPSON BLVD $549,900 closed for $525,000 4 Beds 2.1 Baths
214 STANTON DR $575,000 closed for $543,500 5 Beds 2.1 Baths
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Active on the market
1301 MADISON DR $429,900 3 Beds 2.1 Baths
1366 DEVONWOOD DR $439,500 3 Beds 2.1 Baths
225 Stanton DR $440,000 3 Beds 2 Baths
136 COPPERWOOD DR $460,000 3 Beds 2.1 Baths
1502 Quaker Hollow CT $524,900 4 Beds 2.2 Baths
1176 Sandhurst DR $539,900 4 Beds 2.1 Baths
23 LONGRIDGE CT $542,900 4 Beds 2.1 Baths
1537 Madison DR $629,000 3 Beds 3.1 Baths
Under Contract
1402 Madison DR $484,900 4 Beds 2.1 Baths
103 Newfield DR $554,000 4 Beds 2.1 Baths
Closed
142 Thompson BLVD $399,900 closed for $378,000 4 Beds 2.1 Baths
1408 MARGATE DR $438,900 closed for $402,000 3 Beds 2.1 Baths
95 Newfield DR $424,500 closed for $410,000 3 Beds 2.1 Baths
250 Stanton CT $499,900 closed for $460,000 3 Beds 2.1 Baths
11 COPPERWOOD DR $489,000 closed for $477,000 4 Beds 2.1 Baths
85 NEWFIELD DR $524,900 closed for $510,000 4 Beds 3.1 Baths
393 THOMPSON BLVD $549,900 closed for $525,000 4 Beds 2.1 Baths
214 STANTON DR $575,000 closed for $543,500 5 Beds 2.1 Baths
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
Thursday, July 3, 2008
Weekly mortgage recap
An anemic economy, sinking home values and soaring gas prices pushed consumer confidence to its lowest level since 1992, the U.S. Confidence Board reported last week Many news outlets jumped on the news, spinning it to suggest the economy is spiraling downward like an unimpeded helix.
But maybe things really aren't all that dire. Gross domestic product – the output of goods and services produced by labor and property – increased at an annual rate of 1.0% in the first quarter of 2008, according to final estimates released by the Bureau of Economic Analysis. In comparison, GDP increased only 0.6% in the fourth quarter of 2007. The data suggest economic growth is accelerating.
Perhaps consumers would feel more upbeat if they knew that existing home sales are stabilizing, with sales rising 2% in May from April to a seasonally adjusted annual rate of 4.99 million units. At the same time, inventory of existing homes fell 1.4% to 4.49 million units in May, which represents a 10.8-month supply at the current sales pace, down from a 11.2-month supply in April.
The Federal Reserve appeared upbeat by switching its focus to abating inflation from inflating the economy. But although the Fed said it expects inflation to moderate "later this year,” it admitted that it is concerned over “continued increases in the prices of energy and other commodities.”
Credit markets didn't appear too terribly concerned about inflation; mortgage rates finally held firm for a week, with the prime 30-year fixed-rate mortgage averaging 6.62%, the prime 15-year fixed-rate mortgage averaging 6.19%, and the prime 5/1 adjustable-rate mortgage averaging 6.28%, according to Bankrate.com's weekly survey.
Eric P. Egeland
RE/MAX United
847.337.7090
HomesInBG.com
But maybe things really aren't all that dire. Gross domestic product – the output of goods and services produced by labor and property – increased at an annual rate of 1.0% in the first quarter of 2008, according to final estimates released by the Bureau of Economic Analysis. In comparison, GDP increased only 0.6% in the fourth quarter of 2007. The data suggest economic growth is accelerating.
Perhaps consumers would feel more upbeat if they knew that existing home sales are stabilizing, with sales rising 2% in May from April to a seasonally adjusted annual rate of 4.99 million units. At the same time, inventory of existing homes fell 1.4% to 4.49 million units in May, which represents a 10.8-month supply at the current sales pace, down from a 11.2-month supply in April.
The Federal Reserve appeared upbeat by switching its focus to abating inflation from inflating the economy. But although the Fed said it expects inflation to moderate "later this year,” it admitted that it is concerned over “continued increases in the prices of energy and other commodities.”
Credit markets didn't appear too terribly concerned about inflation; mortgage rates finally held firm for a week, with the prime 30-year fixed-rate mortgage averaging 6.62%, the prime 15-year fixed-rate mortgage averaging 6.19%, and the prime 5/1 adjustable-rate mortgage averaging 6.28%, according to Bankrate.com's weekly survey.
Eric P. Egeland
RE/MAX United
847.337.7090
HomesInBG.com
Tuesday, June 10, 2008
Interest Rate Cut?
A sluggish economy and a spike in foreclosures suggest an interest-rate cut is in order, but a weak currency and creeping inflation suggest a rate hike is in order (rate increases make a currency more attractive vis-à-vis other currencies). What is the Federal Reserve to do?
Clues will be forthcoming in the Fed's Beige Book, to be released on Wednesday. It will likely prove that the Fed's greater concern is inflation, but that could easily change if Friday's consumer price index shows consumer prices rising at an intolerable rate.
Either way, borrowers can expect a spike in rate volatility. Gaming interest rates – an already difficult endeavor – will become that much more difficult in coming weeks. Bankrate.com's survey showed that mortgage rates increased across the board through most of last week, but the survey was released before Friday's employment report, which could just as easily drop rates this week.
So what's the longer-term rate trend that's likely to emerge? Unfortunately, it's impossible to tell at this point because of the schizophrenia of recent economic data releases.
Eric P. EgelandRE/MAX United
847.337.7090
HomesInBG.com
Thursday, June 5, 2008
Just Listed in Old Farm Village
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Central A/C
Eric P. Egeland
RE/MAX UNITED
847.337.7090
HomesInBG.com
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