Posts Tagged ‘Federal Reserve’

Fed Opens the Year with a Plea for Housing

By Gino Blefari | January 11th, 2012 0 Comments

2012 is going to be a big political year for housing – and not just due to the presidential elections. The Federal Reserve has already kicked off the year by stepping into delicate political territory with its letter and white paper outlining U.S. housing problems to the congressional committees in charge of banking and financial services.

The move was quite surprising, given that the Fed was not given a formal request. The actual letter begins with: “Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery.” The Fed’s opening argument is that the ongoing problems in the U.S. housing market continue to impede the nation’s economic recovery.

It’s clear the Fed wants to make housing the centerpiece of the national economic debate in 2012.

The white paper then goes on to outline a framework for possible policy changes that could help boost the housing economy and help struggling homeowners. Four of the possibilities outlined are:

Help more underwater homeowners refinance at lower rates. This policy is an old idea that was already poorly implemented under HARP in 2009. It was meant to help holders of the 8 million mortgages owned by Fannie Mae and Freddie Mac that carry an interest rate above 6%. It hopes to extend refinance possibilities to those who’ve not been able to take advantage due to inadequate or no equity, spotty credit or tightened lending rules.

New rules for HARP, however, could open it up to millions more households in need.

Large-scale principal reduction initiative. Lowering the amount of money that mortgage holders owe on their loan principal would drastically change the financial landscape for millions of families. The Fed notes in its paper that 12 million mortgages are underwater now, adding to about $700 billion in negative home equity.

Tackling this deficit would put many homeowners back in an ownership situation that makes financial sense given the current market condition and economy.

Convert vacant government-owned foreclosed homes into affordable rentals. This makes a ton of sense. The two housing finance agencies Fannie and Freddie own more than 230,000 foreclosed homes. Why not set up government programs that turn this unsold inventory into much-needed rental housing (a market that’s seen a rise in demand in the wake of the housing slowdown)?

Establish fair consumer protections for mortgage servicing. The Fed and others want to add a layer of consumer protection into the mortgage servicing market that previously was not there. Mortgage services currently have no fiduciary duty to protect consumers from errors and omissions in the servicing process. This initiative would add protections and potentially even change the compensation model to better protect consumers.

There’s a lot more detail in the Fed’s letter and white paper, which is available online. I suspect this is the first of many politically charged moves we’ll see this year. I just hope that some of these policies get it right and pull more families up from the depths of the housing collapse, helping to push economic recovery a bit harder and faster.

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Intero Insider: A Delicate Balance

By Gino Blefari | February 10th, 2010 0 Comments

For the past two years or so, our nation’s economy has been floundering, doing all it could to get its head above water. The real estate industry has played — and continues to play — rather a large role in how the story pans out. But contributing to successes and failures in our own industry are untold numbers of mitigating factors, from fraudulent lending and sub-prime mortgages, to over-inflated sales prices, foreclosures, tax credits, and the some of the best sales prices in recent memory. When working together properly, these things can spur wonderful upward movement.

When something is knocked even slightly askew, however, that delicate balance can be thrown into a tailspin.

There has been great news of late, of course. Many neighborhoods across the nation have seen upticks in sales prices, many listings are, once again, seeing multiple offers, and interest rates are at astonishingly low levels.

Now, though, we are holding our collective breath, as several things that have helped spur the market along are poised to come to a halt.

First, the homebuyer tax credit. It’s been credited (no pun intended) with getting a lot of buyers into the market that wouldn’t have been otherwise. It was expanded in the Fall, but will expire this Spring.

Strike one.

Second, foreclosures. As we’ve reported already, the incidence of foreclosure continues to rise. Many homeowners in financial distress are simply making the decision to walk away from their homes, and their debts right along with them.

Strike two.

Third, we have another wrinkle. Those low interest rates that we just mentioned? They’re due in large part to Federal Reserve purchases of mortgage-backed securities. Thus far, the Fed’s purchases total almost $1.25 trillion dollars, but those purchases are due to stop near the end of March. This move will likely cause interest rates to turn upward. How much will they rise? That remains to be seen, but initial estimates have them climbing by more than a percentage point by year’s end.

Strike three.

These three factors coming together at roughly the same time could, potentially, throw the tenuous balance and modest signs of recovery we’ve seen thus far completely off kilter. The ever-changing conditions make the handling of a real estate transaction, whether for a buyer or a seller, all the more difficult. Intero’s real estate professionals stay up-to-date with the latest trends and will know which will affect you, and which won’t.

Negotiating the most important financial decisions of your life requires all of the information.  Your Intero real estate professional has that information and will help you keep things in balance.

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What the heck is the Fed up to?

By Rick Soukoulis | November 13th, 2009 0 Comments

The Federal Reserve Board may be the least understood institution in America and about which people know the least.  But in these trying times, their role has not only been big.  It’s been critical.  The Fed has probably done more to get the economy moving again than all the government spending and bailout programs combined.

 About 85% of all mortgages made today are being put into mortgage backed securities. These securities are being created primary by Fannie Mae and Freddie Mac. Both of which are now 80% owned by the government.  In past, these securities were bought by banks, mutual funds, insurance companies and pension funds.  These same investors are still buying, but in general, they are buying a whole lot less than they did before the credit crunch of 2008-09.

In order to drive rates lower, the Fed has stepped in and been buying massive amounts of mortgage securities.  As a matter of simple supply and demand, massive buying will drive bond prices up, and as bonds prices rise, rates drop.  Thus, the Fed made a conscious decision to buy mortgage securities to drive mortgages rates downward, largely to keep pressure off the American homebuyers and to stimulate housing markets in general.

 The Fed has stepped in as the buyer of last resort, and they are now authorized to buy up to $1.2 trillion in these MBS’s.  They’ve already bought $975 billion, with $225 billion more to be bought.

 They have been buying at a rate of $25 billion a week; just enough to keep rates relatively low, allowing people to refinance at lower rates and for homebuyers to afford new homes.

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