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Sam Kang
Monday, January 7, 2008
Tuesday, December 11, 2007
Another cut
Fed cuts rates by a quarter point
Ben Bernanke & Co. lower a key interest rate for the third consecutive time, and signal that more cuts could be ahead to help stave off a recession.
NEW YORK (CNNMoney.com) -- The Federal Reserve lowered an important short-term rate by a quarter of a percentage point Tuesday, the latest in a series of rate cuts that the central bank hopes will stimulate an economy some fear is on the brink of a recession.
This was the third straight time that Fed Chairman Ben Bernanke and fellow policy makers decided to cut its federal funds rate, an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans.
The federal funds rate now stands at 4.25 percent. The central bank also cut its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point to 4.75 percent.
Leading up to Tuesday's meeting, several economists indicated that the Fed may need to lower rates several more times in early 2008 in order to keep the economy from slipping into a prolonged slump.
And some investors had been holding out hope that the Fed would lower rates by a half of a percentage point as it did in September since several banks have been forced in the past few months to take massive writedowns due to exposure to bad mortgage loans.
Concerns about the subprime mortgage crisis spreading sparked President Bush and Treasury Secretary Henry Paulson to unveil a plan last week that would freeze interest rates for some subprime borrowers whose adjustable-rate mortgages are scheduled to reset in 2008. 
Wednesday, December 5, 2007
Monday, November 26, 2007
Foreclosure Rescue
Foreclosure rescue: Saving a home
How a Cleveland family got into a mortgage mess and what they did to keep their house.
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| When Darlene Stutzman thought her family was going to lose their home, she went out looking for help. |
| Special Reportfull coverage |
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Current Mortgage Rates |
| Type | Overall avgs |
|---|---|
 | |
| 30 yr fixed mtg | 5.89% |
| 15 yr fixed mtg | 5.45% |
| 30 yr fixed jumbo mtg | 6.65% |
| 5/1 ARM | 5.50% |
| 5/1 jumbo ARM | 6.01% |
| |
| Find personalized rates: | |
CLEVELAND (CNNMoney.com) -- When Darlene Stutzman visited the offices of the East Side Organizing Project, a community advocacy group in Cleveland, she didn't know if she'd be able to keep her home.
She showed up on a Wednesday - "intake day" - when ESOP offers group and individual counseling for borrowers trapped in bad loans. With qualified borrowers, they can also try to work out a compromise with lenders. The Wednesday sessions are well-attended with as many as 150 people showing up at their peak. Cleveland has one of the highest numbers of foreclosures in the nation.
Stutzman, a young wife and mother from suburban Parma, and her husband, Michael, got in trouble when he got sick and had to take an unpaid leave from work. She found out about ESOP when she called Cleveland's 211 government resources line. Michael, who was back at work, was unable to join her for the counseling session.
The first step Stutzman took at ESOP was to fill out a "Hot Spot Card" that asked questions such as: "Are you up to date on your loan?" "How much can you afford to pay each month?" and "Is your loan in foreclosure now?"
She and a group of five others then listened as counselors James Jones and Samantha Williams told them what ESOP could -- and couldn't -- do for them.
They learned the organization has partnerships with 25 different lenders. If a home is in foreclosure, ESOP may be able to halt the process almost immediately. Jones told them how their loans might be restructured for affordability.
But the best outcome some borrowers could expect, explained Jones, would be a short-sale or deed-in-lieu, where they'd lose their home, but without the black mark of a foreclosure on their credit history.
After the group session, the clients received individual attention. With her mortgage documents in hand, Stutzman met with counselor Jenelle Dame to go over her "Hot Spot Card" and answer other questions about how and why she got behind.
Previous brushes with payment problems, including a bankruptcy, had left her and Michael with less than perfect credit when they bought their house for $119,000 in April, 2006. But Michael had a good job as a machinist, and they were able to get financing from Countrywide Financial (Charts, Fortune 500).
Their first loan was a $97,000 adjustable rate mortgage (ARM) with interest of 8.75 percent, which is fairly expensive. The second mortgage, for $24,290, was a home equity loan at 12.875 percent. The Stutzmans paid about $1,250 a month, including taxes. And then the interest on both loans was set to reset at a higher rate, which would drive their monthly payments up substantially.
Stutzman said Countrywide told them that after a year, they could combine the two mortgages and refinance into a fixed rate. But because of Michael's health problems, he had to take an unpaid leave. The Stutzmans fell behind on their payments, and because they were in default, the lender would not make a deal.
Dame handles ESOP's Countrywide clients, making two regular weekly conference calls with the lender, but she said she's had little luck getting it to play ball. "We've discussed 26 solutions with Countrywide since June," she said, "and gotten no workouts."
But Countrywide has signaled a major policy shift. In October, it launched two programs to help troubled borrowers stay in their homes. In one, the company pledged to refinance, restructure or reduce rates for 52,000 ARM clients. Under the other program, the lender said it would restructure loans based on what borrowers could afford.
Stutzman wasn't aware of Countrywide's latest efforts. And Dame said she was skeptical when they were announced, thinking the plans were little more than publicity stunts.
Stutzman walked into her one-on-one on solid ground: She said she'd kept in touch with Countrywide during all her problems, trying to find a way out, despite getting shuttled from company representative to representative.
At one point, she told Dame, Countrywide agreed to a forbearance arrangement, granting the couple extra time to make up missed payments. They intended to dip into Michael's 401(k), but his company was changing hands, and the money was locked up during the transition.
The one-on-one ended on a mixed note. Dame thought the Stutzmans had a good case for restructuring, one that would have been attractive to many of the other lenders ESOP works with. But she had so little luck getting workouts from Countrywide, she still had strong doubts.
The next day, Dame suggested the Stutzmans' workout to Countrywide on one of her regular conference calls and waited for a response. A week later, she said, Countrywide agreed to the plan, along with those for 10 other ESOP clients. Dame contacted Stutzman, got her in touch with Countrywide, and they were able to reach a deal.
Countrywide converted the Stutzmans' ARM into a fixed rate mortgage at 8.75 percent. The second mortgage was entirely forgiven with the debt wiped out. The couple's loan payment would drop to $785 a month, plus taxes, and it would stay there, well within their budget.
Dame was surprised: While other ESOP partners have made similar concessions like loan forgiveness, it was the first time Countrywide did it for one of her clients.
But the plan made sense for the company, she said. A single foreclosure costs a lender an average of $50,000, according to a study from Congress' Joint Economic Committee. Countrywide may be losing money on its original deal with the Stutzmans, but it's still receiving payments, and it doesn't have to unload a house in a depressed market.
"It makes good sense, because Countrywide will be collecting on a loan that someone can afford to pay," said Dame.
Stutzman more reserved about the outcome. "It sounds good, but I think it's something that should have been done a long time ago," she said.
Countrywide did not make itself available for comment on this piece.
Monday, November 12, 2007
Slipping Rates
Mortgage rates continue to slip
Fixed 30-year rate falls to 6.24% following the Fed's recent move to cut rates, a weekly report shows.
NEW YORK (CNNMoney.com) -- Mortgage rates eased in response to the Federal Reserve's decision to cut interest rates, Freddie Mac reported Thursday.
The government-sponsored loan buyer said the rate on a 30-year fixed-rate loan averaged 6.24 percent for the week ended Nov. 8, down from 6.26 percent last week.
Current Mortgage Rates |
| Type | Overall avgs |
|---|---|
| |
| 30 yr fixed mtg | 5.97% |
| 15 yr fixed mtg | 5.55% |
| 30 yr fixed jumbo mtg | 6.58% |
| 5/1 ARM | 5.53% |
| 5/1 jumbo ARM | 5.99% |
| |
| | |
The 30-year rate has not been this low since the week ending May 17, 2007.
Last year at this time, 30-year mortgage rates averaged 6.33 percent.
"Reports of weaker consumer spending in September and a decline in manufacturing activity in October kept mortgage rates at bay this week," said Frank Nothaft, chief economist of Freddie Mac (Charts, Fortune 500).
"Rates for long-term mortgages were little changed while rates for ARMs fell following the Federal Reserve's interest-rate cut," he added.
In its latest report, Freddie Mac said rates on 15-year fixed-rate loans averaged 5.90 percent in the latest week, down from 5.91 percent last week. A year ago, the 15-year rate averaged 6.04 percent.
Five-year adjustable-rate mortgages (ARMs) averaged 5.89 percent this week, down from 5.98 percent last week. A year ago, the 5-year ARM averaged 6.08 percent.
One-year ARMs averaged 5.50 percent this week, down from 5.57 percent last week. They were at 5.55 percent this time last year.
Tuesday, November 6, 2007
A crazy week!
Fed cuts rates to 4.5%
Bernanke and Co. lower interest rates by a quarter of a point to keep the economy on track. But the central bank's inflation concerns signal another cut is unlikely.
NEW YORK (CNNMoney.com) -- The Federal Reserve lowered the target for a critical short-term interest rate by a quarter of a point Wednesday, citing continued concerns about weakness in the housing market.
But the Fed indicated that it is also worried about inflation, a sign that the central bank may be reluctant to cut rates again at its next meeting in December.
Video
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| Hans Redeker of BNP Paribas discusses what is going on in the stock markets ahead of the Fed's key interest rate decision. |
The Fed's commentary about inflation spooked the markets at first, and stocks gave up much of their earlier gains from the day. But stocks eventually recovered and moved on to close up for the day.
The widely-expected move comes on the heels of a half-point rate cut by the central bank in September and leaves the federal funds rate at 4.5 percent, its lowest level since January 2006.
Not all of the Fed's policy committee members voted in favor of a rate cut, however. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, preferred no change to the federal funds rate. The Fed also lowered its largely symbolic discount rate by a quarter of a point to 5 percent. That decision was unanimous.
The federal funds rate, an overnight lending rate for banks, is important to the economy since it influences how much interest consumers pay on credit card debt, home equity lines of credit and auto loans. It also impacts how much it costs corporations to borrow money.
Weakness in the housing market and problems with subprime mortgages - loans made to those with less-than-perfect credit - have led to billions of dollars in writedowns at major financial institutions. For this reason, most investors believed the Fed would lower rates again in an attempt to limit the mortgage meltdown's spillover into the broader economy.
The Fed acknowledged the danger of the housing problems. "[T]he pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction," the Fed said in its closely watched statement.
"Housing will continue to be a drag," said Thomas di Galoma, head of U.S. Treasury trading with Jefferies & Co.
"If the Fed sees weaker housing data, they probably will drop rates another quarter point later this year. In the back of everyone's mind, people are wondering how will banks and brokers come out of this. Those fears are not going away overnight," di Galoma added.
But the Fed also said that it felt Wednesday's action, combined with the rate cut in September, "should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets."
There are questions as to whether the credit crisis really has had a major impact on the economy outside of housing. The government reported Wednesday that gross domestic product in the U.S. grew at a 3.9 percent clip in the third quarter, a higher rate of growth than expected.
And some market observers have expressed concerns that with oil prices rising above $90, inflation may still be a threat. So the Fed would be making a mistake by lowering interest rates further, some maintain.
With the dollar weakening against other global currencies, some fear that further rate cuts could fuel even more inflationary pressures.
"This is a hemlock situation. The rate cuts will be self-defeating," said Haag Sherman, co-founder and managing director of Salient Partners, an asset management division of investment bank Sanders Morris Harris Group. "The more you cut rates, the more dollar depreciation you will see and ultimately more pressure on commodity prices like oil and gold."
To that end, the Fed said in its statement that "recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation."
Quincy Krosby, chief investment strategist at the Hartford, said that she was not surprised to see the Fed talk more about inflation.
"I figured that if the Fed cut by a quarter of a point as the market expected, the statement would be more hawkish about inflation. The Fed had to balance their actions and words. You can't have oil at $94 and pretend it didn't happen," she said.
But she added that the Fed is not closing the door on further rate cuts. Rather, she thinks the central bank is trying to gain some control over the market and re-establish that it, and not Wall Street, will dictate what happens to interest rates in the future.
Some have criticized the Fed for responding to pressure from investors to cut rates and have argued that the rate cuts may be bailing out people who made poor decisions.
"In a market like this, you don't want to surprise investors. Nonetheless, this gives Bernanke more flexibility," Crosby said. "I do expect more rate cuts down the road as the housing market affects consumer spending and psychology. But this gives the Fed more flexibility and allows them to have some distance from the market."
The Fed's tough talk on inflation has started to quash hopes for another rate cut at the Fed's next meeting on Dec. 11.
Bond prices fell Wednesday after the Fed's announcement, lifting the yield on the benchmark U.S. 10-Year Treasury from 4.4 percent to 4.45 percent. Yields and prices move in opposite directions and long-term bond yields typically move higher when short-term rates are expected to rise.
Also, prior to this afternoon's rate cut, investors were pricing in a 64 percent chance that the Fed would lower rates by a quarter of a point in December, according to fed funds futures listed on the Chicago Board of Trade. After the meeting, chances of a December rate cut dipped to 44 percent.
"I think the message the Fed is sending is that the dollar has weakened far enough and that they may not be able to cut rates anymore," said Chip Hanlon, president of Delta Global Advisors, an investment management firm. "The signal is that the Fed will hold rates steady in December."
Tuesday, October 30, 2007
U.S. Home Prices
U.S. home prices fall again
Down for the eighth consecutive month; index of 10 large U.S. cities shows a price drop of 5% in August, the largest since 1991.
NEW YORK (AP) -- U.S. home prices fell nationwide in August for the eighth consecutive month, according to the S&P/Case-Shiller index released Tuesday.
And things could get worse, said Yale economist Robert Shiller, who helped create the index.
Video
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| CNN's Gerri Willis offers tips on getting a fair settlement on home insurance claims. |
"There is really no positive news in today's report," said Shiller, chief economist for MacroMarkets, which collaborated with S&P on the indicator.
Home prices as measured by the index have fallen more every month since the beginning of the year. August is the 21st month of decelerating returns.
An index of 10 U.S. cities fell 5 percent in August from a year ago. That was the biggest drop since June 1991. The lowest ever was a decline of 6.3 percent in April 1991.
A broader index of 20 cities fell 4.4 percent in August over last year, with 15 of 20 cities reporting that prices fell.
Housing prices have been a key worry for consumers, and the effect of the slowdown alongside the summer's steep decline in credit availability, has many worried that the economy will go into recession.
Many economists expect the Federal Reserve to cut rates again at the end of a two-day meeting that starts Tuesday, after a bigger-than-expected half-point cut last month.
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