Mortgage Rate News

Right now, with eight bank failures so far this year (including the largest, IndyMac), some economists are starting to wonder if the FDIC is going to start needing to go about raising a bit of cash. No need to get alarmed about your money, though. The FDIC still has plenty of money in its fund — even with 17 percent of the fund gone due to this year’s financial catastrophes.

The reason that the FDIC may need to raise some cash is to do with the law. The FDIC is required to keep a certain reserve ratio to ensure that it remains solvent. BloggingStocks puts the current possible FDIC cash needs into perspective:

“Needless to say, given the bank failures, this doesn’t come as a surprise or a shock. The FDIC could have explored other funding options, but given the scope of the insurance funds claims, a premium increase would make the most sense at this time,” Dawson said.

The FDIC is required to replenish the fund when the reserve ratio, or the balance divided by insured deposits, slips below 1.15%, Dawson said.

It is worth noting, though, that a premium increase would probably affect consumers as well as banks. Banks are notorious for passing their costs on to consumers in the form of higher fees. So, if the FDIC needs to raise more cash, and sees raising premiums as the most efficient way to do it, you may start seeing some fee increases.

Really, this is just another way that the subprime market crash of last year is the debacle that just keeps on giving. We often forget that there are many consequences attendant to such a large-scale mess, some of them that seem small and insignificant. However, these small things here and there are what will continue to add up, putting more pressure on the everyday finances of most people.

Today there are a couple of points of interest pertaining to the mortgage market. The first bit of news that interests me is further losses by Fannie Mae. The other is on the somewhat-related topic of a technicality in the housing relief bill.

Fannie Mae posts huge losses

It’s not wholly unexpected. Freddie Mac announced large Quarter 2 losses, and a cut to its dividend. So it was rather unsurprising that Fannie Mae is in the same boat. Fannie is cutting its own dividend by 86 percent, and has posted massive losses as well.

The outlook for Fannie Mae (and Freddie Mac — it’s almost as though one analysis works for them both) continues to be bleak. Fannie expects 2008 to end on a rather low note, with credit-related losses peaking. Fannie is also “managing” its balance sheet in order to preserve the small amounts of capital remaining. (In a side note: Fannie and Freddie have terrible capitalization. The decades old assumption of a government guaranty has enabled the company to gain investors that would normally shun such poor capitalization.)

At any rate, Fannie appears to be trying to avoid having to run to the government for help, but the company may be merely delaying the inevitable.

Buying a house and the housing relief bill

The recently passed housing relief bill allows for a tax credit for first-time homebuyers. The idea is that you get 10% of the price or $7,500, whichever is lower. (Seriously? How many of us are buying a $750,000 home right now?) Here’s the other issue, reports Ren at Accounting Solver:

The tax credit has to be repaid 2 years after the purchase. At the tax credit of $7500, the resulting average increase in your tax bill for 15 years will be $500.

Um, wow. Maybe first-time homebuyers would be advised to avoid the tax credit after all, and just focus on the interest rate and property tax benefits that are already offered.

Tags: mortgage market news, mortgage market, home mortgage loan, housing relief bill,
Fannie Mae, Freddie Mac, buying a home

When you get ready to buy a home, one of the most important factors is the mortgage interest rate. However, with things as they are, even having good credit and getting your mortgage application approved does not mean that you will automatically get the best rate. Indeed, choppy mortgage rates mean that you need to be prepared to lock in rates when they are lower.

The Mortgage Reports Blog points out some interesting facts about mortgage rates since the beginning of the year:

• Mortgage rates changed 68 percent of the days for the two months ending on May 19.
• Mortgage rates changed 73 percent of the days for the two months ending on June 20.
• Right now, mortgage rates change during the day 82 percent of the time.

This means that the mortgage interest rate you are quoted may be different the next day. Heck, the quote you got in the morning may not be the same quote you get in the afternoon. And with things as volatile as they are, you never know whether that change will result in your mortgage interest rate going up or down. Here is what The Mortgage Reports Blog recommends in the current climate:

When you’re shopping for a home loan, remember that Wall Street often sets the rates — not the loan officer. Your best protection from mortgage rate volatility, therefore, is to saddle up with a pro that understands how Wall Street works, and then be prepared to lock your mortgage rate as soon as possible.

Your mortgage interest rate can make a big difference

Mortgage rates matter because they make a big difference in how much you pay overall on your mortgage. Even half a percentage can determine, over the full course of a 30 year mortgage, a difference of tens of thousands of dollars in how much you pay back.

Tags: mortgage rates, mortgage interest rate, home mortgage loan, mortgage application,
mortgage loan blog, choppy mortgage rates, mortgage lenders