Fed cuts key rate
By Marcie Geffner – LendingTree.com

As expected, the Federal Reserve yesterday trimmed a key bank interest rate by one-quarter of a percentage point from 2.25 to just 2 percent. The Fed has now lowered the federal funds rate 3 percentage points in the last seven months.

In its statement, the Fed noted that turmoil in the financial markets, tougher requirements for new loans and weak housing markets have put pressure on the U.S. economy.

“Tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters,” the Fed said.

One of the Fed’s primary objectives is to protect the U.S. economy from inflation. That means the Fed has to find a balance between lower interest rates and higher prices. This week’s statement said the Fed would “continue to monitor inflation developments carefully.”

The Fed doesn’t directly control interest rates on home loans, credit cards or other consumer debts. But this week’s rate cut could still be a positive development for many borrowers since the Fed’s actions can indirectly influence the interest rates on some loans.

Rate cut may aid ARM borrowers
The Fed’s previous rate cuts were especially welcome for borrowers who were facing resets on adjustable-rate mortgages (ARMs) tied to certain indices. That’s because the interest rates on these home loans are tied to the U.S. Treasury or London Interbank Offer Rate (Libor) rate, both of which have dropped due to the Fed’s action.

As a result of the Fed’s rate cuts, some ARM adjustments and resets have been much smaller and less painful for borrowers than they otherwise would have been. The savings due to smaller ARM rate adjustments could amount to hundreds of dollars a month for some homeowners.

The Fed’s rate cuts also influence the prime rate, which means short-term interest rates on home equity lines of credit, ARMs tied to the prime rate, auto loans, and some credit cards may move lower as well.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Making sense of house prices
By Marcie Geffner – LendingTree.com

It’s no secret that home prices have declined in many U.S. towns and cities. Indeed, the downward trend has been the subject of numerous newspaper headlines, not to mention plenty of cocktail party small talk, water-cooler chitchat and neighborhood gossip.

Yet home prices aren’t just a subject of idle conversation.

If you want to buy a home, prices determine which homes you can afford. Or if you already own a home, your home’s value affects whether you can refinance your mortgage, take out a home equity loan or line of credit, or stop paying for mortgage insurance.

Equity is king
Your home’s value is a component of your equity, which is the difference between the value and the amount you owe, often expressed as a percentage. For example, if you borrowed $270,000 to buy a $300,000 home, your equity at the time of purchase would be $30,000, or 10 percent. If the value of your home dropped, your equity would shrink as well. The more equity you have, the easier it should be for you to qualify for a loan, refinance an existing loan or sell your home, if need be.

Unfortunately, much of the readily available information about home prices can be confusing or misleading, which makes it harder to get a true picture of home values in your area. For example, national and local median home prices are widely reported, but don’t necessarily reflect the value of an individual house.

Online information can be confusing
Many people check Web sites that estimate home values to make sense of prices. Online price estimates can be interesting; however, keep in mind that they may not be based on enough accurate data to give a true picture of how much a specific home is worth.

For those reasons, national trends and online estimates may be better used as a point of reference than relied on to make major financial decisions.

A REALTOR® can help
If you’re looking for good information about home prices in your area, ask a local REALTOR to prepare a comparative market analysis, or “CMA.” A CMA should be based on recent sales prices of homes that are similar in size, location and condition to your home or the home you want to buy.

Now that’s data you can count on.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

New form could help mortgage shoppers
By Marcie Geffner – LendingTree.com

Borrowers, prepare to shop.

And, potentially, to save hundreds of dollars on your next home loan, thanks to a new federal government plan that would revamp how lenders disclose home-loan terms and costs.

The plan, proposed by the U.S. Department of Housing and Urban Development, includes:

• A new standardized Good Faith Estimate (GFE) form that will explain the terms and estimated costs of your loan.

• Limits on how much your lender can increase some of your settlement costs, so you won’t be surprised by inflated costs at closing. 

• Scripts that will be read to you at closing to help ensure that you understand the terms and costs of your loan before you sign off on all your paperwork. 

• An improved settlement statement that will help you compare your final costs to your good-faith estimate.

A good-faith estimate already is required when you apply for a loan, but the forms that are used today aren’t standardized and can be difficult for borrowers to understand. Different lenders may not list the same costs in the same way and the form may not fully disclose all of the important terms of your loan.

The proposed standardized GFE will clearly detail the terms of your loan, including your interest rate and monthly payment, whether your rate and principal balance can increase, and if so, by how much, and whether your loan has a prepayment penalty or balloon payment. It also will consolidate your costs into categories and display a total of the estimated charges on the first page.

The plan is HUD’s response to a study that found many homeowners didn’t understand key terms of their own mortgage. The study concluded that clearer disclosures could help borrowers recognize loan costs, which would help them understand their loan and make better-informed decisions.

HUD’s consumer testing found that consumers were able to select the lowest cost loan more than 90 percent of the time when the proposed new form was used–a huge improvement over the typical situation. Consumers also said they liked the enhanced disclosures and scripts.

The new form won’t be official until after a comment period, and even then, it could be changed or abandoned. But if you think it might help you shop for a mortgage, you may want to print it out the new GFE form from HUD’s Web site and ask your lender to walk you through it.

Housing prices fall, sales rise
By Marcie Geffner – LendingTree.com

February was a good month for real estate, relatively speaking.

Home prices showed mixed results, the pace of home sales quickened and the supply of homes on the market shrank compared with the prior month. Taken together, these results might suggest that home buyers and sellers have begun to adjust their expectations to today’s market realities.

Mixed Prices
The median price of homes sold in the United States declined from $201,100 in January to $195,900 in February, according to the NATIONAL ASSOCIATION of REALTORS® (NAR). But while the median home price declined nationally and in approximately half of the U.S. metropolitan areas, the median price increased in the other half of the metros. Some places, such as Oklahoma City and Trenton, N.J., posted healthy gains in home prices.

These mixed results suggest that lower prices, along with affordable mortgage interest rates, may have enticed some buyers back into the market. But these results also are a good reminder that all real estate is local and that local markets can–and often do–defy national trends.

Quicker Sales Pace
The annualized pace of home sales increased from 4.89 million in January to 5.03 million in February, according to NAR. This faster pace of sales also might suggest that buyers have become more serious about their purpose. However, the sales pace has fluctuated within a fairly narrow range since last September, so the slightly faster pace in February might not represent an upward trend.

Shrinking Supply
The number of for-sale homes on the market decreased from 4.19 million in January to 4.03 million in February, NAR reported. That dip in supply could be attributed to the faster sales pace, but also might mean some sellers took their home off the market. Builders started construction on only 707,000 new houses, a 25-year low, according to the U.S. Census Bureau.

Keep in mind that one month of positive signs doesn’t necessarily mean the housing market has bottomed out or even stabilized. It’s always a good idea to watch your local market carefully and monitor your area’s trends before you make a real estate decision.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Borrowers flock to FHA loans
By Marcie Geffner – LendingTree.com

FHA loans, which are backed by the Federal Housing Administration (FHA), are enjoying a resurgence in today’s tighter lending climate.

FHA loans, which have been out of favor in recent years, are especially popular today because they typically have easier qualification requirements than non-governmental loans and require only a small down payment or very little equity. An FHA loan also may have a lower interest rate than would be offered on a comparable loan that wasn’t backed by the U.S. government.

What is the FHA?
The FHA doesn’t actually make loans. Instead, this agency offers a guarantee that reimburses your lender if you don’t pay back your loan. You’ll have to pay small upfront and monthly fees for that protection, but a lower interest rate might offset the extra expense.

An FHA loan can be used to buy a home or refinance an existing mortgage. Traditionally, the agency has been seen as an alternative for lower-income borrowers or borrowers with shaky credit histories. But now even well-to-do borrowers in affluent housing markets are opting for FHA loans.

In fact, the maximum loan amounts, called “limits,” that applied to FHA loans used to be relatively low compared with home prices, but recently were raised to significantly higher levels. The new limits range from $271,050 in inexpensive housing markets to $729,750 in high-cost markets. The uppermost limit used to be just $362,790 even in the nation’s most costly cities.

You can find out the new limit for your county on the FHA’s web site, www.fhaoutreach.com. The web site has two search functions: One uses an interactive map, and the other is a form with pull-down menus. If you’re planning to relocate, you can download a county-by-county chart of all the FHA loan limits across the country.

The new FHA loan limits will expire at the end of this year, unless Congress extends them. That means you’ll need to act soon if you want to lock in the benefits of a bigger-than-usual FHA mortgage.

© 1998 – 2008 LendingTree, LLC. All rights reserved. No part of this article may be used or reproduced without prior written permission of LendingTree, LLC.

Can the Fed rate cut benefit borrowers?
By Marcie Geffner – LendingTree

The Federal Reserve made a substantial cut in a key interest rate Tuesday, March 18.

The federal funds rate was lowered three-quarters of one percent, referred to as “75 basis points,” from an already-low 3 percent to just 2.25 percent.

The rate cut may be good news for borrowers, even though the Fed’s decision doesn’t directly reduce interest rates on consumer or home loans. Instead, the rate cut can influence short-term interest rates on home equity lines of credit, adjustable-rate mortgages tied to the prime rate, car loans and credit cards. Longer-term loans like 30-year fixed-rate mortgages are less likely to benefit from the Fed’s rate cut.

The Fed decided to cut the interest rate due to slower growth in the economy and consumer spending, softer job markets and “considerable stress” in the financial markets. The lower rate should “promote moderate growth over time” and “mitigate the risks to economic activity,” the Fed said in a statement.

“The tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters,” the Fed observed.

Inflation is also a concern. Price increases are expected to “moderate” this year, but the outlook for inflation has become more uncertain and will need to be carefully monitored, the Fed said.

Even before the latest rate cut, interest rates were already very affordable on many types of loans, especially compared with historical averages. But a lower interest rate shouldn’t be the only factor you should consider if you want to buy a home or refinance your current mortgage. Shop around and compare the interest rate, monthly payment, fees and other terms of various loans that are offered to you. Choose a loan that you can afford and that fits your own personal financial situation.

Can the Federal rate cut benefit borrowers?
By Marcie Geffner – LendingTree

The Federal Reserve made a substantial cut in a key interest rate Tuesday, March 18.

The federal funds rate was lowered three-quarters of one percent, referred to as “75 basis points,” from an already-low 3 percent to just 2.25 percent.

The rate cut may be good news for borrowers, even though the Fed’s decision doesn’t directly reduce interest rates on consumer or home loans. Instead, the rate cut can influence short-term interest rates on home equity lines of credit, adjustable-rate mortgages tied to the prime rate, car loans and credit cards. Longer-term loans like 30-year fixed-rate mortgages are less likely to benefit from the Fed’s rate cut.

The Fed decided to cut the interest rate due to slower growth in the economy and consumer spending, softer job markets and “considerable stress” in the financial markets. The lower rate should “promote moderate growth over time” and “mitigate the risks to economic activity,” the Fed said in a statement.

“The tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters,” the Fed observed.

Inflation is also a concern. Price increases are expected to “moderate” this year, but the outlook for inflation has become more uncertain and will need to be carefully monitored, the Fed said.

Even before the latest rate cut, interest rates were already very affordable on many types of loans, especially compared with historical averages. But a lower interest rate shouldn’t be the only factor you should consider if you want to buy a home or refinance your current mortgage. Shop around and compare the interest rate, monthly payment, fees and other terms of various loans that are offered to you. Choose a loan that you can afford and that fits your own personal financial situation.