Fed cuts key interest rate

By Marcie Geffner - LendingTree.com

As expected, the Federal Reserve has trimmed a key bank interest rate by one-quarter of a percentage point from 2.25 percent 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.

The Fed’s previous rate cuts were especially welcome for borrowers who were facing resets on adjustable-rate mortgages (ARMs) tied to certain indices. Interest rates on ARMs often are tied to the U.S. Treasury or the London Interbank Offer Rate (Libor) rate, both of which have dropped this year.

As an indirect 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 is the rate banks offer their best customers. This 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. This story, Fed cuts key interest rate, is reprinted by the author with written permission of LendingTree.

House Offers: How Low Can You Go?

By Marcie Geffner - Bankrate.com

Homebuyers are looking for a steal; home sellers are looking for an out, and homebuilders and banks are selling homes at cut-rate prices. Combined, these conditions have triggered a wave of lowball offers to buy homes in distressed U.S. housing markets.

Conventional wisdom claims that lowball offers don't work. Homebuyers are warned not to "insult" sellers, who are counseled not to counter offers from "disrespectful" buyers. Real estate salespeople are stuck in middle, oftentimes unwilling to engage in prolonged negotiations that might not earn commissions.

But conventional wisdom doesn't always hold true. With a severe slowdown in sales, some experts now offer new advice.

Read the rest of this story:
http://www.bankrate.com/brm/news/mtg/20080501-lowball-offers-a1.asp

Judges should have say in mortgage modifications

By Marcie Geffner - Inman News

The Mortgage Bankers Association recently fought off federal legislation that would have allowed bankruptcy judges to modify residential mortgages. The MBA's victory was a huge success for lenders, but an unfortunate loss for homeowners who have declared bankruptcy.

Lenders had good reason to dislike the proposal, which would have shifted some of the power over mortgages from lenders' loss-mitigation departments to bankruptcy judges, who might have imposed modifications that the lenders wouldn't have liked.

Read the rest of this story:
http://www.inman.com/opinion/guest-perspective/2008/05/1/judges-should-have-say-in-mortgage-modifications

Why housing is cyclical

By Marcie Geffner - Bankrate.com

It's no secret that the U.S. housing market is cyclical and in the midst of yet another painful correction. The causes and characteristics of these cycles vary, at least in some respects, but the implications for homebuyers, home sellers and homeowners remain remarkably reliable as the cycles roll by.

Housing cycles aren't all alike, yet over long periods of time a basic pattern can be discerned, says Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University.

A cycle doesn't really have a start or a stop, but to pick a point at random, we might say that a housing cycle "starts" when economic activity heats up and interest rates rise. Higher interest rates make housing less affordable, so demand decreases and home prices fall.

Read the rest of this story:
http://www.bankrate.com/brm/news/mtg/20080417-housing-cycles-a1.asp

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.

© 2008 LendingTree, LLC. All rights reserved. This story, "Making sense of house prices," is reprinted by the author with permission of LendingTree.

Foreclosure crisis hits rental housing

By Marcie Geffner - Bankrate.com

It's no secret that the nation's subprime mortgage meltdown, spike in foreclosures and fall in home prices have affected legions of homebuyers, home sellers and homeowners. But what may be surprising is that the turmoil in today's U.S. housing markets has important implications for renters as well.

"There is some pickup in demand, but there is also a pickup in supply -- both new apartments that are being built and also units shifting from owner to renter," says Mark Obrinsky, chief economist of the National Multi Housing Council, or NMHC, an apartment industry trade group.

Read the rest of this story:
http://www.bankrate.com/brm/news/mtg/20080403_rental_foreclosure_a1.asp