One issue at the forefront of eroding consumer confidence is the impending budget deal debacle which will decide the fate of whether or not the US debt ceiling can be increased, allowing the United States to continue funding its monthly obligations.

Adding to consumer anxiety is credit rating agency Standard & Poor’s statements this week that there is a 50 per cent chance it will downgrade the U.S. government’s credit rating within three months because of the congressional infighting over approving an increase in the debt ceiling. The rating agency has placed the United States on a credit watch, not good news for the economy or consumers.

FED Chairman Ben S. Bernanke in Semiannual Monetary Policy Report to the Congress:

Much of the slowdown in aggregate demand this year has been centered in the household sector, and the ability and willingness of consumers to spend will be an important determinant of the pace of the recovery in coming quarters. Real disposable personal income over the first five months of 2011 was boosted by the reduction in payroll taxes, but those gains were largely offset by higher prices for gasoline and other commodities. Households report that they have little confidence in the durability of the recovery and about their own income prospects. Moreover, the ongoing weakness in home values is holding down household wealth and weighing on consumer sentiment. On the positive side, household debt burdens are declining, delinquency rates on credit card and auto loans are down significantly, and the number of homeowners missing a mortgage payment for the first time is decreasing. The anticipated pickups in economic activity and job creation, together with the expected easing of price pressures, should bolster real household income, confidence, and spending in the medium run.

The silver lining for mortgage rates is that bad economic news results in lower or depressed mortgage rates. We can help you decide if you in the best mortgage for your needs or if a lower rate is available. Please contact us today for your free existing or future mortgage consultation.

Fixed Rate Mortgages

With a fixed rate mortgage, your interest rate and monthly payments remain the same throughout the term of the loan:

• There is no risk of your monthly mortgage payments changing at any point during the course of the loan. This means as long as there are no drastic changes to your lifestyle, you should always be in a position to pay the mortgage amount comfortably.
• A fixed interest rate is typically higher than whatever the going adjustable interest rate is since you are offered more stability.
• Throughout the term of your mortgage, there is no change to the amount applied to principal versus interest, it always takes the same course as per the amortization schedule.
• If interest rates go down you don’t have the opportunity to take advantage of this move as you may with an adjustable rate mortgage.

Adjustable Rate Mortgages

With adjustable rate mortgages, your payment amount is determined by the initial mortgage rate fixed for a 3, 5, 7 or 10 year term, which presents some interesting pros and cons:

• With a adjustable rate mortgage, there is the potential that you can pay much less than you would with a fixed rate mortgage, but if interest rates go up, you could also pay much more as you do not have a guaranteed future rate once your “fixed rate” period is complete.
• You don’t have a guaranteed monthly payment amount, and you may have to tighten the purse strings on other spending when interest rates rise.
• Adjustable rate mortgages can allow you to pay down your mortgage with more money applied to principal depending upon what interest rates are doing at any given time.
• In order to be eligible for a adjustable rate mortgage, you may need be approved to pay a monthly payment amount higher than what you’d pay based on the interest rate at the time in a fixed rate loan. The regulations can vary by lender or state, but this ensures that your mortgage can always be paid.

Still have questions about whether an adjustable rate or fixed rate mortgage is best for your needs? We can help walk you through any questions you have to find the loan that best fits your needs.

Expect:
1) An emotional yet controlled recovery: 
The emotional aspect:  If you read the business section you can see the view on the recovery swing rapidly from day to day.  On Monday we are recovering and on Tuesday the market is being hailed as the next big depression.  On Wednesday everything is sunshine and rainbows and on Thursday we are doomed.  There is a lack on consistency in mood.  This is what we call an emotional recovery.  Every speck of data is sending the media and emotional investors to the extreme on each side. It is manic depressive to say the least.

You can take advantage of this by investing when they say it is the end of the world.  It is amazing some of the deals on solid companies that have been offered up in the last 36 months due to doomsday news. It is a great time to start saving for retirement or increasing your retirement savings.   Rates also will go up and down with the news. Quick cheat sheet below
Great Depression = lower rates    Recovery= higher rates

The Control Factor:  This recovery is being controlled and pushed along by the government and the “powers that be.”  Look at the housing issue.  Our country cannot afford to let the foreclosures all hit the market at once. There are just too many.  This happened in 2008 and it devastated home values and threw the economy into the dump.  Since the 2008 free for all, there has been a much more controlled release of foreclosures.  Between the attempts at modifying, moratoriums and behind the scenes deals we have been seeing foreclosures come out in a low controlled movement.  Expect this to continue. The flood of 2008 will not happen again. It will be the trickle of 2011,2012,2013 and 2014.  I say no to the double dip.

2) The Year of the Short sale:
Short sales are speeding up a little bit which is great but what is even greater is that in the past few months we have seen more and more buyers  actually wanting to buy a short sale.  In the past people were hesitant due to all the unknowns involved.  However, short sales in many cases are now priced more aggressively than foreclosures, there is more short sale inventory and lenders are more willing to approve them. Also, there is new legislation in CA that makes it more attractive for homeowners to short sale their homes.

3) Lending to loosen a bit:  We are starting to see the beginning of slightly looser lending. Debt ratios are not loosening up but some of the documentation is. Stated is still a far way from coming back although there are some hard money sources offering stated income as long as there are assets.  We are starting to see more products coming into the market and more investors wanting to do local deals that are unique.  A big part of our 2011 plan is trying to say yes twice as much as we say no.  
4) Modifications to remain problematic:  The way in which modifications are being handled is so poor that I have absolutely no hope that it will be fixed by the end of 2011.  For example, I was reviewing a friends credit report who was going through a modification and even  though they had made their modification payment every month on time their credit history showed 7 lates due to partial payments (the modification payment).  Their score had dropped from 780 to 540.  They did everything right and their credit was hit harder than if they had done a short sale.  Bank of America is being sued by a few states over their modification processs and their have been countless stories of modifications gone bad.  The bottom line is that the servicers make more money by foreclosing or a short sale than they do by modifying. Until this is changed expect modifications to remain useless for the masses.

5) Foreclosures are here to stay:  There will not be a flood but the trickle will continue.  There will continue to be some great foreclosure deals.

For buyers and investors 2011 will be a year filled with opportunity.  For everyone hoping they can gain equity to refinance their house we are still a few years off. I do still hope that a no equity refinance will be introduced but I am not holding my breath.

If you are purchasing or refinancing a home with a loan (not FHA)

DO NOT BUY ANYTHING WITH YOUR CREDIT CARDS.

As of June 1st Fannie Mae is requiring lenders to check the borrowers credit right before funding.  If anything changes on your credit your loan that you already have signed loan documents on could be denied.   In order to protect yourself

1) DO NOT BUY ANYTHING WITH YOUR CREDIT CARDS OR OPEN NEW LINES OF CREDIT.

2) PAY YOUR CREDIT CARDS ON TIME

3) DO NOT ALLOW ANYONE TO RUN YOUR CREDIT.

By following the three above rules you will have no problems.  If you decide to go against any of the above you could be setting yourself up for disaster.

As the Real Estate and financial markets continue to move up and down, mortgage rates can also be affected. Since mortgage rates are more closely tied to the bond markets, an up or down move in the stock market may not have the result in mortgage rates that one might expects. In fact, many times the resulting mortgage rate changes are counter-intuitive.

More importantly, rates change daily and they can change quickly. Some mortgage professionals have recently noted that their rate quotes have only had shelf lives of three to four hours before market changes have deemed them inaccurate.

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How does a consumer navigate fast changing markets in order to refinance their existing loan or purchase a home with the most favorable terms possible?

1. Plan – Define your needs ahead of time, do not wait until the last minute. This is especially true of home purchases.
2. Consult – Talk to your mortgage professional on a regular basis so they can interpret recent market events to you and communicate how those events can affect you.
3. Execute – When you have defined your needs and have determined that now is the best time to move forward, don’t shop yourself out of a good loan! What does this mean? It is easy to get caught up in shopping for the best rate, but it is not uncommon for home owners to miss locking their loan at a great rate because they are in search of better rates that do not exist or that they do not qualify for. It is important to shop to insure you are getting the best rate possible, but set limits to the number of companies you are going to consider doing business with and be careful of having your credit report needlessly and more times than is necessary!