Subprime mortgages have now been credited for bankrupting well over 110 lenders and seriously damaging operations at many major mortgage firms. They've reportedly wiped out 5 hedge funds, tens of thousands of jobs, and have led to millions of foreclosures with millions more on the way. And, as if that weren't enough, subprime mortgages are also blamed for massive volatility in the stock, bond, credit, futures, and real estate markets here in the US and around the globe. Some say losses in the mortgage securities market alone could reach hundreds of billions of dollars this year.

This means that, for any Americans looking to buy, sell, or refinance a home, they are confronting a very different market from the one that existed just 6-12 months ago.

How did this happen?
The recent real estate boom was fueled by a period of record home appreciation and historically low interest rates. Banks, in order to compete, loosened guidelines and began offering more funding to more borrowers through riskier, non-conforming or "exotic" mortgages.

These ideal lending conditions persisted for several years, supported by high demand, historical real estate data, home prices, and massive trading volume/profits on mortgage-backed securities and other financial instruments on Wall Street.

Then, in 2006, a slowdown in real estate led to a deterioration of home values, an increase in inventories, and ultimately to today's tightening of credit guidelines, leaving many investors unable to sell or refinance out of their existing positions. Many Americans who had tapped into their equity were suddenly tapped-out and overextended as home values fell. Foreclosures followed in record numbers and a re-valuation of mortgage bonds and other financial instruments created the credit/liquidity domino effect we're now experiencing.

Unfortunately, it's going to get a lot worse before it gets better. According to the latest estimates, over 2 million subprime and Alt-A adjustable rate mortgage (ARM) holders will face payment increases of up to 30%-100% when their loans reset in the next 2 to 18 months. These loans make up less than 40% of the total mortgage market, but the negative effects, as we have seen, of increased foreclosure activity can have a ripple effect throughout the industry and around the globe.

What does this mean to you and your mortgage?

Sellers: If you're planning on selling your home, be prepared for an even smaller pool of qualified buyers. While some experts predict a settling of this credit crisis over the coming year, tightened credit guidelines and diminishing mortgage products could knock out as many as 15%-30% of potential qualified buyers. Now is not the time to sit and wait for the best possible price. Have a serious talk with your real estate agent. Having experienced buying/selling transactions in your area, he or she can help you price your home accordingly. He or she can also help ensure that your buyers are pre-approved and stay pre-approved throughout the entire transaction.

Buyers: Get pre-approved by your mortgage professional. While there are a lot of great deals out there, getting credit is becoming tougher and tougher, and it's taking longer and longer to complete a transaction. Remember, what you qualify for today could change tomorrow in a volatile market. For those looking to refinance, keep this in mind. There is no time to delay! Communicate with your lender. Don't do anything that could negatively affect your credit, and make sure you get all your documentation in on time.

ARMs Borrowers: If your ARM is scheduled to reset in the next 2-18 months, you need to schedule an appointment with a mortgage professional right away. Whether your ARM is subprime, Alt-A, or even if you have a pre-payment penalty, don't let a default or foreclosure situation sneak up on you. Did you know that your monthly payments can increase anywhere from 30% to 100% once your loan resets? At the very least, give yourself the peace of mind of knowing what your adjusted payment will be.

Borrowers with less-than-perfect credit: Each week it seems lenders are shedding more and more mortgage products. Many lenders have stopped offering No-Doc loans and are reducing all forms of Stated-Income loans. While it might be challenging, borrowers with credit issues need to see a loan expert. Often they have credit repair resources and other strategies to help you reach your financial goals.

Finally, there's an important concept to embrace: all markets, while cyclical in nature, are self-correcting, be it credit, real estate, stocks, or bonds. For the last 6 or 7 years, real estate was booming and riding high. The correction we're experiencing now - while it seems harsh and could get much worse - is, in a sense, "natural" and directly related to the extremely loose guidelines and perhaps overzealous lending and leveraging during the boom cycle.

Since September of 2007, the Federal Reserve Chairman has slashed the federal funds target rate by a full 3 percentage points. But prospective buyers are still scratching their heads because the Interest Rates are not moving down with these cuts. Interest rates have dropped only a 1/2 percent on a 30-year fixed loan since September. Why is this happening?

Here is a overview of the factors that influence today's mortgage rates and my opinion of what may be happening in the future.

DOES THE FED SET MORTGAGE RATES?

No. The Fed is only responsible for setting the federal funds target rate. What is the Federal Funds Target Rate? This is the interest rate that banks charge each other for overnight loans. Interest rates on short-term CD's and commercial paper are closely linked to the federal funds rate., but its influence on fixed-rate mortgages is less direct.

DOES THE FEDERAL FUNDS RATE AFFECT MORTGAGE RATES?

Only indirectly. The federal funds rate affects a lender's borrowing cost. When the federal funds rate is cut, lenders pay less for the funding they need to finance loans. Based on this, they can reduce the interest rates they charge on mortgages without hurting their profits.

SO WHAT ARE THE KEY FACTORS THAT DETERMINE MORTGAGE INTEREST RATES?

Fixed mortgage rates usually track the yield on the 10-year Treasury note. On average, people payoff (refinance) their loan every 7-10 years. The outlook for inflation plays a key role in determining the yield on the 10-year Treasury.

In order to compensate lenders and investors for the risk that they take on home loans that may not be repaid, mortgage interest rates are set higher than the 10-year Treasuries, which are basically risk free. In the past, the difference between mortgage rates and the 10-year treasury yield has been approximately 1 1/2 percentage points. This is referred to, in the mortgage industry, as risk premium.

HOW HAVE THESE FACTORS INFLUENCED MORTGAGE RATES LATELY?

Recently we have seen the treasury yields decline in the past few months but the risk premiums have widened dramatically. The spread between the average 30-year fixed mortgage rate and the 10-year Treasury yield has ballooned nearly 60 percent year over year to approximately 2 1/2 percentage points.

WHAT IS DRIVING UP THOSE RISK PREMIUMS?

Mortgages were considered to be safe investments before the housing crisis. This kept risk premiums low. During the housing boom, large amounts of home loans were pooled together and sold to investors in the form of mortgage-backed securities. But as we have all seen in the news, rising delinquencies and foreclosures on subprime home loans led to large-scale losses for investors holding those loans.

With the demand for mortgage-backed securities slim to none, higher returns were required to attract new buyers, who were moving to safer or low-risk investments such as treasuries securities. Based on these factors, the banks tightened up all of their underwriting standards and guidelines and required a wider spread on new mortgages.

As a result, the recent declines in the yield of the 10-year Treasury have been more than offset by the escalating risk premiums. This has prevented mortgage rates from falling as mush as they normally would have.

WILL THESE RISK PREMIUMS DECREASE ANYTIME SOON?

As investor portfolios begin to heal from the housing market's demise, risk premiums should begin to decrease. At this time , the risk premiums have started to decrease, but they are still well above the historical norm. This is partially because of the recent changes allowing Fannie Mae and Freddie Mac to increase their holdings of mortgage backed securities.

WHAT IS THE OUTLOOK FOR THE 10-YEAR TREASURY?

Even though risk premiums are expected or may decline, the 10-year treasury yield is expected to increase.

SO WHERE WILL MORTGAGE RATES BE AT THE END OF THE YEAR?

No one can really say what will happen, but it is my opinion that interest rates will increase and or fluctuate between 5.875 and 6.25% between now and the end of the year. Rates could move lower if the the economy slips into a recession.

HOW ATTRACTIVE ARE CURRENT MORTGAGE RATES?

The lowest average 30-year fixed rate ever recorded by Freddie Mac's weekly mortgage survey was recorded at 5.21 percent in June of 2003. In August of 2007, the average rate was recorded at 6.625 percent. So I would say that interest rates are very attractive. Some borrowers can reflect and will remember that in the 90's we were seeing average interest rates in 10-12 percent range.

Based on all of the information that I see on a daily basis, I believe that nationally home owners and new home buyers are in the best position to take advantage of these low rates, lowering their monthly outgoing expenses and decreasing their financial risks.

 

Spokane is located approximately 5 hours (drive time) or 50 minutes by plane from Seattle, Washington and Portland, Oregon. Spokane is home to the largest WiFi Hot Zone in the U.S. A high-speed broadband wireless network covers a 100-block area and is available for free public Internet access by any computer, portable or handheld device that supports WiFi.

Spokane's median priced sale home was $160,000, which proves that Spokane is one of the least costly cities to purchase a home.

Spokane offers a wide range of activies for all ages including Broadway performances, art galleries, sporting events as well as outdoor recreational activities. The Inland Northwest is a great place for all season activities such as hunting and fishing, hiking and skiiing, mountain biking, boating, and golf just to name a few.

With all the big city amenities you could wish for, natural beauty, four seasons and 260 sunny days each year, Spokane is a great place to live. Recently Spokane has been named in lists such as Top 100 Best Communities for Young People, Top Seven Intellegent Communities (referring to our development in the WIFI arena), and listed as one of the Top Real Estate Markets in 2007.

Spokane has hosted many national sporting events as well. In 2007, Spokane was honored to host the 2007 U.S. Figure Skating Championships. We are also the home of the 2006 AF2 Champion Spokane Shock, the WHL Spokane Chiefs, WCC Basketball Gonzaga Bulldogs, the NWL Spokane Indians (Texas Rangers Minor League Affiliate), as well as many other college school teams such as Eastern Washington Eagles and Whitworth Pirates.

Spokane is definately a great place to live!

There's a growing trend among lenders that I feel compelled to tell you about. Several major lenders are freezing withdrawals from Home Equity Lines of Credit (HELOCs) – and I don't want you to be caught off guard by this development. Don't Get Burned by the HELOC Freeze HELOCs, though secured by your real estate, are treated by lenders as consumer credit. And just as a lender can revise the terms of your credit cards, or even cancel them, the same can be done with your HELOC. Previously, HELOC withdrawals were usually only frozen for reasons such as bankruptcy, declining credit and payment problems.

While these events can still cause a freeze, there's another factor that lenders are considering more often today: the value of your property. You should be aware that the lender retains the right to suspend or reduce the line of credit available if your property value falls below the appraised value used to originate the loan. Lenders are actively assessing properties and then suspending access for account holders who have seen a downward slide in their home value.

If you or your friends, family members or business associates currently have Home Equity Lines of Credit open, please make sure that you are aware of how this will affect you or them.

The Economic Stimulus Act of 2008 is a $168 billion plan intended to jumpstart the sliding U.S. economy. While a lot of media attention has been focused on the $600-$1,200 rebate checks that millions of taxpayers will begin receiving this spring, the new bill is also designed to help certain "high-cost regions" of the struggling housing market by:

1. Temporarily increasing the "conforming loan limit" from $417,000 to as high as $729,750 in specified areas;

2. Temporarily increasing the size of loans the Federal Housing Administration (FHA) can insure from $362,000 to as high as $729,750 in specified areas.

If you're looking to purchase or refinance a home in a "high-cost region," this is great news. These temporary increases could help you avoid the higher interest rates associated with "non-conforming," or jumbo, loans. Although these new limits only apply until the end of 2008, the legislation does not exclude the refinancing of any past mortgages into these new "conforming loans." That means, if you qualify, you can take advantage of the new limits no matter how many years have passed since you obtained your mortgage.

While this is great news, I should remind you that qualification standards are tougher than ever. So your credit score and credit worthiness are more important than ever. Give us a call today. We can review your options and discuss if we can make this legislation work for you.

Not everyone will benefit from these temporary loan limit increases, but experts estimate that areas in at least 17 states will be able to take advantage of it. So how do you know if your neighborhood qualifies?

A high-cost region is typically determined by the median value of its homes. The median value is the specific price that is halfway between the least expensive and most expensive home sold in an area over a given period of time. Do not confuse this with the average home price. The median home price is the price at which half of all buyers bought more expensive homes and half of all buyers bought less expensive homes.

If that sounds confusing, don't worry. It is the responsibility of the Department of Housing and Urban Development (HUD) to determine, within the next 30 days, what the median home price is for regions across the country.

This is my third time living in the Spokane area. The first time was back in the early 90's while stationed at Fairchild Air Force Base. Of course I moved here during one of many snow flurries we were to have that year. Although I had lived most of my life in the Pacific Northwest, Spokane was truely the first place in the Northwest that I was able to experience 4 true seasons.

During the winter it was very cold and blistery, but we were able to get out and enjoy the snow filled mountains by skiing, snowboarding, and spending time in the lodge. Montana was not a far drive so I was able to visit the hot springs as well as Glacier National Park.

In the spring time the weather was cool and brisk but warmed up as well. Of course, for some, this meant the St. Patricks Day Parade, training for Bloomsday , watching the lilac's blossom, and watching the snow melt away which in some cases was the big highlight for me.

In the summer, we found lots of things to do such as the largest three-on-three basketball tournament - Hoop Fest, watching the city get ready for the lilac parade, Spike and Dig, Neighbor days for the 4th of July and of course my favorite, Pig-out-in-the-Park. After all that I am forgetting driving to Coeur d'Alene lake for the day. What an amazing summer that was.

And of course we cannot forget fall. After all the summertime experiences, you start to think that there will be nothing to do and you find you are completly wrong... At least I did. I found myself wrapped up in football. Even though I did not go to school in the Spokane area, I found myself hearing about all the great high school and college football in the area, as well as driving out to the St. Joe River and taking in the scenes of the turning of nature to its autumn colors.  

And then winter hits again. And just when I thought that I would be stuck inside trying to stay warm, I find the Spokane Chief's hockey team at the Arena, Ice Skating at River Front Park, and all the Community Holiday programs such as the lighting of the tree in Coeur d'Alene, as well as the First Night Spokane programs for New Years eve.

My point to all this is that Spokane is a great place to live. There is so many things to experience, whether you are an avid golf player, sports fanatic, outdoorsman, or if you enjoy hunting and fishing. I am glad that I made the decision to move back to Spokane and raise my children here. We are a great community with lots to offer new members.

The last thought that I will leave you with is this. Everyone I have spoken to about coming back to Spokane has this one thing to say,"There is nothing like coming down the I-90 east hill just before coming into Spokane city limits. Everytime I see the view of the city from the hill, I always get the feeling that I am truely home".

 

Most homeowners who have placed their homes on the market are doing so because they need or want to upgrade their own living space. In slow markets, what ends up happening is that the homeowners find themselves paying for 2 mortgages or lowering the price more than they originally wanted to bring in more potential buyers, or firing their

The current market adjustments across the US have left prime borrowers with an average rate of 6.0%. Of course this rate is in no way hard to handle. Remember the mid 90's when we were seeing 8-10% or the 80's when rates were in the teens. Instead of lowering your price... help lower the interest rate for potential buyers.

Developers have uses Temporary Interest Rate Buy-downs for years to help insent potential buyers to purchase their homes. You as a seller, you have the ability to use the same temporary buy-down incentives that the developer's have used. These incentives have dropped the interest rate from an average of 6.0% fixed to 4.0% fixed for the first year, saving you the seller money.

If you would like more information about how to use these incentives to drive more potential clients into your home, please contact me via phone or email and I will supply you with all the material you will need.

Most analysts see the Fed cutting rates for the third consecutive time tomorrow. What investors don't know is just how deep the Fed will cut. What will this mean for your mortgage? Here's what you need to know.

1: Long-term mortgages won't move much

Right now investors are split on whether the Fed will lower the funds rate by another quarter point to 4.25% or cut it by a half-point, to 4%. But the fact is, there's not much doubt that the Fed will cut rates. And because of that, the market has already priced that in, says Mike Larson with moneyandmarkets.com. 30-year fixed rates have been falling for some time.

In July, the average rate on a 30-year fixed mortgage was 6.66%. Last week, it was 5.82%. So, a rate cut won't really do very much to lower long-term rates. They're already low. So if you want to refinance, it's a good time to start shopping.

2: ARM resets not as severe

The Fed move tomorrow may be more significant to borrowers with adjustable-rate mortgages than what the government is doing in freezing subprime interest rates. That's according to Greg McBride at bankrate.com. Most resets on adjustable rate mortgages will reset in the middle of next year. And the fact that the Fed is cutting rates, will make these resets more manageable for prime borrowers, which aren't covered by the foreclosure-prevention plan announced last week.

So, if you had an adjustable rate mortgage that started at 4.5% and your rate was going to reset at 7.5%, you may only face a rate reset of 5.7%.

3: HELOCS will be cheaper

Home equity lines of credit will be cheaper if the Fed does cut rates. It may take up to three billing cycles to see the actual decrease in your bill. If you need to consolidate debts or you need money for medical bills or college expenses, you may consider shopping around for a HELOC since lenders are likely to price in the Fed's cut immediately.

4: Keep it in perspective

The take away here is that the Fed is on your side. This rate cut won't be the silver bullet that fixes the housing market. But it's apparent that Fed is in a rate cutting mode, and the cumulative effect on that will help consumers. There are a number of things the Federal Reserve can't control, like the impact of the credit crunch.

You need to look at inflation, job growth and the overall health of the economy as indicators of when this housing crisis may subside. When we get down to it, there are two issues here, according to McBride. That's inventory of houses on the market and the affordability of houses. Interest rate cuts won't do much to make that go away. Sometimes, it's just a matter of time.