The hubbub over the sub-prime mortgage meltdown has abated a bit. A month ago 151 major U.S. lending operations had imploded since late 2006. In the last month the number has increased to 161 operations. We have seen the Federal Reserve cut the Federal Funds Rate by .5% causing short-term rates to dip a bit and long-term mortgage to rise a bit. The stock market has seen a new high in the last two weeks. Jumbo rates had jumped up and have now moderated back down. The Federal government is still debating on how to intervene to stave off a high number of foreclosures. There are still billions of dollars of ARMs yet to reset.
So there have been some good and some bad developments in the past few weeks. Tomorrow's job report is important beyond the Fed and interest rates.
If the September jobs report is again much weaker than expected, especially if it shows another drop in employment, it will be very bad news for the economy. The specter of recession may be looming on the horizon. Economists surveyed by Briefing.com are forecasting a 100,000 gain in payrolls in September. That's close to their forecast a month ago that proved to be wrong. David Wyss, chief economist for Standard & Poor's, and many other economists say they're expecting job growth to be sluggish all the way into next spring and summer.
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Be very careful if you are setting up Leases With An Option To Buy-
As the market slows down a number of sellers may want to sell their home through a lease with an option to buy. Typically, the seller will tell the lessee (the buyer) that they will devote a portion of the monthly lease toward the buyer's down payment. Example: Lease fee is $1,500 per month with seller agreeing to credit $200 per month toward the buyer's down payment a year from now (equating to $2,400 down payment credit a year from now). A year later the option is exercised. The lender will require that the appraiser determine the fair-market rental of the property at that time. If the fair-market rent is determined to be $1,300 per month, $200 (or $2,400 aggregate) may be applied to the down payment. However, if the fair-market rent is determined to be $1,500 at that time,
then no monies may be applied toward down payment. So be careful because the fair market rent a year out may be different than it is today!
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Rate Watch-Long term mortgage rates during the previous week did not respond at all to the drop in the Federal Funds Rate announced by the Federal Reserve a little over a week earlier (as forecasted to you in an earlier communiqué). Shorter term rates did decline slightly. The 30-year fixed-rate mortgage averaged 6.42% for the week compared to the previous week at 6.34%.
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Disclaimer: The information contained in this newsletter has been gleaned from various sources and is intended to be current and accurate, however we cannot and do not warrant or guarantee as such. This newsletter is for informational purposes only and is not intended to be, nor should be considered as, investment advice. It does not take into consideration the financial circumstances, needs or investment objectives of any specific person who may receive this newsletter. Individuals should seek financial advice with regard to specific circumstances before making any investment decision.
Copyright 2007 Ann Arbor Mortgage Company, LLC
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