Focus on Real Estate

Why the Fed cut is good for housing
For the first time in more than four years, the Federal Open Market Committee lowered its target for the federal funds rate 50 basis points to 4-3/4 percent last month.

Many believe that, when the Fed slashes its rates, mortgage interest rates drop. Sometimes the fixed-rate mortgage follows the Fed and sometimes it doesn't. In the weeks just prior to the anticipated cut, fixed-rate mortgages fell. As the Fed cut the federal funds rate even more than expected, fixed-rate mortgages should remain low and perhaps fall further. Time will tell.

However, adjustable-rate and jumbo mortgages rates are likely to go down which would give a needed helping hand to borrowers with adjustable-rate mortgages as they reset.

Lowering the target rate affects a lowering of the prime rate. Consumer interest rates based on the prime rate -- mainly home equity lines of credit and most variable-rate credit cards -- will fall as a result (or may have already by the time you read this). The idea is to get people and businesses to buy on credit -- just not so recklessly this time.

Making borrowing more affordable will make money more available and this will have a positive affect on the housing market - as well as the overall economy.

Would you like to be part of the REALTORS® Confidence Factor?
Channel your market expertise into something bigger than yourself. Participate in the REALTORS® Confidence Index -- a key indicator of housing market strength based on a monthly survey of 3,500 real estate practitioners. When you sign up, you'll receive an e-mail once a month with five brief questions about your market expectations, a question about something current/relevant in the market, and results from the last survey. In addition, you'll be entered in a drawing to win a $50 American Express Gift Cheque. Click here to sign up (or see results from the latest survey).

Those REALTORS® who participated in the August survey reported they were either seeing or expecting a moderate drop in home sales and buyer traffic. Seller traffic remains high. Regarding home prices, 53.8 percent of the respondents expect home prices will rise 0-5 percent in the next year and 40.6 percent expect them to fall.

The special question of the month asked why their most recent client is selling their home. Following are the responses:

• 41.7% because of a job change, marriage, divorce, and other relocation matters
• 20.3% because the cost of ownership has become burdensome (e.g., rising mortgage)
• 20.0% to trade-up
• 8.6% to trade-down
• 2.4% because of price decline worries
• 3.1% to seek out better investment returns in other assets
• 3.8% Don't know

FHA Gives You a Chance to Help Past Clients caught in risky subprime loans
In a key policy shift, the federal mortgage insurer FHA is allowing subprime borrowers with good payment histories and at least 3 percent in home equity to refinance to safe FHA financing. The policy shift - strongly supported by REALTORS® - is one of the first tangible changes to come out of the federal government's efforts to curb defaults in the subprime market.

Defaults are expected to rise significantly among subprime borrowers in the next two years as the low starter rates that lenders used to lure customers expire and interest rates move upward, making monthly payments unaffordable for potentially millions of borrowers.

Only a portion of subprime borrowers facing spiraling monthly payments will be able to refinance into a government- backed loan because of the payment-history and equity restrictions imposed by FHA . But for those who qualify, the new policy opens the door for borrowers in high-risk financing to move into a fixed, longterm mortgage that's far safer.

If you have past clients who took out a risky subprime mortgage and now might be facing payment pressure from higher interest rate payments, call them and make them aware of this new option.

FYI - This program is temporary and requires that loan applications be signed no later than December 31, 2008.

Details are available in a HUD Mortgagee Letter on the new policy, called FHA Secure.