Fed keeps easy money flowing

From USA TODAY

The Federal Reserve agreed Wednesday not to pare back its extraordinary stimulus, citing a recent slowdown in the housing recovery and federal spending cuts.
In a statement after a two-day meeting, the Fed said it would continue to purchase $85 billion a month in Treasury bonds and mortgage-backed securities to hold down long-term interest rates and stimulate economic growth.
WEDNESDAY STOCKS: How markets are doing
Full text: The Fed's statement
First Take: Two sentences that stand out
The move was widely expected after Fed policymakers stunned financial markets last month by putting off a reduction in purchases amid only modest improvement in employment and a budget battle in Congress.
The Fed said Wednesday that "the housing sector slowed somewhat in recent months." Mortgage rates have risen from 3.35% in May, when the Fed first signaled that it may soon rein in its bond-buying, to 4.13% recently. A report this week showed pending home sales dipped recently.
The Fed also tempered its view of the labor market, saying it has shown "some further improvement." In September, it simply cited "further improvement." And Fed policymakers reiterated Wednesday that federal budget cuts are "restraining economic growth."
In the end, the Fed said, it "decided to await more evidence that (economic) progress will be sustained before adjusting the pace of its purchases."
The state of the economy has become more precarious since the Fed's last meeting in September. The budget debate led to a 16-day government shutdown that some economists say cut fourth-quarter economic growth by about half a percentage point. A standoff over raising the nation's borrowing authority spawned uncertainty among businesses that further dampened capital investment and growth.
The specter of another budget deadlock looms in two months because Congress voted to fund the government only until mid-January and raise the debt ceiling until early February.
Meanwhile, the shutdown dried up the flow of economic data on which the Fed relies to make policy decisions. The reports released since it ended generally have been weak. Employers added a disappointing 148,000 jobs in September, though the unemployment rate fell to a five-year low of 7.2% from 7.3%.
And while construction spending rose solidly in August, consumer confidence fell sharply this month and a key measure of business orders for durable goods such as cars and appliances fell in September.
The Fed on Wednesday also restated its intention to keep its benchmark short-term interest rate near zero at least until the unemployment rate falls to 6.5%, as long as the longer-term outlook for inflation is no higher than 2.5%.

Ty Laffoon

Why No Tapering by Fed?

The Fed spit the bit. But then, it kind of had to.
Surprising nearly all Wall Street economists, the Federal Reserve postponed from its long-awaited, much-debated move to pull back on buying $85 billion a month of bonds to stimulate the economy. The Fed pulled its punch at the last minute, announcing Wednesday that it will keep up its purchases — after a mere hint of new policy spiked mortgage rates enough to add $120 a month, or 16%, to the monthly payment on the median-priced U.S. house.
The premise for "tapering,'' or beginning the long process of unwinding several years of central bank policy that opened new frontiers in cheaper and easier credit, has been that a strengthening recovery doesn't need so much stimulus any more. Trouble is, the recovery — especially in housing — began to crack almost as soon as Fed chairman Ben Bernanke began hinting about tightening in May.
FED: Central bank delays taper, surprising markets
MARKETS: S&P 500, Dow hit record highs as Fed says 'No Taper'
Housing is, as it has been since 2007, the linchpin on which this economic cycle now turns.
The gap between the economy we have, with 7.3% unemployment, and the sub-6% unemployment rate we want can be explained almost entirely by the continued sluggishness of housing construction. Housing starts this year have averaged an annual pace of 906,000 new homes and apartments. At the same point in the 1983 and 2002 recoveries, the comparable number was about 1.7 million, big builder Hovnanian Enterprises says.
At more than 4 jobs per new single-family home, that means a normal recovery in housing — not a 2005-like bubble — would add 3 million jobs, including both construction and spinoffs in housing-related retailers (think Home Depot) and manufacturing, Moody's Analytics says.
Quick arithmetic tells you that 3 million new jobs would take 1.9 percentage points off the unemployment rate. Voila, 5.4%. Even if the population grows before we get there, and some discouraged workers begin to look for work again, we would still be under 6%.

Ty Laffoon

NO TAPERING BY THE FEDS.... SO WHEN WILL THE RATES DROP AGAIN

In a surprise move, the Federal Reserve on Wednesday decided not to pare back the extraordinary stimulus it has pumped into the economy since the 2008 financial crisis, saying it wants to see more evidence that the economy's recent improvement will be sustained.
In a statement after a two-day meeting, the Fed's policymaking committee said it agreed to continue buying $85 billion a month in Treasury bonds and mortgage-backed securities. Most economists surveyed by USA TODAY expected the Fed to reduce the purchases by $6 billion to $15 billion.
Full text: The Fed's statement
First Take: Why Fed isn't tapering yet
The Fed noted that mortgage rates have risen recently and federal spending cuts are "restraining economic growth.
"The committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with underlying strength in the economy," the Fed said. "However, the committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases."
The Fed also agreed to keep its benchmark short-term interest rate near zero at least until the unemployment rate falls to 6.5%, as long as inflation remains below 2.5%.
Begun a year ago, the Fed's bond purchases are credited with helping lift stocks and holding down long-term interest rates with the aim of stimulating the economy and job growth.
The Fed on Wednesday also slightly downgraded its economic forecast. It said it now expects economic growth of 2.3% to 2.6% this year, down from its June projection of 2.3% to 2.8%. For 2014, growth of 2.9% to 3.1% is expected, vs. its prediction of 3.0% to 3.5% in June.
The Fed sees a slightly improved jobs picture. It projects that unemployment, now 7.3%, will be 7.1% to 7.3% by the end of the year and 6.4% to 6.8% by the end of 2014. It previously expected unemployment of 6.5% to 6.8% at the end of next year. By 2016, U.S. should be near full employment, with the jobless rate falling to 5.4% to 5.9% by the end of the year, according to its forecast.
The Fed also expects inflation to be slightly tamer, running 1.3% to 1.8% next year. In June it forecast inflation of 1.4% to 2% in 2014.
Fed explainer: What is quantitative easing?
Markets: Reaction to Fed announcement
Most Fed officials still expect the first hike in the Fed's target short-term interest rate in 2015, and most say the target, now 0 to 0.25%, will rise to as high as 1% in 2015 and as high as 2% in 2016.
But many economists say the program's benefits have steadily diminished while risks such as eventual high inflation have grown. Fed Chairman Ben Bernanke has said policymakers likely would begin to taper the bond purchases this year and end them by mid-2014, assuming the economy improves and the unemployment rate, now 7.3%, falls to 7% by then.
Economic data have been mixed lately. Measures of manufacturing and service sector activity have been strong, but job growth has slowed the past three months and the housing recovery has lost some steam.
Still, some economists have said the Fed likely would assess the job market's cumulative progress since the bond buying began. Over the past year, for example, unemployment has fallen to 7.3% from 8.1% and monthly job growth has averaged 183,000, vs. 128,000 in the five months prior to the launch of the bond-buying.
Also, the economy is expected to pick up late this year as the effects of federal spending cuts and a payroll tax increase fade.
Since Bernanke began signaling in May that the bond purchases would soon be scaled back, 10-year Treasury yields have risen a percentage point to about 2.85% and 30 year fixed mortgage rates have jumped to 4.57% from 3.51%, damping mortgage applications.

Ty Laffoon

Paying off your mortgage faster

Paying off your mortgage in just six years seems impossible, doesn't it? It's definitely not easy, but one Texas couple was able to do it.

And the biggest benefit of doing so is perhaps the savings, says abc a licensed real estate broker with acc,  Florida.

a says that many consumers don't realize the true cost of a mortgage. Depending on your interest rate and the amount you took a mortgage out for, you could end up paying more than double the amount of your mortgage in just interest over time, she says.

"That alone should be enough motivation to pay the mortgage earlier," a explains. 

And that was enough motivation for and her husband, Len, who paid off their mortgage in only six years.
How did they do it?

says finding a low-priced, $114,000 foreclosed home in April 2007 was key to their success. The low initial price of their home, which was a 1,750 square feet, two-story property near Houston, Texas, allowed them to put 20 percent down, and get a 15-year mortgage at 5.375 percent for a $91,200 loan, she explains. That meant their monthly payment was just $740 a month. At that time, worked in an office and earned $32,500 a year. Her husband, a public school science teacher, earned a salary of $42,500.

But the couple was driven to pay off their mortgage early, and they took every action necessary to do so.

To start, "We started the process by overpaying from day one," explains Sr. Even though their mortgage payment was $740 per month, they paid $900 total from their very first payment, with the extra $160 going towards the principal.

[Thinking about refinancing your mortgage? Click to compare interest rates from multiple lenders now.]
Another key to the couple's success was that they weren't afraid to refinance.
In March 2011, less than four years after getting the original mortgage, er and her husband refinanced their remaining loan amount of $66,000 to another 15-year mortgage.

"Chase offered us a no-cost refinance to a 4.5 percent interest rate," she says. This allowed them to save money by getting a lower interest rate, without having to pay closing costs for the new loan. Refinancing also allowed them to lower their monthly mortgage payment to $505.

But because the couple was determined to pay off their mortgage quickly, they decided to continue paying $900 a month, an extra $395 more than necessary. They were able to do this because of her husband’s new job as a school librarian, and the success of an online business that ger launched. In 2012 for example, their gross income totaled $120,000 for the year.
Another thing that helped the couple pay off their mortgage faster was renting out a spare bedroom for $500 a month. They used this strategy on and off for a total of two and half years.
And while this might not be an option for everybody, ger says it "helped us pay off our principal even faster."
They also made larger payments towards the principal whenever they had enough money saved up.
And it was all worth it when they finally paid off their home just a few months ago in April 2013.
"We ended up paying off our [entire] mortgage in about six years on the dot," she explains. "That was an amazingly happy day."

California Housing Recovery Continues Full Throttle

Home sales in California surged by 17.3 percent in July DataQuick said today, rising from 41,027 sales of new and existing houses in June to 48,118 in July. The San Diego based company reported that July sales were 21.7 percent higher than 12 months earlier and were the highest for any month since August 2006.
There were also the highest for any July since 66,929 homes sold in July 2005 and were 3.8 percent above the July average, which dates back to 1988, of 44,364 units. DataQuick said it was the first time sales had beaten an average for any moth since September 2006.
Foreclosure resales represented 8.4 percent of all sales during the month, the lowest level since July 2007. Such sales peaked at 58.8 percent of the market in February 2009. Short sales also fell to a 14.6 percent share, down from 15.7 percent in June and 26.0 percent in July 2012.
The median price paid for a home in California in July was $363,000, 3.1 percent above the June median of $352,000 and up 29.2 percent from 12 months earlier when the median was $281,000. July marked the 17^th consecutive month in which the median price rose on an annual basis. The highest median in the state was recorded in March, April, and May of 2007 at $484,000, The post-peak trough was $221,000 in April 2009.

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How to Get a Mortgage With Bad Credit

Today, there is still a general consensus that to buy a home you need to have 20% down and a good-to-excellent credit history. The good news is you actually don't need a large down payment or great credit in order to purchase a home with competitive market terms.

Let's look at the characteristics of what a mortgage lender deems to be bad credit when it comes time to qualify for a mortgage loan.

Credit Score Scale
740-800	Outstanding
720-740	Great
700-720	Good
680-700	Mediocre
*620-680	Less than perfect, but approvable

A mortgage company's definition of bad credit might not be what a consumer considers to be bad credit. A credit score of 620 or higher is required to successfully obtain a mortgage. By the same token, a 620 credit score is considered by a lender to be less than perfect, but it's still possible to get a mortgage with that score.
Your credit score determines two major things for a mortgage company:

1. Loan program — whether it's a conventional or FHA-type mortgage
2. Pricing — this includes your interest rate and any additional charges indicative of the credit score (the lower the credit score, the higher the interest rate and/or potential charges)

Your credit history is the next factor in determining whether or not your loan will be approved. Is there a pattern of previous credit delinquencies? Are there balances on closed-out accounts? It's common for a consumer to have a 620 credit score, and have a consistent historical pattern of derogatory credit. Interestingly, this person would have a more difficult time obtaining mortgage loan approval than someone with a 640 credit score with no history of delinquencies other than a foreclosure from a couple of years before.
In order of priority, lenders will look at the credit score to determine which home loan you're eligible for. Next, the complete credit overview will be taken into consideration to determine what questions may or may not arise in the underwriting decision process. The underwriting process will be looking for "what happened," "why it happened" and the future "likelihood of continuance or repeat non-repayment."
[Has your credit score improved? Click to compare mortgage interest rates from multiple lenders now.]
Common Credit Red Flags for Lenders
Pattern of Delinquencies — A record of late payments is possible to work around, but more lender scrutiny will be given to the size of your down payment and your debt-to-income percentage.

Student Loan Late Payments — If you had a late payment on your student loans within the past 12 months, you may be more likely to be approved for conventional financing. Government financing — like FHA — does not take kindly to delinquent federal debt.

Mortgage Late Payments -- One late payment in the past 12 months is permitted, so long as it can be explained and, if necessary, fully documented.

Foreclosure – 36 months from the date of the foreclosure you'll become eligible for a 3.5% down FHA loan; for a VA loan, 48 months and no money down required; conventional loans require seven years no matter the down payment.

Short sale – It takes 36 months from the date of the short sale until you're eligible using a 3.5% down payment FHA loan; 24 months with the VA loan; 24 months on a conventional loan with a minimum down payment of 20%.

Bankruptcy – With Chapter 7 (Chapter 13 is less common), you have 24 months from the date of discharge until you're eligible using a 3.5% down FHA loan; 48 months on VA loans (still no money down required); and 48 months on conventional loans, no matter the down payment.

Why You Can Get a Mortgage With Bad Credit
There's a thing called investor overlays, which are adjustments to guidelines and/or pricing created in favor of the lender. This is precisely why one lender can do a loan for someone with bad credit and minimal (or no) down payment, and another lender cannot do the loan in some instances.
Overlays further protect lenders against potential future losses from the home loans they originate, preserving profit margins and buyback risk (an event in which the originating lender is forced to buy back from the investor if the loan they made was not fully documented). Investor overlays tighten the screws on borrowers' ability to borrow. Put another way, it shifts risk — which translates to cost — on to the consumer by means of limiting the ability to borrow via higher loan fees, reduced purchase price, or lower debt ratio, to name a few.

Note: Every mortgage lender has investor overlays, it's the nature of how mortgage companies operate, the key is to work with a lender whose overlays are minimal.

Homebuyer Homework

1. Know your credit score, first and foremost (you can monitor your score for free using a service like Credit.com's Credit Report Card). Obtain a copy of your credit report (which you can do for free through AnnualCreditReport.com), this will aid you in selecting the appropriate lender.
2. Get as much supporting documentation as possible surrounding your credit challenges so the story can be explained from A to Z.
3. When speaking with a potential lender, be very specific. Do not be afraid to share every detail of your needs and concerns, giving the most complete description possible. Find out upfront if they have any additional conditions with regard to credit history, as doing so could save you considerable time and money

For more info and apply for a loan in California
Call Ty Laffoon      
619-767-8687

Obama promotes housing policies, speaks to troops

President Obama says he could "save some money" by refinancing the mortgage on his house in Chicago, thanks to still-low interest rates.
"I would probably benefit from refinancing right now," Obama said during an Internet chat on the real estate site Zillow.com.
He hasn't taken advantage because "when you're president you have to be a little careful about these transactions," Obama added.
He also made clear he was referring to his home in Chicago, not the White House.
"That's a rental," Obama said.
In a follow-up to his housing speech Tuesday in Phoenix, Obama encouraged viewers to explore government programs to assist with refinancing. He also promoted new proposals, including a plan to wind down government-backed mortgage giants Fannie Mae and Freddie Mac.
Later, Obama wrapped up a two-day western swing with a speech to troops and their families at the Marine base at Camp Pendleton, Calif.
Obama thanked the troops for bearing the burden of war since the terrorist attacks of Sept. 11, 2001, and he spoke of ending combat operations in Iraq as well as the ongoing transition of responsibility in Afghanistan. Obama said that, "by the end of next year -- in just 17 months -- the transition will be complete."
He alluded to the temporary closing of U.S. embassies in the Middle East, telling the Marines that the terrorist threat remains and, "we've been reminded of this again in recent days."
Obama said: "The United States is never going to retreat from the world. We don't get terrorized. We're going to keep standing up for our interests."
The commander-in-chief also pledged to keep the military strong despite the specter of budget cuts to reduce deficits.
The problem of sexual assault in the military will also be addressed, Obama said, telling the Marines "that message is coming all the way from the top."
Before his speech, Obama met with wounded warriors and Gold Star families. He also spoke with local lawmakers, including U.S. Rep. (and frequent administration critic) Darrell Issa, R-Calif.
Earlier, during the Internet chat on Zillow.com, the president said he would like to push a housing package through Congress by the end of the year.
Obama also argued that other policies will help the nation fully recover from the recent housing crisis. He touted plans to lower the costs of college, revamp the immigration system and authorize new infrastructure projects.

Ty Laffoon