Feds may still raise rates in June

Several Federal Reserve policymakers said last month the central bank is likely to raise its benchmark interest rate in June but "others" said the move will probably occur "later in the year," according to minutes of the Fed's March 17-18 meeting.
The report is consistent with Fed policymakers' forecasts, released after the mid-March meeting, that indicate the first bump in rates since 2006 is unlikely before September as the Fed awaits signs of a pickup in anemic inflation.

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Still, the minutes, which provide a more detailed window into Fed officials' debates at the gathering, suggest they haven't ruled out a June rate increase.
The minutes also offer a rough blueprint for the signals that could indicate an acceleration in inflation is coming – thus making a rate increase viable -- including a more stable dollar.
The policymakers who anticipate the Fed will pull the trigger later in the year said low oil prices and a strong dollar that makes imports cheaper for US consumers "will continue to weigh on inflation in the near term," according to the meeting minutes.

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Although job growth has accelerated substantially the past year, wage growth has been sluggish and inflation remains well below the Fed's annual 2% target. The economy's mixed messages present a quandary as Fed officials consider hoisting rates that have been near zero since the 2008 financial crisis.
Fed Chair Janet Yellen said policymakers don't need to see wage growth or inflation accelerate to raise rates but must be "reasonably confident" inflation will gain momentum in the near-term. She also said she would be uncomfortable raising rates if inflation were to weaken further.
At the March meeting, Fed officials provided a more detailed scenario for increasing rates. They said further improvement in the labor market, stabilizing energy prices and "a leveling out of the foreign exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up," the minutes say. 
At the meeting, the Fed dropped a pledge to be "patient" as it considers raising its benchmark interest rate, which has been near zero since the 2008 financial crisis.
But the Fed also downgraded its economic outlook and said it will hike rates only when the labor market improves further and policymakers are confident inflation will pick up from unusually feeble levels.
Since the meeting, several central bank policymakers, including Fed Chair Janet Yellen, have said they're inclined to boost rates this year. But they also voiced a preference for waiting longer to act and hoisting rates gradually to avoid derailing the recovery and to give the recession-scarred economy more time to recover.

Forward of Article by Ty Laffoon

There are 5 main factors that determine your FICO score

There are 5 main factors that determine your FICO score:

Payment history. If your credit score was a pie, the biggest piece would belong to payment history. It accounts for 35% of your score. That means making on-time or late payments on all your credit accounts can really make or break you.

Debt balance. The next piece is how much debt you owe -- it makes up 30% of your score. Credit companies really like people who use less than 30% of their available debt limit. That means if you’ve got three credit cards with a total credit line of $10,000, you don’t want to ever carry a balance of more than $3,000 at once.

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Length of credit history. 15% of your score is determined by how old your credit history is -- in general the older your accounts are, the better it is for your score.  But  even people who haven't been using credit long can have high scores, depending on how good the rest of their credit report is, according to FICO.

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New credit applications. Applying for new credit takes up 10% of the pie. If you apply for new credit every other month, that sends a red flag to credit bureaus.

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Types of credit. As for the types of credit you have, this constitutes another 10% of your score. It’s better to have low levels of revolving debt like credit cards and more kinds of non-revolving debt like a car loan or student debt. It just makes you look less risky.

Ty Laffoon

Yellen is going to raise rates.......

From USATODAY

Federal Reserve Chair Janet Yellen said Friday the central bank will raise interest rates only gradually because of persistent slack in the labor market, the risks of another economic downturn and vestiges of the Great Recession.

She said that although the Fed doesn't need inflation to pick up before raising its benchmark rate, a further significant weakening of inflation or wage growth would make her "uncomfortable" with a rate hike.


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"I generally anticipate that a rather gradual rise in the federal funds rate will be appropriate over the next few years," Yellen said in a speech at the San Francisco Fed.

The Fed's key rate has hovered near zero since the financial crisis of 2008 despite unemployment reaching a near-normal 5.5%, down from 10% in 2009.

Last week, the Fed dropped an assurance to be patient as it considers an initial rate hike, but it suggested it's in no hurry to act. Its projections show the first hike is likely in September, and rates will rise about a percentage point each year, about half the pace of previous rate-hike cycles.

Yellen said traditional economic rules that say interest rates should be higher don't apply because "appreciable slack still remains in the labor market." For example, the ranks of part-time workers who prefer full-time jobs remains high, and many discouraged workers aren't even looking for work.

Yellen cited studies that show the economy may grow more slowly in coming years because of more limited productivity gains from technological advances.

Another reason to boost rates gradually, she said, is that if growth were to falter, the Fed would be hard-pressed to respond because its benchmark rate is near zero. Also, she said, the Fed might be reluctant to resume bond purchases to hold down long-term rates because its balance sheet is already bloated.

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She said the effects of the recession have been so severe they've held back business investment, limited firm formation and prompted workers to leave the labor force.

"Some of these effects might be reversed in a tight labor market, yielding long-term benefits associated with a more productive economy," Yellen said.

As a result, she said, the Fed could allow the unemployment rate to decline "for a time somewhat below estimates of its long-run sustainable level."

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Yellen said the Fed won't wait until wage growth or inflation pick up before raising rates. The decline of unions and technological changes probably have slowed wage growth long-term, she said.

She added, "I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices and other indicators of underlying inflation pressures were to weaken."

Yellen echoed remarks this week by Fed Vice Chairman Stanley Fischer that rate increases won't follow a predictable course, as they often did in the past.

"Rather, the actual path of the policy will evolve as economic conditions evolve, and policy tightening could speed up, slow down, pause or even reverse course, depending on actual and expected developments in real activity and inflation," she said


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Ty Laffoon

Get your FICO higher by paying more than the minimum

TransUnion, one of the three major credit reporting agencies, has made several changes in the last few years to the credit reports it provides consumers, in addition to developing a new credit score to help lenders better evaluate potential borrowers.

If you've requested your TransUnion credit report recently (you get free credit reports every year through AnnualCreditReport.com), you may have noticed there are a lot of details in it about how you manage your account. The new report format — part of their new CreditVision suite of tools — includes up to 30 months of account history and 82 months of payment performance data. The CreditVision New Account Risk Score uses all that data to generate scores ranging from 300 to 850. About 26.5 million consumers who are not scoreable using what TransUnion calls "traditional scoring models" have CreditVision scores, and 3 million of them fall into the prime or super prime categories, aka good or excellent credit.

These figures come from an internal analysis of TransUnion consumer credit files, in which the same reports were used to generate a CreditVision New Account Risk Score and a VantageScore 1.0. More than 23 million U.S. consumers would have super prime credit scores under the new model, because the score takes a more detailed look at the data, the credit bureau claims.

What's New?
Charlie Wise, vice president in TransUnion's Innovative Solutions Group, explained it as a difference between what he called static credit report data and dynamic credit report data. Here's what that difference means:
When a potential lender (or you) requests your credit report or credit score, the result is a snapshot of your accounts as your creditors most recently reported them to credit bureaus, potentially including credit card balances, loan status, whether or not you've made payments on time, collection accounts and any number of other things that are reported to credit bureaus.

By comparison, there are more details in the CreditVision history. CreditVision data includes more than if you paid your credit card bill on time, it includes how much you paid; rather than just seeing your current balances, a potential lender can see whether the balances are growing or if you're paying them down. They can see if you make minimum payments, pay the full statement balance or pay something in between. These data points — if your lender furnishes them to TransUnion, which it may not as this is a pretty new feature — show trends that may be more helpful in a lender's decision-making process than merely looking at your account balances at a single moment in time.

That's the idea, anyway — that more specific data can help lenders understand you better as a potential borrower by looking at your spending and payment patterns. Generally, you want to use less than 30% of your available credit. Traditional scoring models don't specifically factor in whether you pay the balance in full or not, rather, they focus on what percentage of your available credit you're using and if you're paying on time. With the CreditVision score, showing your ability to regularly pay a large balance may lessen the impact of using a high percentage of your available credit. That could have a serious impact on the credit score of someone who spends within their means but has low-limit credit cards.

Lending to be easier in 2015 It may be time for you to purchase a home .Ty Laffoon

Mortgage rates are hovering at levels unimaginable a generation ago. But for many would-be home buyers, a low-rate loan had been tantalizingly out of reach, denied by tight-fisted lenders still skittish from the housing bust.

That’s finally changing. Now, thanks to rising home prices, less-stringent down-payment requirements and new rules that limit lenders’ liability when loans that meet certain criteria go bad, borrowers should encounter fewer obstacles getting a mortgage. No one wants to go back to the days of too-easy credit. But a little loosening will provide a shot in the arm for the sluggish housing market as it opens the door to buyers who have been shut out of the market and provides more options for all borrowers. 

It’s still true that whether you’re buying your first home or trading up, the stronger your qualifications, the lower the interest rate you’ll be able to lock in. Borrowers with a credit score of 740 or more and a down payment (or equity, in a refinance) of at least 25% will get the best rates. You don’t have to meet those benchmarks, but if you don’t, you could see—in the worst case—as much as 3.25 percentage points tacked on to your rate.

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The down-payment hurdle

First-time home buyers usually find that accumulating a down payment is their toughest challenge. The same goes for many current homeowners who lost most of their equity in the housing bust. A popular misconception is that you must put down at least 20%. Usually, you’ll need much less. For a loan of $417,000 or less that is backed by Fannie Mae or Freddie Mac (called a conforming loan), you’ll need just 5% for a fixed-rate mortgage or 10% for an adjustable-rate loan. For “high balance,” or “conforming jumbo,” loans of up to $625,500 in high-cost markets, you must ante up at least 10% and meet slightly higher credit-score requirements.

Non-conforming jumbo loans of more than $625,500 are more widely available than before, with lenders offering them at rates comparable to conforming loans, says Guy Cecala, publisher of Inside Mortgage Finance. Because lenders keep these mortgages on their own books rather than sell them to Fannie Mae or Freddie Mac, the loans require higher credit scores than for conforming mortgages and at least a 10% to 15% down payment, says Ramez Fahmy, a branch manager with Caliber Home Loans, in Bethesda, Md.

After home prices tumbled, your only option for a low-down-payment loan was an FHA mortgage, which requires just 3.5% down (and a minimum credit score of 580). But borrowers must pay for FHA mortgage insurance—an up-front premium of 1.75% of the loan amount and an annual premium of 0.85% of the loan. (Read more on Kiplinger.com: 5 things home improvement reality shows don't tell you)

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Fannie Mae and Freddie Mac recently resurrected loan programs that allow just 3% down on a fixed-rate mortgage. For Fannie Mae’s program, at least one borrower must be a first-time home buyer. Fannie’s program launched in December 2014, and Freddie’s will be available to borrowers whose loans settle on or after March 23, 2015. Big banks aren’t rushing to offer the program, while smaller, nonbank mortgage lenders seem eager to sign on, says Cecala. Borrowers who qualify will save money on interest and mortgage insurance compared with FHA loans.

If you do put down less than 20%, you must pay for private mortgage insurance (PMI), which protects the lender if you default. The more you put down and the higher your credit score, the less coverage you’ll need and the lower the cost of PMI. The annual cost for a 5%-down loan runs from 0.54% to 1.52% of the loan balance, according to a recent report by Wallet Hub, a financial information site. When your equity reaches 20%, you can ask the lender to cancel the PMI; at 22%, the lender must automatically cancel it.
You can reduce the down payment and avoid PMI with a so-called piggyback loan—an 80% first mortgage, a 15% second mortgage and 5% down. This kind of loan is especially useful if you haven’t yet sold your previous home but you have enough cash to put 5% down and you can afford to pay the mortgage on both homes temporarily. You can pay off the second mortgage (and pay down your new loan) when your previous home sells.

You won’t need a down payment (or mortgage insurance) if you’re a vet who qualifies for a Veterans Affairs home loan, but you will have to pay an up-front “funding fee” of up to 3.3% of the loan amount. Rural Development Guaranteed Loans from the U.S. Department of Agriculture also allow qualified, low-income borrowers in selected areas to buy with nothing down, although they will pay an up-front guarantee fee (rolled into the loan amount) and an annual fee.
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The ARM alternative

Over the past several years, most borrowers gladly locked in low fixed rates. But you can trim your rate further with an adjustable-rate mortgage. If you do, choose a hybrid ARM, which features an initial fixed-rate period followed by adjustments after set periods of time. Match the fixed-rate period to the time you expect to own your home and you won’t have to worry about the rate adjustments. You’ll find hybrid ARMs with fixed-rate periods of three, five, seven and 10 years. In early January, the average rate on a 5/1 ARM was 3.1% and the rate on a 10/1 ARM was 3.5%, compared with the 30-year fixed rate of 3.9%, according to HSH.com, which tracks rates. Some versions adjust every five years or even every 15 years.

Today’s ARMs have built-in safeguards that protect borrowers against features that fueled the mortgage meltdown—such as exploding rates at the first adjustment and minimum-payment options that allowed the loan principal to grow. Lenders must inform you up front what your new payment will be after the first adjustment if your rate rises to the loan’s cap (which should be no more than two percentage points). If the ARM has a fixed rate for five or fewer years, lenders must qualify you for the loan based on the payment amount that would result if the interest rate rose to the cap on the first adjustment.

Ty Laffoon

Shop smart
About six months before you want to buy a home, pull your credit score, review your credit report and dispute any errors in it. You can also use the time to pay down debt, beef up savings and gather documents. “The last thing you want is to find your dream home and not qualify for a large-enough mortgage,” says Bob Walters, chief economist for Quicken Loans. To get an idea of what you can afford, user.
Before you tour homes, get preapproved for a mortgage by a local lender that sellers and their agents will recognize (your agent can recommend one). A preapproval letter printed on the lender’s letterhead and submitted with your purchase offer assures sellers that your finances are up to snuff and you can close the deal. If there are multiple offers, that may help lift yours above the others.
As soon as you have a ratified purchase contract (if not before), track down the best rate. Try different types of lenders, including the one that preapproved your mortgage, your bank and your credit union (check membership qualifications if you don’t already belong to one). Or contact a mortgage broker, who represents multiple lenders . You may get the best rate from a nonbank mortgage lender, whether it’s a brick-and-mortar operation or an online lender such as a Prime Mortgage Loans.. If one lender turns you down—say, because you have a ding on your credit history, a small down payment or you’re buying a fixer-upper—another one may welcome your business. (Read more on Kiplinger.com: 10 cheapest cities you'll want to live in)
To compare apples to apples, ask lenders for their “par rate,” with no fees or points (a point is prepaid interest that “buys down” the interest rate by about one-eighth to one-fourth of a percentage point), plus an estimate of closing costs. Or tell the lender the amount you have budgeted for closing costs and ask what the corresponding rate will be, says Walters. Lenders can estimate the interest rate for which you’ll qualify only until you have a contract for a home and you file a loan application. After that, they’ll issue a formal good-faith estimate.

The national average cost to close on a $200,000 mortgage in 2014 was $2,539, including the cost of an appraisal, according to Bankrate.com. Costs have risen for the past two years as lenders ramp up to meet new regulations. (Visit Bankrate.com to see what average closing costs are in your state.)
Which is better—a lower rate or lower closing costs? It depends on how long you plan to keep the loan. If you expect to be transferred to another city by your employer within, say, five years, then a no-cost loan with a higher interest rate is a great loan, says Josh Moffitt, president of Silverton Mortgage, in Atlanta, because you may not have time to offset higher up-front closing costs with lower mortgage payments.
Try to get a sense of whether a lender will provide the handholding you need, especially if you’re a first-time buyer. Ask the lenders on your short list whether they can close within the time demanded by your purchase contract. “Is chasing that eighth of a percentage point worth it when you go to a lender no one has heard of and 30 days later you’re paying fees to delay the closing date, or you lose the house because you can’t close on time?” asks Walters. Some lenders, including Discover Home Loans, advertise a “closing guarantee.” If they fail to close on time, they’ll pay you from $500 to $1,000.
You may not have to deal with paper until you close on the loan, which most states require to be done in person. However, the process can be as personal as you want it to be. “We have loan officers who will go to a person’s home and take an application over dinner,” says Moffitt.
Vetting the deal
Before a lender can approve your loan, it must document the amount and source of your down payment, closing costs, income, assets and more. At the very least, a lender will request two pay stubs, two months of bank statements and two years of W-2 forms.
The list will be longer if you have income that doesn’t show up on a W-2—say, from self-employment or alimony—or income that’s inconsistent, such as commissions or bonuses. In that case, a lender may ask you for several months of bank- and investment-account statements to verify your assets, two years of tax-return transcripts from the IRS, or a year-to-date profit-and-loss statement and balance sheet prepared and signed by your accountant.

As a lender scrutinizes your file, it may ask for more documentation, especially to explain any gaps in employment or inconsistent income. For gift money, you may need to provide documentation for the source of the funds for the gift—perhaps a copy of the gifter’s bank statement. (Loan programs may have different rules about the percentage of your own money versus gift money allowed.) To do your part to get to closing on time, don’t do anything that would change your credit profile, such as taking on new debt or paying a bill late.

The lender will hire a real estate appraiser to determine whether the purchase price on which you and the seller have agreed is supported by recent sales of comparable homes in the area. If the appraised value is less than the sum of your loan amount and down payment, someone—you or the seller—must make up the difference with more money.

You or your lender can rebut a valuation that comes in lower than the purchase price—say, if it appears that a relevant comparable sale has been overlooked. After the housing bust, deals often fell through because the appraised value fell short of the purchase price, but recent appraisals ordered by Quicken Loans have come in higher, on average, than homeowners thought they would.

You could still save on a refi

If you have equity in your home and haven’t bothered to refinance at today’s low rates, it’s not too late to save. You don’t necessarily have to reduce your rate a lot. The question is whether you will stay in your home long enough to recoup the closing costs with savings on your monthly payments 

To refinance an existing mortgage with a conforming loan backed by Fannie Mae or Freddie Mac (and roll your closing costs into the loan), you’ll need a minimum of 5% equity for a fixed rate and 10% equity for an ARM. With a maximum debt-to-income ratio of 36%, lenders may require a minimum credit score of 660 if you have less than 25% equity.

The Federal Reserve hinted that it might keep short-term rates “lower … for longer,”

The Federal Reserve hinted that it might keep short-term rates “lower … for longer,” causing a rally in the bond market and little changes in the stock market.

The yield on the 10-year Treasury, which had been rising sharply in recent sessions, fell sharply following the release of the Fed’s minutes at 2 p.m. ET.  The yield fell as low as 2.07%, down from last night’s close of 2.15%

Stocks were little changed after the Fed minutes, with the Dow Jones industrial off 43 points, or about 10 points lower than prior to the release of the minutes.

The key passages in the minutes released today of the Fed’s Jan. 27-28 meeting that suggest the Fed isn’t in a major rush to hike rates were:


Ty Laffoon
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* On risks of premature hike.
 

“In connection with the risks associated with an early start to policy normalization, many participants observed that a premature increase in rates might damp the apparent solid recovery in real activity and labor market conditions, undermining progress toward the Committee’s objectives of maximum employment and 2 percent inflation.”

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* On keeping rates “lower for longer.” 

“Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time.”

* On risk of removing “patient” language.

“Many participants regarded dropping the ‘patient’ language in the statement, whenever that might occur, as risking a shift in market expectations for the beginning of policy firming toward an unduly narrow range of dates. As a result, some expressed the concern that financial markets might overreact, resulting in undesirably tight financial conditions.”

 

Dont hide income when applying for a Mortgage.

Your income is one of the major factors lenders use in determining whether you qualify for a mortgage. Which is why omitting, hiding, manipulating or not showing income may put you in a decidedly gray area with your mortgage company.

When you apply for a home loan, lenders require specific income documentation to fund a mortgage, including:

• Income tax returns for the two most recent years, with accompanying W-2s
• Corporate tax returns for the two most recent years if self-employed
• 30-day pay stub history

One exception to this rule is when completing a government loan streamline refinance or a HARP 2 refinance. For those, no income documentation may be required.
But there are some circumstances in which you might decide to omit your income from your mortgage application. Here are a few scenarios where you can get into sticky territory.
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The Self-Employed Borrower

There is no getting around the lending requirement to show two years of tax returns -- including corporate returns when applicable. Today’s federal lending requirements prevent a lender from cherry-picking which income years to use for qualifying. For example, if your 2013 income year was strong, but 2012 income year was very low, the lender cannot simply just ignore the 2012 income, as they must calculate a 24-month average of your income. So the lower income will, of course, lower your average.

Furthermore, if you are an employee of your own company, you're still considered self-employed. Why? You control and set your own income, unlike a traditional employee who does not have an ownership interest in the company. In this case, you’ll still need to submit all the required documentation.

Non-Disclosed Income

The first question a prudent lender would ask is: Why are you trying to hide your income? Most of the time when the situation arises, it is because showing full income will make the lending scenario worse in trying to qualify. For example, if you’re receiving income you don’t disclose on your tax returns and you don’t pay taxes on, but you’re otherwise obligated to do so, you have bigger problems (as the IRS is particularly on the lookout for tax fraud). Simply put, it’s best to give your lender all material information regarding your income. Doing so allows them to help you get a mortgage.

Side Jobs & Cash Deposits

If you're putting cash deposits independent of your normal income into your bank account and you don’t document it with your application, you could throw a big wrench in your mortgage process. This is true whether it’s a regular side income or not. If you’re applying for government financing, all cash deposits must be documented and sourced, meaning you'll need to explain the origin of the funds. For conventional loan financing, lenders must source and document cash deposits that are 20% or more of your monthly income.

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The Stronger Candidate

If two people apply for a mortgage, there may be a consideration made for whichever borrower has a stronger chance of qualifying. That applicant is usually the one most suited for the lender to review for loan approval. For a conventional mortgage loan, if one borrower’s financial information is not as strong as the other’s, the stronger borrower's credit, debt, income and asset history can be used on its own. This is not the case, however, for a government loan such as an FHA, VA or USDA loan where the debt of the spouse negatively impacts the primary borrower, whose income can't be used on the loan if their credit score is not high enough.

USDA Quirk
There is a special consideration with a USDA loan. Unlike a conventional or an FHA loan, where you can cherry-pick which borrowers are included on the loan application, the USDA reviews total household income. For example, if one borrower generates $70,000 in annual income, and the spouse not on the loan generates another $40,000 in income, the total household income is $110,000 -- exceeding USDA's income threshold (which varies per county). This means the lender must count the other $40,000 income, whether this person is on the application or not.

Ultimately, lenders want to make loans to borrowers who can fully support the proposed mortgage payment. Most mortgage companies will want your mortgage payment and other debt to be no more than 43% of your income, though in some cases they may allow up to 55%. So it’s important to be upfront with your lender about all sources of income from the beginning so they can help you navigate the mortgage process and become a homeowner.