If the Fed Lowers rates again ....

[wtm442]

Bailouts? NO.

Reducing rates to combat inflation ... YES

Regulating the supply of money via the Fed rate to make sure my stocks and mutual funds continue to go up ... absolutely YES

[lust4fia]

I thought the FED strategy is to raise rates to combat inflation, increasing the cost of borrowing to slow things down a bit. Conversely,lower rates to avoid a recession, cheaper borrowing to increase activity. No?

[4RE KLR]

Inflation is not the issue right now.

Countrywide is almost to the point of demanding the FED lower rates "to avoid a recession" s they say. I say BS they want to lower the rates so they can pad their pockets more and sell off some of the non-performing assets.

I say the day that Countrywide files for bankruptcy the Fed should then consider a rate decrease to help get the existing foreclosures off of the market.

Look folks it was creative thinking that got them into the mess they are in, let them be like any other business and use creative thinking to get out of it. I do not think the Fed should bail them out. They have put the screws to hundreds of thousands of people, let them reap what they have sewn.

[cobra de capell]

Originally Posted by 4RE KLR

CDC
yes that is true a lot of people bought homes they could not afford. But if the FED lowers rates they will still have those homes, and it will only put of the inevitable. Or will it?

What it would do is give these people time to get the mortgages refinanced and into a fixed rate loan.

I really don't think the Fed rate has that much to do with it any longer. It is just being used as an excuse. The mortgages are written to "adjust" maybe someone should tell them that could also mean down and NOT just up.

A FED rate decrease will not do much for homeowners, for example a decrease of 100 BPS (1%), which isn't likely to happen, may impact variable rate mortgages by the same number, 1%, but there are $2 trillion dollars in sub-prime loans that will be adjusted to market rates within the next 14 months - $2 trillion dollars. A lot of these loans are now at 2-4% and market rate for sub-prime loans is in the 8-13% range - a huge incease in monthly payments will result. Plus, a lot of new homeowners apparently didn't realize that property tax, especially in CA in 1% every year - not just the first year. In addition, in CA a lot of new homeowners elected to relocate to the Central Valley and commute to the coast - 125-200 miles each way - think of the cost of gas!

With that said, I do wonder about the people that are directly involved in this mess - are they stupid, were they duped by mortgage brokers, did they lie on their mortgage application, did the mortgage broker prompt them to lie, were the lender standards relazed, big time - or a combination of all the above. All I can say is - we cannot bail these people out - we all must pay for our stupidity and mistakes in life.

[cobra de capell]

Originally Posted by lust4fia

I thought the FED strategy is to raise rates to combat inflation, increasing the cost of borrowing to slow things down a bit. Conversely,lower rates to avoid a recession, cheaper borrowing to increase activity. No?

That is right on the money - inflation has been noted by the FED as the reason why rates have not been lowered since being increased over 1 year ago. Inflation is part of the housing market problem - lowering the FF rate now would not only pad the pockets of those that are responsible for this mess, it will directly contribute to housing market inflation - it simply doesn't make sense to reverse the FED noted trend of an up rate environment.

Simply stated, housing costs need to come down and this mess will allow that to happen.

[4RE KLR]

CDC
I agree.

Also yes the homeowners were led down a rosy path of future value. I know for a fact that some mortgage brokers could not explain the loans they were making to my buyers.

It was crazy, people would ask "how much is the payment?" then say OK, "let's do it" Amazing that most did not seem to care the rates were for six months or in some cases only one month. I have seen mortgages that the rates changed the very day of settlement. And most of these notes were not written as sub prime. They BECAME sub prime after the rates doubled or tripled in the first year.

But just think about this for a second. We think there are a lot of sub prime loans out there now, just wait until next year. These people have to live somewhere and the mortgage vultures will come up with another scheme to screw these same people again. Just watch...

[fsstnotch]

I'm curious what you guys think about Hybrid loans? I have a VA Hybrid. the terms are 4.5% fixed for 3 years. After 3 years it can go up or down a max of 1% with a 9% cap. I am currently starting my 3rd year fixed. This loan is currently on my rental property which I will never have a problem renting.

I think alot of the problem with the foreclosures is people living outside their means... as well as people financing into something they don't understand.

[4RE KLR]

1) Never say NEVER!!!!!

2) Refinance it right now to a fixed rate for 15 -20 years.

3) 9% will be your rate when it has a chance to adjust.

4) Most Hybrid loans adjust after the first 3-4 years and then every six months afterwards. Check your paperwork and make sure it is annually instead of bi-annually

[cobra de capell]

fsstnotch - I agree with 4RE KLR's post above.

Hybrid's can be useful, depending on how long you plan to be in or maintain the property - it looks like you have a great rental property, but it may not cash flow positive if the rate goes to the 9% max. This could be a good time to negotiate a fixed rate 15-30 years as lenders are hungry for good loans to good people.

Hybrid's, of course, are the problem right now - your hybrid is a good example, just shorten the fixed period to 3 mos to 1 year and up the rate max, if any, to 13% and you have a clear example of the sub-prime problem. Your hybrid possibly adjusts every year, but sub-prime hybrids can adjust every few months or to the max - immediately!

It appears that a combination of things has turned the house buying experience into something similar to the car buying experience - it's my understanding that when buying retail, sales people primarily ask you how much you can afford to pay per month, avoiding the price of the bright shiny car - as least with cars the payment doesn't go up, it just least for 6-7 years.

The devil is in the details and fine print.

[4RE KLR]

I went out today and did some due diligence for a new community I am considering putting together.

Every single development I went into has closed. They are no longer even taking deposits for build jobs if you want a new home. They have a few that are completed and then they are planning on closing up shop and selling off the lots.

Mind you these are national companies not Maw & Paw builders. I was amazed that this has happened in the last two months here. There is NO new construction going on in the volume builders world right now. I was told by several of the communities that they have returned a few peoples down payment and told then to go look elsewhere as they were no longer building new homes.

WOW. This is just the beginning folks, hang on because this one will make the eighties look like a cake walk.

[fsstnotch]

I am 95% sure that my rate is only adjustable annually and I know 100% the cap is 9%. I was very hesitant when going this route. Now on the other side of things. I have been contemplating a refinance because I want to remove the house from VA so I can use my VA to buy the new house. So if my rate adjusts annually and it has the 9% cap, should I still refinance to a fixed rate? I have done all the math and if the rate adjusts to the cap every year (1%) and hits the max cap (9%), because I've paid more principal over the first few years, my payments only raise about $20 at the 9% max cap since I would be into the 12th year by the time that rate hit. When I initially agreed to this plan I thought in my mind... the best fixed rate I was offered was 6.5% (I was 21, no cash down). My my mind set was that I would take the hybrid. Pay the 4.5% for 3 years. Then 5.5 for a year, and if it kept rising and hit the 6.5, then I refinance to a fixed rate. So basically, I got a better rate for a few years than I would have gotten initially.

[4RE KLR]

Yes, Refi now. (see below first)

The mortgage companies are looking at anything that has "paid on time" on it. Even now you will be able to "negotiate " your rate, even from what they have posted. Why wait until the rate goes up then refi? doesn't make sense to pay them any more than you have to.

There is always a down side to refinancing any loan. You will be paying new interest on old money. What I mean is consumer loans are set up on a decreasing term payment schedule. Meaning you pay more interest and less principle at the beginning and more principle and less interest at the end. A refi will start the process all over again. New interest on old money. You may choose to keep this loan if you plan to sell the home in a couple of years. You have to figure out how long it will take you (in months) to get your money back. If it cost you $3,000.00 to refi and your payments go down $300.00 per month, it will take you 10 months to get your money back. Your numbers will vary of course. You also need to remember that while you are "saving money" due to the refi you will not be getting as much principle reduction as you would had you not refinanced the loan. Every case is different, do not let a mortgage broker sell you something you do not need. Sometimes it does not pay to refi the loan. In the example above if you were going to sell in four months it would cost you money to refinance it.

One of my customers called their mortgage companies and told them that he wanted a no fee refi or he would move his loan. They first told him to go piss up a rope. Later they called him back and asked him if he was still interested. They need some activity to keep busy I guess. He not only got a no fee refi he also got a lower rate. His payments dropped considerably.

[fsstnotch]

Thanks Steve! I'll give my bank a call and see what they're offering. I like the idea of refinancing because I can then use the VA for my next purchase. I had considered selling the house at one time but with the market the way it is right now... I would probably be upside down in it. For now, renting is a fine option. I only rent it for $50 more than my payment and it is within 3 miles of Tinker AFB which will never be going anywhere since it is the home of the 3rd Herd and the AWACS. this is why i will never have a problem renting. The rent I charge is less than the amount the military gives people to live off base so It's win win for me and them.

Josh

[4RE KLR]

Hang in there man

[cobra de capell]

Originally Posted by fsstnotch

I am 95% sure that my rate is only adjustable annually and I know 100% the cap is 9%. I was very hesitant when going this route. Now on the other side of things. I have been contemplating a refinance because I want to remove the house from VA so I can use my VA to buy the new house. So if my rate adjusts annually and it has the 9% cap, should I still refinance to a fixed rate? I have done all the math and if the rate adjusts to the cap every year (1%) and hits the max cap (9%), because I've paid more principal over the first few years, my payments only raise about $20 at the 9% max cap since I would be into the 12th year by the time that rate hit. When I initially agreed to this plan I thought in my mind... the best fixed rate I was offered was 6.5% (I was 21, no cash down). My my mind set was that I would take the hybrid. Pay the 4.5% for 3 years. Then 5.5 for a year, and if it kept rising and hit the 6.5, then I refinance to a fixed rate. So basically, I got a better rate for a few years than I would have gotten initially.

Now, that was smart thinking - apparently your property is at the low end and the 9% cap helps with the downside a few years out. Although, rate continue to be on the low side for non-sub-prime borrowers, so securing a fixed rate loan now is a good idea.

[Jamo]

This is such bullsh!t.

Same thing happened in the 80s...remember balloon payments after short term ARM "mortgages?" The mortgage industry needed regulating then. It didn't happen, and now we have this.

And I'm sorry, but the housing industry knew damn well what the lenders were doing. They grew the coke, the lenders distributed it to the street and got folks hooked, and dumbasses took it.

Phuk bailouts. Let em live in FEMA trailers.

And if another flood hits NO...phuk them too.

[4RE KLR]

Hey Jamo,
Tell us what you really think!

This is exactly what I have been saying. I am in the business and I say do not bail them out. They have lied to everyone, gotten greedy and took advantage of cheap money and are still raising rates as we speak. All these loans that are now sub-prime were NOT sub-prime when they were taken out. Raising rates way beyond the bases points is what made them that way.

Just because they can raise rates does not mean they should, but they do it anyway. I am with Jamo, screw em, let them fall were they may.

[fsstnotch]

Ok, here's what I've got to report... I called American home Mortgage, which is who holds my loan currently. And was told "We are not currently writting any new loans or refinances due to th status of our company." Doesn't sound good for them! So, I called my bank (USAA) and checked what they were offering. They said their rate is 6.375% and they will loan up to 90% of the value. Since I refinanced just under 2 years ago (2 years at the end of sept) and I've only owned the house for 3 years, I'd have to pay down the balance some. Which wouldn't be a big deal. But as i kept looking at it, and I had my wife review the terms of the hybrid loan I am in. I still have 13 months at the fixed 4.5% and then it goes up a max of 1% annually to a cap of 9.5%. So I've got 2 years of play time before I need to worry about the house really. By that time... it could have a for sale sign on it. So I decided against the refi.

Thanks for all the info Steve!

If you guys would like to see the structuring of my loan, it can be found here:
http://www.valoans.com/arm.cfm

[4RE KLR]

Sounds like a good decisionbased on what youhave. Just don't let the time escape you if you decide to keep it ast the terminal date.

You still have 13 months to do something, so you may ride it for awhile longer. I really think that with all the forclosure due to hit the market in the next year or so the mortgage companies will come up wit a new scheme to get new loans. Just stay on top of it like you are now and you be fine.

Keep your head down.

BTW:
We have some Texas National Gaurd buddies headed your way. Take care of them.

[Jamo]

fsstnotch

Ditto that re keeping your head down.

Obviously, use the time to keep your credit squeeky clean...late payments are the worst thing for credit scores. Even folks with money can end up with low scores if they get sloppy. Lenders are going to get real damn tight on qualifications and rates going forward.