Watch the Feds over the Next 6 Months

[MadMonkey]

A sticky should be started on the following subject.

As many of you know the sub-prime is tanking.

Being in realestate I keep a strong eye and open ear on this subject.

I was at a seminar two weeks ago headed up by a subprime loan company.

The feds have suggested to the Subprime the following rules.

Fico scores for subprime: 640 - 670/680. 3-4 months of reserves assists ina bank account to cover the monthly.

I suggest everyone read the financials, read them on the net, etc.... The feds are meeting this week to discuss the state of the economy and the Subprime is a key topic. There were suggestions in todays hearings that hint towards the possibility of new rules being imposed by summers end.

Our Seminar speaker suggested that the Sub-prime may be gone by the end of the year, and that a Fico of 700-710 would be the min. req. for new home loan.

Good news, Feds by the first of 2008 may drop the prime to under 5%. For those that qualify this is a prime opportunity buying distressed properties.

[ybrew]

Originally Posted by MadMonkey

A sticky should be started on the following subject.

As many of you know the sub-prime is tanking.

Being in realestate I keep a strong eye and open ear on this subject.

I was at a seminar two weeks ago headed up by a subprime loan company.

The feds have suggested to the Subprime the following rules.

Fico scores for subprime: 640 - 670/680. 3-4 months of reserves assists ina bank account to cover the monthly.

I suggest everyone read the financials, read them on the net, etc.... The feds are meeting this week to discuss the state of the economy and the Subprime is a key topic. There were suggestions in todays hearings that hint towards the possibility of new rules being imposed by summers end.

Our Seminar speaker suggested that the Sub-prime may be gone by the end of the year, and that a Fico of 700-710 would be the min. req. for new home loan.

Good news, Feds by the first of 2008 may drop the prime to under 5%. For those that qualify this is a prime opportunity buying distressed properties.

This certainly does impact people buying homes, but I keep wondering if this is really BAD. It forced people to improve their credit before getting a house. The alternative is allowing people to buy homes with what amounts to bad credit with a kinda high interest rate in a 2 year ARM. I really wonder how many folks that get 2 year ARMS are actually in a position to refinance at the end of those 2 years. My guess is a majority of folks forced into the arm (by bad credit, desire to keep the monthly payment low(er)) generally don't improve their credit enough by the time the 2 years is up and as a result, they stay in that same loan but now with a higher rate, up until the point they're foreclosed.

On the one hand, it sucks for those that have to wait until their credit is improved to get into a home, but on the other hand, if those folks get off their butt, get over to websites like this, work to get their credit in order and get a good fixed rate, they'll really be much better off in the long run. They'll pay less monthly and save tens of thousands over the life of the loan. So the downside is a family may need to wait a few years before getting the home of their dreams, but as the saying goes, "good things come to those who wait"


Put another way...

I have my GFE from January 2006, when my mid score was 570...

7.5% 2 year arm/40 year loan for the 80%
9.9% for the 20%

December 2006, I closed with a mid score over 690, possibly over 700, I don't remember. I got a 30 year fixed @ 5.875% (100%)

Results may not be typical. it may take more than 11 months to improve the score by 120 points, but it is possible.

[jq26]

If the subprime liquidity pump is shut off by regulation, it will multiply the effects of the loose lending over the past few years and we'll be headed for a gov't bailout compliments of the US taxpayer. The subprime lenders have already tightened considerably (as I am debating putting an offer in on a duplex). No doc is off the table. 0% down is off the table. Most likely option is 5-10% down with three months reserves on a 30yr fixed full amortization. I am fortunate enough to be able to set aside funds to meet the tighter criteria, but some buyers aren't as lucky and will be knocked out of the real estate market.

The good news is that rates have come down some. Looking at mid 6s even with this ugly BK7 on my credit reports from 2.5 years ago.

[amortgageman]

Originally Posted by MadMonkey

A sticky should be started on the following subject.

As many of you know the sub-prime is tanking.

Being in realestate I keep a strong eye and open ear on this subject.

I was at a seminar two weeks ago headed up by a subprime loan company.

The feds have suggested to the Subprime the following rules.

Fico scores for subprime: 640 - 670/680. 3-4 months of reserves assists ina bank account to cover the monthly.

I suggest everyone read the financials, read them on the net, etc.... The feds are meeting this week to discuss the state of the economy and the Subprime is a key topic. There were suggestions in todays hearings that hint towards the possibility of new rules being imposed by summers end.

Our Seminar speaker suggested that the Sub-prime may be gone by the end of the year, and that a Fico of 700-710 would be the min. req. for new home loan.

Good news, Feds by the first of 2008 may drop the prime to under 5%. For those that qualify this is a prime opportunity buying distressed properties.

Hmmmmmmmmmmm, good news is subprime would not be needed if credit scores of 640, 670 or 680 and three months reserves were needed to qualify.

Bad news, the Fed is nowhere near lowering the Fed Funds rate at this time, because of inflationary pressures, as a matter of fact, tightening (raising rates) would be more likely over the next 8 months. Barring a major catastrophe (and 9/11 was not enough), it would take nearly three years to see the Fed Funds rate drop by 3%, which would be required to take the prime interest rate to 5%.

As far as new regulation on subprime lending, I would predict that there will be more disclosures warning of the impact of rate adjustments and showing the true impact of initial rate adjusments, as well as a worse case scenario showing the payments after the rate caps have been reached.

Remember, there will always be a market for subprime lending. Let's put a scenario in play, and say that one can invest in safe government securities and get a 5% yield. If an investor wants a yield greater than 5%, then the investor must take more risk. They would then invest in bonds of a corporate entity such as HSBC, or other company to achieve a higher yield. As part of a true mrket economy, if there are more investors (money) going after the higher yeld, then the interest rate will fall, and if nobody wanted to invest in HSBC bonds, then the interest rates will rise until the supply/demand functions reach a balance. Somewhere this balance will be reached.

On the lending side of the bonds, HSBC has created money to lend. HSBC must achieve a margin acceptable to remain profitable, AND be able to meet the supply demand function of those who want to borrow. If HSBC were to have interest rates too high for housing affodability, then there will be fewer buyers, and real estate prices must fall, or interest rates must fall. Somewhere, there will always be a happy median.

[amortgageman]

Here is a link to Federal Reserve Chairman Bernanke's comments regarding the economy and housing.

http://www.msnbc.msn.com/id/17831914/

[erick]

Great information for everyone who has any interest in the Real Estate market. Thanks for the link to the Fed Chairman's remarks.

[SecretAgentWoman]

Fico scores for subprime: 640 - 670/680

If that is what is going to be considered subprime, my farking kids are going to live in tent until they graduate from college.

Where are all these people supposed to LIVE while waiting to be 40 with perfect credit?

[ybrew]

Originally Posted by SecretAgentWoman

Fico scores for subprime: 640 - 670/680

If that is what is going to be considered subprime, my farking kids are going to live in tent until they graduate from college.

Where are all these people supposed to LIVE while waiting to be 40 with perfect credit?

Rental property.

[amortgageman]

Originally Posted by ybrew

Rental property.

From those who bought rental housing with 100% NoDoc financing with credit scores over 700, and are causing at least half this mess in the mortgage markets.

[amortgageman]

By MADLEN READ, AP Business Writer
21 minutes ago



NEW YORK - Wall Street stumbled Wednesday after minutes from the Federal Reserve's most recent meeting said more interest rate hikes might be necessary to curb inflation.

The minutes from the central bank's meeting last month, coupled with a jump in gasoline prices, heightened investors' inflation worries and pulled an already sagging stock market lower. Investors are concerned that a rate hike could curb corporate profits and consumer spending and further weaken the housing market by making mortgages more expensive.

The Fed's bias toward a focus on inflation came as a great disappointment to investors who had rising hopes that the central bank might actually lower rates because of the slowing economy. But the Fed's Open Market Committee said at its March 20-21 meeting, "all members agreed the statement should indicate that the committee's predominant policy concern remains the risk that inflation will fail to moderate as expected."

The Fed has kept rates on hold since the summer, after raising rates gradually for two years. Its statements accompanying its rate decisions had indicated it was closely watching the economy's direction, and that helped raise Wall Street's hopes for a cut. The minutes released Wednesday, however, showed the Fed was remaining steadfast in its vigilance against inflation.

[PolarBearnCO]

Originally Posted by SecretAgentWoman

[I]Where are all these people supposed to LIVE while waiting to be 40 with perfect credit?

You don't have to be 40 to have perfect credit. I had perfect credit when I was 20. I screwed it up when I was 21. I had perfect credit again when I was 28, and screwed it up again when I was 29 when I let student loans default.

Your previous choices are what get you perfect credit, not your age. Unlucky catastrophic disaster, kids too early, or just plain living outside means (kids too young) help mess up perfect credit. Sometimes we are simply unlucky... medical.

Regardless, to answer your questions... plenty of apartments (small and large) and plenty of houses to rent (small and large) across the country.

Home ownership is attractive, but can be very costly and requires major responsibility. The upsides to home ownership (I'm talking free and clear, no mortgage) are appreciation in value and no more mortgage payment). To gain appreciation, you may have to upkeep the house. Over 30 years, your house may need 2-3 roofs costing 10s of $1000s. It'll need new carpet at least twice, costing $1000s. It'll need new paint at least twice, costing $1000s. It'll probably need a new stove, refrigerator, garbage disposal, hot water heater, and maybe a new furnace or AC, costing $1000s and $1000s. Gotta spend money to gain the appreciation. A 40-yo POS isn't going to hold value and will likely be worth far, far, far less than you paid for it (considering taxes and interest).

So, live in an apartment. Live in a rented house.

[shan2themax]

Originally Posted by PolarBearnCO

You don't have to be 40 to have perfect credit. I had perfect credit when I was 20. I screwed it up when I was 21. I had perfect credit again when I was 28, and screwed it up again when I was 29 when I let student loans default.

Your previous choices are what get you perfect credit, not your age. Unlucky catastrophic disaster, kids too early, or just plain living outside means (kids too young) help mess up perfect credit. Sometimes we are simply unlucky... medical.

Regardless, to answer your questions... plenty of apartments (small and large) and plenty of houses to rent (small and large) across the country.

Home ownership is attractive, but can be very costly and requires major responsibility. The upsides to home ownership (I'm talking free and clear, no mortgage) are appreciation in value and no more mortgage payment). To gain appreciation, you may have to upkeep the house. Over 30 years, your house may need 2-3 roofs costing 10s of $1000s. It'll need new carpet at least twice, costing $1000s. It'll need new paint at least twice, costing $1000s. It'll probably need a new stove, refrigerator, garbage disposal, hot water heater, and maybe a new furnace or AC, costing $1000s and $1000s. Gotta spend money to gain the appreciation. A 40-yo POS isn't going to hold value and will likely be worth far, far, far less than you paid for it (considering taxes and interest).

So, live in an apartment. Live in a rented house.

I do agree with you to some extent... but where I live.. small podunkville, in order to live a in a decent place and stay in the school district you have to buy... and buy at least 110,000 at that....

check out the realestate here... 45669 3br's http://homes.realtor.com/search/sear...669&bd=4&typ=7

[IHateCAs]

Originally Posted by SecretAgentWoman

Fico scores for subprime: 640 - 670/680

If that is what is going to be considered subprime, my farking kids are going to live in tent until they graduate from college.

Where are all these people supposed to LIVE while waiting to be 40 with perfect credit?

You don't have to wait until 40 to have perfect credit. In fact, you start off with no blemishes on your credit until you screw it up. If you screwed it up, then you must live with that consequence.

[amortgageman]

Fed to hold rates steady, cite inflation worries By Ros Krasny
Sun May 6, 12:09 PM ET



The U.S. Federal Reserve looks certain to hold interest rates steady when it meets this week and will likely restate worries on inflation, even while nodding to weak growth and an easing of price pressures.

The central bank has held benchmark overnight borrowing costs steady at 5.25 percent for six consecutive meetings stretching back to August. It will announce its decision on rates around 2:15 p.m. EDT (1815 GMT) on Wednesday.

The statement from the rate-setting Federal Open Market Committee after its last meeting on March 20-21 was notable for dropping the bank's explicit bias toward higher rates, a move seen by some as a baby step toward a cut later in 2007.

It also said, however, that its "predominant policy concern" was the risk inflation would not ease, and meeting minutes released a few weeks later showed the Fed had not really altered its views on the risks to inflation and growth.

Analysts believe the central bank will want more time to assess whether a softer pace of economic growth will lead inflation lower as they hope, and that it will once again leave its options open on the future direction of monetary policy.

"Bet on a Fed still on hold in May with their inflation bias intact, but with a somewhat softer view of current economic and inflation trends," said Scott Anderson, senior economist at Wells Fargo in Minneapolis.

"Flexibility on rates either on the upside or downside will remain of paramount importance."

Interest-rate futures, which are used as a measuring stick for potential Fed moves, show almost no chance the FOMC will cut rates by mid-year, and prospects for an ease in August are less than one-in-five.

The final major piece of data policy-makers will pore over at their one-day meeting came on Friday with a report on April nonfarm payroll growth.

That report showed a slowdown in jobs growth, with only a modest 88,000 new positions created, and a tick upward in the unemployment rate to a still-low 4.5 percent.

While a touch weaker than many had expected, most economists said the report was not dismal enough to knock the Fed from its anti-inflation perch.

"This data will tend to reinforce the prospect of an FOMC statement that is little changed from March," said Alan Ruskin, chief international strategist at Greenwich Capital Markets in Greenwich, Connecticut.

Others, however, noted it was the slimmest payroll gain since November 2004 and that a government survey of households released along with the data from employers showed a drop in employment of 468,000, suggesting overall weakness in the economy may have finally crept into the labor market.

"This report is a perfect set-up for the Fed to adopt a truly neutral policy stance at next week's meeting to replace the half-baked inflation bias that caused so much confusion in March," said Chris Low, chief economist at FTN Financial in New York. "The reality of the past six months is not only falling inflation but also dramatically weaker economic growth."

SLOW GROWTH, BUT ...

The government's first snapshot of first-quarter growth released on April 27 showed the economy expanded at an anemic 1.3 percent annual rate, the smallest gain in four years.

Still, just when some were counting the economy out, the Institute for Supply Management said last week its index of national factory activity rose to 54.7 in April, the highest since May 2006, suggesting one of the economy's weakest spots was beginning to revive.

Fed officials have stuck to forecasts for growth to bounce back by year-end, but some have acknowledged greater risks flowing from, among other things, the weak housing sector.

"News pertaining to the first quarter has been disappointing, and has raised the downside risk for growth," San Francisco Federal Reserve Bank President Janet Yellen said on April 26.

While growth has been soft, inflation -- in the Fed's view -- has been stubbornly high, although recent price data provided some good news.

The 12-month gain in the so-called core PCE price index, the Fed's preferred gauge of nonfood, nonenergy costs, eased unexpectedly to 2.1 percent in March, tantalizingly close to the top of the 1 percent to 2 percent "comfort zone" often cited by policy-makers.

But between rising energy prices and the still-tight jobs market, the inflation dragon has arguably not been slain.

"Despite the apparent respite in core inflation, it is too early to let our guard down," said Adolfo Laurenti, associate economist at LaSalle Bank in Chicago.


(from Reuters)

[amortgageman]

Originally Posted by amortgageman

Hmmmmmmmmmmm, good news is subprime would not be needed if credit scores of 640, 670 or 680 and three months reserves were needed to qualify.

Bad news, the Fed is nowhere near lowering the Fed Funds rate at this time, because of inflationary pressures, as a matter of fact, tightening (raising rates) would be more likely over the next 8 months. Barring a major catastrophe (and 9/11 was not enough), it would take nearly three years to see the Fed Funds rate drop by 3%, which would be required to take the prime interest rate to 5%.

As far as new regulation on subprime lending, I would predict that there will be more disclosures warning of the impact of rate adjustments and showing the true impact of initial rate adjusments, as well as a worse case scenario showing the payments after the rate caps have been reached.

Remember, there will always be a market for subprime lending. Let's put a scenario in play, and say that one can invest in safe government securities and get a 5% yield. If an investor wants a yield greater than 5%, then the investor must take more risk. They would then invest in bonds of a corporate entity such as HSBC, or other company to achieve a higher yield. As part of a true mrket economy, if there are more investors (money) going after the higher yeld, then the interest rate will fall, and if nobody wanted to invest in HSBC bonds, then the interest rates will rise until the supply/demand functions reach a balance. Somewhere this balance will be reached.

On the lending side of the bonds, HSBC has created money to lend. HSBC must achieve a margin acceptable to remain profitable, AND be able to meet the supply demand function of those who want to borrow. If HSBC were to have interest rates too high for housing affodability, then there will be fewer buyers, and real estate prices must fall, or interest rates must fall. Somewhere, there will always be a happy median.

Hmmmmmmmmmmm, good news is subprime would not be needed if credit scores of 640, 670 or 680 and three months reserves were needed to qualify.

[wantamortgage]

my score is only 595. will i still be able to get a mortgage or will i just have to put down a bigger down payment?

[amortgageman]

Originally Posted by amortgageman

Remember, there will always be a market for subprime lending. Let's put a scenario in play, and say that one can invest in safe government securities and get a 5% yield. If an investor wants a yield greater than 5%, then the investor must take more risk. They would then invest in bonds of a corporate entity such as HSBC, or other company to achieve a higher yield. As part of a true mrket economy, if there are more investors (money) going after the higher yeld, then the interest rate will fall, and if nobody wanted to invest in HSBC bonds, then the interest rates will rise until the supply/demand functions reach a balance. Somewhere this balance will be reached.

On the lending side of the bonds, HSBC has created money to lend. HSBC must achieve a margin acceptable to remain profitable, AND be able to meet the supply demand function of those who want to borrow. If HSBC were to have interest rates too high for housing affodability, then there will be fewer buyers, and real estate prices must fall, or interest rates must fall. Somewhere, there will always be a happy median.

If you were to go on score only, then you will need to have at least a 10% to 15% down payment in todays market.

The simple truth is that while alot of the programs have simply vanished that allowed a 580 credit score to get a 100% loan, subprime lenders are now much tighter and selective on these loans. Also, the interest rates are, in my opinion, prohibitive to even consider a subprime loan, in many instances. I think I read a post or signature line on Liverichly, that he offers subprime loans, but only if the buyer insists.

Consider a 640 credit score and a 100% purchase in today's subprime market, and you would be looking at an 11% or so interest rate. That is, if you were fortunate enough to live where these are even offered. Compare that to a coventional rate, FHA or VA rate of let's say 6%. On a $200,000 purchase, you could be staring at $1,900 per month on a subprime loan, against $1,200 per month on a more conventional loan. After just one year, you will have paid an additional $8,400 more in payments, and at such a high interest rate, your contribution to reducing the loan amount would be significantly lower because of the higher interest rate.

My suggestion would be to take the necessary actions to get collections and other negatives paid off, and then pursue homeownership, and that is what the spread in interest rates should be telling you.

[zen]

Originally Posted by ybrew

I really wonder how many folks that get 2 year ARMS are actually in a position to refinance at the end of those 2 years. My guess is a majority of folks forced into the arm (by bad credit, desire to keep the monthly payment low(er)) generally don't improve their credit enough by the time the 2 years is up and as a result, they stay in that same loan but now with a higher rate, up until the point they're foreclosed.

in the last 2 months i've had 2 clients that are/were in arms go from
1) 6% to 9.875 2/28 arm
2) 7.1 to 10.625% 2/38 arm

they cant refi because they messed their credit up a bit and guidelines are tighenting like every other week and house values are dropping like flies. i would have referred them to this board but it's too late for them

both houses are listed on the MLS as short sales now.

[flacorps]

The fed is boxed in ... lowering rates makes capital flee to other markets.

The good news is that as the U.S. falters, so do other markets, and that expands the box in which the fed must operate (letting them lower rates, which they've been doing with gusto). And to a certain extent, others in the world must act to preserve prosperity in the U.S. or face damage to their own economies that may be out of proportion to what it would cost the foreigners to help us. Which is why the soveign funds are metaphorically flying in with helicopters full of gold on pretty easy terms.

Interdependence is a reality that only a few nations deny ... and even those denier nations depend on each other (and in most cases a few neighbors) to the exclusion of large swaths of the world (North Korea, Iran, Venezuela and Cuba come to mind). And denier nations who try to open their own oil bourses ... find the undersea internet cables repeatedly cut in their neck of the woods on opening day. Wonder where a few of our subs were when that happened?

The real fear is that insufficient liquidity will deprive the world's economic engines of the fuel that makes them run. And what we're ultimately talking about here is a crisis of faith ... faith can move mountains, but when faith goes away everybody locks their doors, battens down the hatches, switches their investments into precious metals and makes their neighbor deal with them on a cash basis only. And that slows economies to a crawl.

[Rick9972]

Originally Posted by flacorps

And what we're ultimately talking about here is a crisis of faith ... faith can move mountains, but when faith goes away everybody locks their doors, battens down the hatches, switches their investments into precious metals and makes their neighbor deal with them on a cash basis only. And that slows economies to a crawl.

The 1930's recapped in one short paragraph. Nothing really changed that one day in 1929, except people lost faith in the financial world.