What will the end of Quantitative Easing Bring?

November 13, 2014

printing moneyIt doesn’t seem possible it’s been almost six years since Quantitative Easing (QE) came into play to help shore up the U.S. Economy. Now, our government holds around $4.5 Trillion in assets. Yes, I did say TRILLION. When it all first started, it felt a bit like a magician pulling a billion dollar rabbit out of his hat. Now, it feels more like a common practice to help keep things that are part of the American Dream–like an affordable mortgage–accessible to the masses.

So what will the end of the QE bring?

Continued Purchasing of Mortgage Bonds

I know-it’s confusing. The Fed just said they were stopping QE so why are they continuing to purchase assets? The Fed is using the proceeds (e.g., interest, principle) of their current mortgage portfolio to reinvest back into the market to help maintain stability. Given that there are $1.7 Trillion in mortgage backed securities, we are probably looking at something around $10 Billon a month.

Keeping it Stable

The Fed plans to keep what they have-and given that they have Trillions of it – the sheer fact they are holding the bonds creates a stabilizing effect. They will hold these bonds, and continue to invest as mentioned above, but eventually will allow their holdings to shrink naturally (e.g., as loans paid off) over time.

Short-Term Steady Interest Rates

The Federal Reserve (i.e., The Fed) has indicated that they will not raise rates in the near term.  Instead they will increase them over time as the market shows continued signs of good health.

So how will you know when rates are likely to go up? Well, if you read the various articles out there are a few things that stand out.

FMG’s “Top 3” Signs Rates are Going Up:

  1. Inflation: Anything surpassing 2.5% should give you pause
  2. Unemployment:  Anything under 5.5%…especially if coupled with rising inflation
  3. Portfolio Reduction: If the Fed begins signaling that they will allow their portfolio size to begin to shrink, I believe rate increases are right around the corner

The good news is that it’s still a great time to buy that first home, consider a vacation home or make an investment property purchase. While many of us have been spoiled by the current interest rate market, it can’t last forever. Give me a call, or shoot me an email, to discuss what options might be available for you.

Pending Changes in Interest Rates?

September 16, 2014

interest rates percentageIf you’re a parent, like me, you always tend to be more suspicious when your children are quiet than when there is the typical running through the house and sibling bickering. Of late, there seems to be little news on what we can expect on the interest rate front which makes me wonder what is to come. Next week we can expect a Federal Reserve update as well as Housing and Inflation data, which should provide some good direction.

Back in July, the Fed signaled its intent to dial-back Quantitative Easing (QE), an aggressive U.S. Treasury and Mortgage Back Securities (MBS) buying program designed to boost the U.S. economy. This reduction in purchases indicates the Fed’s confidence that the economy is improving. Yet when discussing rate stability previously, the Fed used the term “considerable time” to indicate the current rate levels would continue. So which is it? Are we moving in the right direction or are things unstable? Realistically, it’s probably a bit of both. While the economy is moving out of the “crisis” zone, it’s still not stable enough to withstand significant movement on the rate side. All will be listening to see if the “considerable time” term is used yet again or if notably absent-which would indicate the time for rates to move upward is upon us.

While we are in a holding pattern around rates, the Fed announced last week the creation of a new Financial Stability Committee, led by Fed Vice-Chairman Stanley Fischer. After the 2007-2009 financial crises, the Fed appears to be trying to get in front any other financial fiascos that could emerge. Since joining the Fed in June, Fisher has spoken about the need to put safeguards in place to cool down markets that have the potential to crash and burn.

I believe the Fed is looking to improve financial market safeguards in anticipation of an upwardly moving economy. While I don’t think significant rate increases will be upon us anytime soon, at some point the rates will have to go back up as the U.S. economy recovers. The wild cards? The numerous world events around us including the current IS conflict, Russian/Ukraine relations and the implementation of QE by the European Union to help lower rates and boost business/consumer activity across the continent.

FICO Updates Credit Scoring System

August 13, 2014



FICO announced last week that the newest update to its credit scoring system will include changes that could help raise the credit score of millions of people. According to this article in the Wall Street Journal, records of unpaid bills will be removed from consideration once those debts have been paid or settled with a collection agency. Additionally, unpaid medical bills will carry less weight against credit scores than previous versions. People who have been hit with unexpected medical emergencies or were unaware that balances were left unpaid by insurance but have otherwise clean credit could see their scores rise as much as 25 points under the new system. Ryan Smith, of Mortgage Professional America, is optimistic that the adjustment will increase access to home ownership. Even those who qualified for a home loan under the previous version could benefit from lower interest rates, saving considerably over time.

If you have questions about how these changes could impact you, I’m here to help.


Low Rate Programs in Today’s Market

April 30, 2014

house money

As the rate landscape continues to evolve with the roll-down of Quantitative Easing (QE),we are seeing some emerging trends in the mortgage space. These aren’t new ideas, just ones that have been leveraged less given the low-interest rate environment. As home prices recover in various markets, it’s a good time to take a look at your current equity in your home given its present value. Many of my borrowers have seen enough appreciation to take advantage of lower rates through various programs or consider that dream home. While traditional 30-year rates have edged upward a bit, loans at 15-year, or 20-year terms, have remained more stable. These types of loans offer a way to reach a lower rate and there’s no downside in investigating these programs as a way to reduce your monthly expenses, pull-out cash or pay-off your loan earlier. Another program gaining attention is putting down 25% when buying your next home. This not only helps to reduce the monthly mortgage payment, but can also offer a lower rate than the typical 20% down payment loan.

Common Scenarios:

*Improved equity due to market conditions and/or time in loan

You might be surprised to find, that if you sold your home today, you could see some real upside, i.e. equity. Yet, many of us don’t really want to move (including yours truly) in order to see the benefit of that gain. It’s worth your time to explore this option to see if it might be available to you. Depending upon whether you’re looking for a lower payment, or a reduced loan term, your additional equity could be the answer.

*Two loan programs (First and Second Loans) with higher “Blended Rate”
If you are like many borrowers, you might not have had the full 20% down payment when first purchasing your home and you had to borrow a portion of it. These second loans can have several points higher interest rates and drive up your “Blended Rate.” The Blended Rate is the actual rate you pay on a monthly basis between your first (lower rate) loan and your second (higher rate) loan. If you have had any positive real estate movement in your area, I would recommend evaluating if refinancing into a single, lower rate (vs. Blended Rate) loan could make more sense for you financially.

*You have gains in equity, but your home needs updates
There’s no doubt after 15+ years your home will need some modernization. Whether it’s a new bathroom, kitchen remodel or fresh paint inside and out-refinancing into a new loan program can let you pull out equity to pay for these kinds of projects without taking out a home equity loan or line-of-credit.    For many folks toying with a “new build” home, this is a great way to help you fall in love with your home again without having to pay the expenses associated with selling and buying. Even better-no packing!

*You want the loan gone…sooner vs. later
One of my wife’s biggest issues refinancing has always been the “restarting” of the 30-year term countdown. If you are like us, looking down the road to putting our kids through college, there is definite charm in having your mortgage paid off. 15-year loan programs have remained relatively stable during the QE turn-down, making it the best rate option on the market. With increased equity in your home, and lower 15-year rates, it might be time to evaluate if you could make that loan go away.

The take-away from all of this is that it NEVER hurts to evaluate your current loan program to ensure your financial needs are being met. Give me a call, or email to discuss.

Oh rates, where will you go?

April 1, 2014

moneyUp-that’s where rates are going to go. Why you ask? Well, it has to do with the Federal Reserve’s decision to bring Quantitative Easing (QE) to an end. For what feels like forever, the Federal Reserve has been buying, or investing, in Billions and Billions worth of bonds. Interest rates are tied to these bonds, and when the bond market is good (like now), rates stay lower. Conversely, when the bond market slows down rates will increase. With QE wrapping-up, we will finally see an end to this run of historically low interest rates.

When will it stop?
The Fed members are known for not agreeing on lots of different topics, but they are unanimous on the fact QE must stop by year end–some members even want it finished by summer. If you’ve been putting of that home purchase or refinance now is the time to act.

What kind of “bonds” are we talking about?
When I talk about the bond market, I am referring to the market that takes groups of home loans and bundles them together. People then invest in a group of loans with certain characteristics, and a certain expected level of return.

Who will buy the bonds the Fed has been buying?
That’s the big question. When there is unrest around the world (like Crimea), we tend to see more investment in bonds given that they’re less volatile. When things seem more stable, people to tend to invest in things with more risk and bonds go down which in turn drives rates up.

How far up will rates go?
I project rates will land somewhere between the current rates and the historic average. I’m thinking 4.5% to 5.25% range by 2015.

Wait! If the Fed has been investing in bonds, are they going to see profit?
Why yes, they are. The Fed buying bonds isn’t entirely bad in the sense that they are not just throwing tax payer money away (or rather money “created” to spend). They can actually make money from their investments. What I want to know is what they are going to do with the profits? Buy more bonds?

Over the next few months, as QE continues to roll down, you will see rates go up bit by bit. The markets are very sensitive to moves around QE and you shouldn’t be surprised if comments from the new Fed Chair, Janet Yellen, gets everyone all stirred up. We all knew the party couldn’t last forever!

The Importance of Pre-Qualifying for All Home Buyers

March 18, 2014

stamp of approvalI remember when Julie and I bought our first home. We really weren’t sure how much we could afford-and how large of a loan we could get. I think both of us were a little nervous. As we went through the pre-qualification process, we were put at ease because it helped us understand exactly what kind of loan we qualified for and what the payments would look like.

Fast forwarding over fifteen years later, it might seem silly for us to get “pre-qualified” for a loan but even experienced buyers should get pre-qualified. The reality is that if you’re really serious about buying a home, you are going to have to provide some level of financial information to get the process started. Getting pre-qualified kicks-off the inevitable review of financial papers and can give you time to address issues before you put in an offer.


Credit Report Errors
As a person who sees credit reports daily, I’m sure it won’t shock you to hear that they have errors. Some of these errors can be damaging to your credit score-which in turn affect the loan products and interest rates you can be offered. If you’re not checking your credit report regularly, the pre-qualification process can help us identify issues early on so you have time to correct your report and get into the loan product/rate you really deserve.

Credit Report Truths
At times, there are things that show up on our credit reports that we either didn’t know about-or somehow just missed. A classic example would be a random medical bill that was sent to a place you lived five years ago. Just like credit report errors, these situations need to be addressed. Otherwise, it has the potential to affect your credit score, and as a result, your interest rate.

Debt-to-Income Ratios
As a loan guy, I can tell you I live and breathe by Debt-to-Income (DTI) ratios. The amount of debt you carry, relative to how much money you earn, greatly impacts how large of a home loan you can have. As our lives change, the amount of debt we carry also fluctuates. It’s important to evaluate where your DTI is at whether you are an experienced or first-time buyer. You might be surprised what you find.

Shopping with Money is Better
When you are pre-qualified for a loan; it’s almost like shopping with real money. It also gives you a price point to work from, so you’re looking at homes that you can actually buy. Sellers typically take buyers more seriously if they know that you are in a financial position to afford the home. A pre-qualification letter can give your offer an advantage over other buyers, and many Realtors will not submit an offer without one.

Bye-Bye Earnest Money
As part of making an offer, buyers often give a sum of cash that the seller gets to keep if the deal doesn’t go through. If you make an offer on a home, and you cannot qualify for the loan amount you need to purchase it, the seller will get to keep your money if you notify them after key dates in the contract. Getting pre-qualified can help you avoid throwing away your money…instead of using it to buy a home.

Question about this? I am here ready to help!

Fed ends QE?

December 12, 2013

What does it all mean? You have heard me say the Fed is looking at the technical data for when to end their Quantitative Easing. So with the Initial Jobless Claims report that just came out – revised up big, to 368,000 that should have the Fed delaying their timeline to when they stop buying – or will it?

I say this as Bonds have not fared well since this report landed this morning and that makes me believe we are preparing for the Fed to say on December 18th release that even with technicals not at desired levels, they will adjust to a lower QE buying beginning before March.

Just a hunch, stay tuned!

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