Tag Archives for " Interest "
In spite of falling interest rates and low home pricing, sales hit a 14-year low this year. Analysts project home sales for 2011 to fall short about one million homes from what would indicate a healthy market. The median sales price since the same time last year dropped five percent, bringing the median down to roughly $163 thousand dollars. Although first time home buyers have slightly increased to 36%, that is still 4% below what is considered an indication to recovery.
A backlog of foreclosures and government regulations have prevented the flooding of the housing market to avoid flooding housing inventory and further decreasing pricing. 2011 is expected to bring 20 percent more homes lost to foreclosures over the previous year. As the home market inventory increased to just under 4 million homes, an equal increase in demand has not been the case. The time expected to sell home inventory has increased 33 percent, going from six months to over nine. Consumer knowledge of increasing foreclosures may lead to hesitation on purchases in anticipation of further depreciation.
Home mortgage interest rates have fallen .02 percent on a both 30 and 15 year loans since late last year, but have not been enough to signal a healthy housing market recovery.
The Federal Reserve Board and the Federal Open Market Committee (FOMC) met on November 1-2 to review the economic trends of 2011’s third quarter and to discuss future economic projections.
The FOMC press release revealed that economic growth rose slightly between this quarter and last, suggesting the country had shrugged off some of the negative factors weighing the economy down.
It was also mentioned that despite the fact that unemployment remains high and the housing market is still in a slump, household spending has increased and business investments have been on the rise.
But the FOMC is hoping to bolster the economy further in the upcoming quarter. As a result, employment and price stability have been pushed to the forefront of the FOMC’s attention.
The FOMC expects the unemployment rate to decline in the upcoming years, and come closer to levels on par with their long-term goal—around five percent.
They anticipate that inflation rates will settle at levels at or below the FOMC’s long-term goal, but it was announced interest rates would receive their close attention and monitoring.
In a conscious attempt to keep inflation rates low, strengthen personal and commercial investment ability and, ultimately, improve the job market, the FOMC said they will keep the federal funds rate at low levels.
The federal funds rate is the rate at which banks receive money from the government, and have a direct impact on loans’ interest rates for the public.
The target the FOMC seeks to keep federal fund rates at lies somewhere between 0 and 1/4 percent, and rates are expected to remain at these extremely low levels until the middle of 2013.
This is the fourth week in a row that 30-year fixed rates have averaged at or below 4 percent, according to a Freddie Mac press release.
Freddie Mac’s Weekly Primary Mortgage Market Survey (PMMS) reports that the rate for fixed rate mortgages averaged at 3.98 percent this week. When compared to this time last year, that is down by nearly 0.50 percent.
The average 15-year fixed mortgage rate is at 3.30 percent. That’s down 0.53 percent from this time last year.
Both 30- and 15-year fixed mortgages carried an average of 0.7 points.
While fixed mortgage rates hover around their historic low numbers, the PMMS reveals good news for adjustable-rate mortgages (ARMs) as well, as they hit record breaking lows this week. The 5-year Treasury-indexed hybrid ARM averaged at 2.91 percent, and the 1-year ARM averaged at 2.79 percent. Both had an average of 0.6 points.
These recent low rates have caused a small uptick in home purchases, as this buyer’s market is unlike any we have seen in years. The positive impact this has had on the housing market was commented on by Freddie Mac’s vice president Frank Nothaft. He explained “The high-degree of home-buyer affordability in recent months translated into a 1.4 percent pickup in existing home sales during October, according to the National Association of Realtors.”
However, the Mortgage Bankers Association (MBA) reports that uptick in October hasn’t maintained its momentum, as mortgage applications have dropped 1.2 percent last week when compared to the previous week.
Michael Fratantoni, the MBA’s vice president of research and economics elaborated on this slowdown by explaining that “purchase activity remains almost 5 percent below last year’s level.”
A new non-profit group called Communities Creating Opportunity is making an effort to create a community credit agency in Kansas City. The credit agency’s goal is to provide low-interest payday loans to consumers who frequent cash advance lenders. They believe they will be a very good alternative to traditional payday loan lenders, as they will provide the same service, but at a maximum interest rate of 36 percent.
The emergence of this non-profit comes at a time when Kansas City volunteers are circulating petitions to include a loan cap on the fall 2012 Missouri ballot.
Interest rates and rollovers are the two largest sources of contention when it comes to payday loans. Lenders who provide this quick, no-credit-check cash claim the high interest rate and rollover fees are crucial to keeping in business and turning a profit. Consumer protection advocates claim such policies propel payday providers into the realm of predatory lending, as they gouge borrowers and trap them in a recurring cycle of debt.
Elliot Clark sides with the consumer protection advocate’s view as he personally experienced the payday loan debt trap. Four years ago, after his wife broke her ankle and was forced out of work for more than four months, Clark turned to a payday loan for help, according to Fox 4 News.
“Eventually one payday loan turned into another and then another,” Clark said. “In a short time frame, I had a total of five payday loans, totaling $2,500 but not being able to pay them all off at one time, I wound up paying them $30,000 over a three year period.”
“That’s in interest,” he clarified.
The largest payday provider in Kansas City, QC Holdings, said if Clark had obtained financing through them, he could have received a two month extension on his two-week loan, at no extra cost. But Clark still supports the Kansas City volunteers’ petitions to establish an interest rate cap of 36 percent.
“Banks have been making money off of 18 percent interest rates, or 21-27 for years,” Clark explained. “But these payday loan companies tell us they can’t survive on 36 percent. Yes, you can. Banks have been doing it for a long time. How come you can’t?”
Unless Congress acts soon, students will see the interest rate on federally subsidized Stafford loans increase from 3.4 percent to 6.8 percent. This doubling of student loan interest rates will be the result of legislation setting an interest rate cap expiring come July of this year.
If the interest rate of student loans doubles, those paying for their college career with federal financing will see a massive uptick in their monthly bills. Worry over this surge in price has prompted more than 130,000 letters to be mailed to Congress, pleading the government to stop the interest rate legislation from expiring.
“I will be put back into buying a house and saving up for my expenses later on in life, and life as we know, is very unexpected. Adding that variable [doubled interest rates] definitely limits my ability to be successful,” said Tyler Dowden, an 18-year-old freshman at Northern Arizona University, in a press conference.
According to the Michigan-based news source M-Live, Jennifer Mishory, a director for a non-profit aimed at representing people between the ages of 18 and 34, says the possibility of a rate hike is a huge problem. She claims that many students are already struggling to pay back their student loans, and this rate hike will only hinder their efforts further.
But despite student’s cries, house representatives are not facing an easy decision.
Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, told The Associated Press the interest rate increase is the “result of a ticking time bomb set by Democrats five years ago.” Referencing legislation passed in 2007 that artificially lowered rates for federal student loans to 3.4 percent, he warns that somebody is going to have to pay the bill.
“We must either allow interest rates to rise on student loans, or stick taxpayers with another multi-billion dollar bill,” explained Jennifer Allen, a spokeswoman for Kline, in an email to The AP.
The cost for keeping rates so low is right around $6 billion every year.
Whoever receives the brunt of this interest rate bill is not going to be happy. If the rate reduction continues, the general public, many of whom are suffering from a slumped economy, would be forced to shoulder yet another financial blow. If it subsides, the nation’s students will suffer through more expensive student loan bills.
There’s a harsh debate occurring on Capitol Hill right now, and one that will undoubtedly heat up even further tomorrow when the House votes on a bill that will keep student loan interest rates from doubling.
Federal student loans have had their interest rates artificially capped at 3.4 percent by legislation passed in 2007. But the legislation is set to expire on July 1, 2012, which has students, graduates, and parents paying close attention to what our lawmakers will do. If the legislation expires, the federal student loan interest rates will double, landing at their original 6.8 percent that they would be at without a cap.
In order to stop federal student loan interest rates from doubling, Congress will need to come up with $5.9 billion in order to pay for the artificially lowered rates.
Friday’s bill, proposed by House Republicans, is designed to acquire that money by slashing money from President Barack Obama’s health care program.
The area of the health care program being targeted by the Republican’s bill is the prevention and public health fund, which is a $17 billion section of the health care system that finances immunizations, screenings, research, and wellness education.
Naturally, House Democrats were quick to vocalize their opposition.
Rep. Chris Van Hollen of Maryland, the top Democrat on the House Budget Committee, pointed out that it was the Republicans who originally pushed the current federal budget through the House, knowing full and well that the budget would allow the student loan rates to double.
“The GOP has suddenly changed their tune now that it has become politically unpopular,” Van Hollen said, according to Businessweek.
President Obama has been making campaign appearances at college campuses, where the issue of student loan interest rates has inevitably surfaced.
“Some [Republicans] suggest that students like you have to pay more so we can help bring down the deficit,” said Obama this week at the University of Iowa. “Now, think about that. These are the same folks who ran up the deficits for the last decade. They voted to keep giving billions of dollars in taxpayer subsidies to big oil companies who are raking in record profits. They voted to let millionaires and billionaires keep paying lower tax rates than middle-class workers.”
Republican House Speaker John Boehner answered the President’s recent remarks by saying the President has been, “trying to invent a fight where there wasn’t and never has been one,” according to Businessweek.
“We can and will fix the problem without a bunch of campaign-style theatrics,” Boehner added.
House Democrats hope to push their own bill through Congress that would keep student loan interest rates from doubling by raising Social Security and Medicare taxes on upper-income owners of some private corporations, which includes the private practices of lawyers and doctors, according to Businessweek.
A George Washington University Law School graduate is suing Citibank, Discover and The Student Loan Corporation, which is a subsidiary of Discover, for allegedly deceiving borrowers with fake interest reduction programs, according to ABC News.
Justin Kuehn, 29, claims he was a victim of a scheme in which his student loan provider told him he would receive lower monthly payments due to an interest rate reduction.
While Kuehn did see lower monthly payments, it wasn’t until later that he learned that his interest wasn’t reduced, but instead the amount of money being put towards his principal was what his provider reduced.
Kuehn graduated from law school in 2007, and immediately consolidated his four student loans into a single loan that amounted to $99,148.19 at a 9.55 percent interest rate. He paid nearly $850 a month, but would make additional payments in order to pay his principal down quicker.
Then in January of 2012, the Student Loan Corporation “unilaterally” dropped his monthly payment to $539.27, saying “The variable interest rate on your student loan has changed. Your monthly payment has been adjusted to reflect the new interest rate, as stated above,” reported ABC News.
But Kuehn’s interest rate only fell 0.50 percent—from 9.55 percent to 9.05 percent.
“They claimed [the lower monthly bill] was due to an interest rate reduction but I knew that, just by the amount of that drop, that couldn’t be correct,” he told ABC News.
As a result of this “interest rate reduction,” the amount of money being put towards Kuehn’s principal declined from $335.67 to $42.59, effectively extending the term of his student loan and extracting more interest from him—that is, if he didn’t catch the error first.
Kuehn contacted the Student Loan Corporation on January 4, but was told he couldn’t return his monthly payments to the original amount.
“I tried to resolve this with them and they were not open to it,” Kuehn told ABC News.
So he filed a law suit, which is currently pending litigation, and he hopes it will become a class-action suit.
A spokespeople for both Discover and Citibank said they couldn’t comment on the lawsuit since it is currently pending litigation.
Freddie Mac announced Thursday that this week marks the sixth consecutive week that average fixed mortgage loan interest rates have fallen to record-breaking levels.
The 30-year fixed mortgage loan interest rate averaged at 3.67 percent, which dropped 0.08 percent from last week’s 3.75 record-low.
The 15-year fixed mortgage loan interest rate averaged at 2.94 percent, down 0.03 percent from last week’s record rate of 2.97.
The reason for this consistent decline in interest rates is due to a perfect storm of poor economic reports.
“Fixed mortgage rates reached record lows for the sixth consecutive week as long-term Treasury bond yields declined further following downwardly revised economic growth and job creation data,” said Frank Nothaft, vice president and chief economist at Freddie Mac.
Lending credence to Nothafts statement is the fact that employers created a meager 69,000 jobs in May, which is the lowest job-creating month the country has seen this year.
Coupled with that low job output is the fact that the average unemployment rate ticked up from 8.1 percent in April to 8.2 percent in May—which is the first time the unemployment rate has risen in the last 11 months.
Unfortunately, this rise in unemployment may not be the last one we see.
“The robust employment growth at the start of the year has clearly waned,” said Ellen Zentner, a senior U.S. economist at Nomura Securities International Inc., according to Bloomberg. “Hiring plans may have been put on hold amidst an increasingly uncertain outlook.”
Finally, home sales continue to rest well below what experts believe are healthy levels. While some are having a difficult time qualifying for mortgage loans, others are holding off on purchasing a house because they are continually seeing home prices drop. The catch-22, however, is that home prices will continue to decline if nobody is purchasing houses.
After the slight bounce seen in mortgage rates last week, prospective homeowners and refinancers will be happy to know that the 30-year mortgage rate fell once again, landing at a historic low of 3.66 percent.
The 30-year mortgage loan was averaging at 3.71 percent last week, so this half-a-percent drop is wonderful news for buyers.
Additionally, the 5-year adjustable rate mortgage loan (ARM) broke its historic low, as it landed at 2.77 percent this week, which is down from last week’s 2.80 percent.
For those looking to mortgage rates as a signal of the economy’s health, however, this may not be the most welcome report. Falling rates are often indicative of wounded economic factors.
“Treasury bond yields eased somewhat this week on some worsening economic indicators bringing mortgage rates back into record low territory,” explained Frank Nothaft, Freddie Mac’s vice president and chief economist.
The worsening economic factors, according to Nothaft, include employment and household spending. According to the Federal Reserve’s recent monetary policy announcement, employment has slowed and household spending is rising at a much slower rate than anticipated.
“However, there were also some positive indicators on the housing market,” said Nothaft. “Construction on one-family homes rose for the third consecutive month in May to an annualized pace of 516,000. Furthermore, homebuilder confidence rose in June to its highest reading in over five years.”
If this trajectory of increased housing production continues, then more properties will be available at historic low interest rates to those willing and able to buy.
The interest rates of the other two main types of mortgage loans also saw declines this week, but they didn’t break historic records.
The 15-year fixed rate mortgage loan landed at 2.95 percent—a slight drop from last week’s 2.98 percent.
The 1-year adjustable mortgage loan also fell slightly, landing at 2.74 percent.
The average interest rates on fixed rate mortgage loans remained largely unchanged between this week and last, according to a Freddie Mac report on Thursday.
The 30-year fixed-rate mortgage remained stagnant at the historic low level of 3.66 percent, which was first seen last week. That rate was almost a full percentage point higher at this time last year, when it sat at 4.51 percent.
The 30-year mortgage loan has seen interest rates below the 4 percent threshold since December of last year.
The 15-year fixed-rate mortgage averaged at 2.94 percent which is a slight drop from last week’s 2.95 percent.
“Mortgage rates were virtually unchanged this week, hovering at or near record lows and should further help to support a recovering housing market,” said Frank Nothaft, vice president and chief economist with Freddie Mac.
The 5-year adjustable-rate mortgage (ARM) rate averaged at 2.79 percent this week, which is a 0.02 percent increase from last week’s figures.
The 1-year ARM, like the 30-year fixed, remained stagnant, holding its interest rate at 2.77 percent.
Interest rates on these four main types of home loans have been hovering near historic low levels since the first week of May. With one exception, each successive week has yielded record breaking figures.
Experts believe that interest rates have been falling due to the air of uncertainty floating around Europe’s economy. Interest rates are tied to the 10-year Treasury note. That note is considered a very safe investment, and many investors are flocking to purchase them as opposed to putting their money elsewhere in this economic climate. According to MSNBC, as demand for the 10-year Treasury note increases, mortgage loan rates fall.