Today the Federal Open Market Committee adjourned their meeting without a change in interest rates.  The primary focus of Chairman Ben Bernanke was on the need to resuscitate our private credit markets.  The Feds announced that they are prepared to buy long term treasuries if the credit trend continues to be tight in the market.

With so much attention to mortgage rates with recent refinance inquiries and now with increasing purchase activity, banks are exercising the law of supply and demand.  Currently the Fannie Mae 30 year fixed coupon rate is trading in such a fashion that mortgage rates should be near 4.5%.  However, due to the slow banking inquiries over the past 24 months many banks and lenders have downsized their operations to stay afloat.  With a surge in new applications the pipelines are full and the banks are holding rates slightly higher so they can manage the current loans in process.  The capacity of the lenders should be eased in the coming week or weeks as these loans begin to clear the temporary warehouse lines.

Stay tuned and be prepared if you have not already began the refinance process.  It is best to know you current situation and get your loan application started so when the desired rate is available you can grab it before it’s gone!

Call me at 503.798.9183 or email me by clicking on my name –> Conrad Venti.

The Federal Reserve released the statement regarding the Citigroup intervention.  Notice the guidelines by which the Fed states they will preserve the strength of our banking system and promote recovery.  Joint Statement by Treasury, Federal Reserve, and the FIDC on Citigroup.

The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital.

As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.

With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.

We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks. The following principles guide our efforts:

• We will work to support a healthy resumption of credit flows to households and businesses.
• We will exercise prudent stewardship of taxpayer resources.
• We will carefully circumscribe the involvement of government in the financial sector.
• We will bolster the efforts of financial institutions to attract private capital.

Click here to view the Term Sheet

Today Federal Reserve Chairman Ben Bernanke share with Congress his concerns for the economy that continues to see a slow down.  Despite the recent movements by the Bush Administration and the global efforts of the world’s central banks, the US Economy is still continuing retract.   The financial and credit markets continue to show daily uncertainty.

The Federal Reserve has left the door open for another rate cut during its meeting on October 28-29.  Bernanke believes stimulus provided by monetary policy along with stabilization of the housing and credit markets will help the economy set a strong foundation.

Bernanke proposed an additional stimulus package that could total anywhere from $150-300 Billion.

“If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers,” Bernanke said. “Such actions might be particularly effective at promoting economic growth and job creation,” he added.

Passage of an additional sitmulus package prior to election seems unlikely, however, the direction of the economy will deterimine how Congress will act.

I had an interesting conversation with one of my family members today regarding current state of available mortgages.  Dino Venti owner of Venti’s Cafe in downtown Salem has been building his loyal clientel for nearly 13 years.  When you step into Venti’s you feel a sense of community among the regulars – it definitely has that “Cheers” type of atmosphere.  Having the face to face contact with customers nearly every day for the past 13 years, Dino has established many friends and acquaintances in the Willamette Valley.

He mentioned to me this evening as I was picking up my Boulder Bowl and Teriyaki Chicken for dinner, that he had a client tell him today that there are no mortgages available for people who have a credit score less than 750.

We’ve all heard, seen, or read about the housing industry and the changes in lending from banks.  As I mentioned in my post titled “Yes, You Can Still Get A Loan!” there are plenty of loans originating in these harsh economic times.

Communication is a key element in every aspect of our lives.  The media’s job is to communicate the message to the people.  How that message is interpreted by the people can vary on many levels.  In times when there is a massive amount of information flowing from every source of media imaginable, it is vital to understand where you stand in the midst of the changes.  The lack of financial education in our country has been prevalent for so long that we’re now dealing with the consequences.   Education is the tool that must be utilized to understand the meaning of what we hear, see, and read.

If you have questions about how the changes in our banking, mortgage, and real estate industries affect you, please don’t hesitate to ask!

Today the Federal Reserve, the European Central Bank, the Bank of England, and the Swiss national bank announced they will lend an unlimited amount of funds to commercial banks in an effort to revive the financial markets worldwide.  The Feds lead the way in the unprecedented event that backs the governments recent intervention.

In response to the central banking announcement the Dow rebounded with an advance of 936 points, the largest gain in 70 years.  The gain marked a sign of confidence in our financial system.  A single positive day does not prove a total revival coming in our market by any means, but investors have some hope in sight after an advance of this margin.

The week ahead will prove to make history yet again.

Today the Federal Open Market Committee unexpectedly lowered the federal funds rate by 50 basis points (.5%) to 1.5%.  Several central banks from around the globe also reduced funds rates by 50 basis points in an effort to restore some confidence in the markets.  The prime interest rate will be reduced to 4.5%.

The FOMC acted fiercely with this cut due to evidence pointing to weakening economic activity and a reduction in inflationary pressures.  The financial turmoil and perceived unavailability of credit has caused spending to decrease significantly.  The FOMC hopes the reduction will encourage spending and expects the decline in energy and other commodity costs will reduce the upside risks to inflation.

The daily media focus on the economy has brought the “banking crisis” to the forefront of everybody’s mind.  The failure of several large players in the banking system including 158 year old Lehman Brothers and the largest savings and loan bank Washington Mutual, has undoubtedly proven struggles in our banking system.  The congressional decision to pass the bailout plan will provide the much needed relief to the banks with a manageable recovery in sight.

Being in the midst of the daily information overload as a mortgage professional, I enjoy coming home with the family and turning on the evening news to see how the media will portray the day’s events.  Lately, I have been more than disappointed with the news of the banking system.  As banks fail or are aided by the government, the media provides the message that credit has completely “dried up” for American consumers.  The reality in the lending system now is that there are still loans available.

What we fail to hear is that Americans became used to a banking/lending system that was unconventional and much too lenient.  The performance of these banks was more important than education for those who lend and those who borrow.  This lending system has lead to an unusual amount of defaults in nearly all areas of banking.  The result has been a shift in lending practices.  There are still loans available for any need American consumers may have, but we have reverted to normal qualification standards.

We hear that bank loans have “dried up” or that there is no longer any loans available for consumers.  These claims are extremely vague and rarely come with any facts.  Please know that we are in a transition period to return to normal lending standards and there is still money available to borrow.  Below are some numbers from the Federal Reserve Board’s weekly report.  Note that consumer loans were up 9.5% from August 2007 to August 2008.

The need for education about credit, lending, and overall financial planning should accompany every credit decision.

If you have questions about how the transition period will affect you please comment or email to Conrad Venti.

U.S. Bank Loans (Billions of Dollars)

Federal Reserve Board, “Asset and Liabilities of Commercial Banks in the United States” (H.8)

Today the Federal government announced a rescue plan after a historic week in our financial markets.  Earlier in the week Lehman Brothers declared bankruptcy, Merrill Lynch was sold, and AIG was bailed out by the government.  Central banks from around the world poured hundreds of billions of dollars into the banking system in hopes to calm the storm.  Despite the surge of news and volatility in the financial markets this week, mortgage rates had little change.

The rescue plan announced today by the Treasury spoke of a broad plan.  A legislative proposal for lawmakers will be drafted by the Treasury this weekend.  The plan will likely include help from the Treasury to banks who have illiquid mortgage assets.  Buying the mortgage assets at a discount provides relief for the banks and will allow the government to provide help while forecasting a positive return.

Treasury Secretary Henry Paulson said, “I am convinced that this bold approach will cost American families far less than the alternative – a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.”

For more information about the Treasury’s announcement visit www.bloomberg.com.

Tuesday the Federal Reserve Board met and left the federal funds rate unchanged despite the news of Lehman Brothers’ bankruptcy and the buy-out of Merrill Lynch.  The federal funds rate, which banks charge each other for over-night deposits, will remain at 2%.  The prime interest rate will follow suit, remaining at 5%.  Consumers are more familiar with the prime interest rate because the rates for home equity loans/lines of credit and credit cards are tied to the prime rate.

Although there has been several significant downturns with Wall Street and banks in our country this week the Federal Reserve felt that inflation is high and lowering the rate could cause an increase in inflation.  The Feds expect inflation to moderate through the next quarter.  Tuesday’s meeting laid the groundwork for a rate reduction before the end of the year.

As always, if you have questions about how this affects you, please don’t hesitate to ask.

2008 has brought a large amount of attention to the real estate, mortgage, and financial industries.  The media throws information at consumers at a rate that is very difficult to comprehend.  Education about the changes we hear from a day to day basis is important as we are all affected by these sectors of our economy.  A major topic in the media is the government sponsored FHA home loan.  Understanding the basics of the FHA home loan is important as it has become one of the most valuable programs for new and existing homeowners.

FHA or the Federal Housing Administration was established in 1934 to advance homeownership opportunities for Americans.  FHA provides mortgage insurance for banks who lend money to consumers for home loans.  The government security for banks opens an amazing opportunity for homeowners when many other mortgage programs have been negatively affected by the financial market woes.

When I mention the term FHA to my friends, family, or acquaintances more often than not I get the response that people think it is a program offered only to first-time homebuyers.  The FHA loan program is actually designed to provide home loan opportunities for both new and existing homeowners.  In recent years conventional loan programs have evolved to allow homeowners purchase or refinance homes with high loan to value ratios (the amount of your mortgage divided by the value of your home).  These programs became popular because banks would provide great mortgage rates without requiring borrower paid mortgage insurance.  Due to the unfortunate rise in default rates on these loans in 2007 and 2008 many banks have stopped offering these types of loans and the once popular government sponsored FHA loan program has again become a great option for those looking to either purchase or refinance.

You can visit www.hud.gov to learn more about the efforts our government is making to help homeowners make the most of the “American Dream”.