What do these three have in common: Viagra, Nigerian Money Transfers and Mortgage Refinance offers? Your e-mail inbox or junk mail folder is probably full of messages from their promoters. While mortgage spam has been on the decline for a while, according to CommTouch there has been a spike in mortgage spam since the Federal Reserve cut interest rates.

SUNNYVALE, Calif.–Spam about mortgage refinancing jumped to 10% of all spam in the past week in conjunction with the recent interest rate cuts by the US Federal Reserve, according to research by Commtouch (Nasdaq:CTCH). Further changes expected to be announced today may spur even more finance-related spam –always a favorite subject among spammers even when interest rates are high.

This article notes that in all of 2007 finance related spam was only 2% of total spam volume, read the full article from Businesswire.

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Tags: e mail, mortgage spam
Categories: Internet, Mortgages
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The Federal Reserve cut the key federal funds rate today by 0.50%. It is now 3.00% (which makes prime = 6.00%).  Here is a brief snippet of what the Fed said today:

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

This cut in rates doesn’t mean mortgage interest rates are coming down. Quite to the contrary this move will inevitably move mortgage rates up. This is becuase the Fed move boosts stocks, taking money away from bonds. More importantly this move is inflationary. Inflation is the worst enemy for a long term paper like mortgages. Hence investors (people who buy) mortgage bonds will demand a higher return (hence increased interest rate).

Don’t believe me? Well, last week when the Fed lowered rates by 0.750%, I documented (on this blog) the rise in mortgage rates  the following Thursday. Also, Jay Thompson, at Phoenix Real Estate Guy has stasitical evidence which shows that changes to the federal funds rate by the Federal Reserve does not result in a coresponding change in mortgage interest rates:

In a nutshell, the Federal Reserve controls short term rates (such as the rate that was cut on Tuesday). Mortgage interest rates are not controlled by the Fed, they move up and down based on the trade in mortgage backed securities / the mortgage bond market.

I vaguely remember Dr. Duck (his real name), my undergraduate economics professor, saying something along the lines of the Fed primarily manipulates the Fed Funds rate to control inflationary pressure, provide liquidity to the financial markets and to try to balance employment rates, prices and economic growth.

Care to comment? I’d be happy to hear your thoughts.

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Categories: Congress and Government, Economics, Interest Rate
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I received the question below from Canada. Unfortunately, it came through the Plugoo application (on my right side bar) and there was no e-mail address. So, I will answer it here:

Hi, I Just wondered if a Canadian Citizen can buy house in US, without any intentions to live or work in US. Just want to buy and later rent the house. Does he need any kind of Visa to do this?

A Canadian national can purchase a second (vacation) home or investment property with no intention to live in the USA on a permanent basis. Most loan programs require a copy of your Canadian passport or drivers license.

If you are curious about home financing options as a Canadian citizen then head on over to the Phoenix Real Estate Guy’s blog. I wrote a guest post over the past weekend explaining how a foreign national (Canadian, British, European etc.) may obtain a mortgage loan in the United States.

While you’re there on the blog say hi to Jay Thompson for me!

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Tags: canadian, foreign national, Real Estate
Categories: Mortgages, Real Estate
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If you think last week was a turbulent and volatile week for mortgage rates then brace yourself for the coming week. There are many important reports coming out this week, here is a sampling:

• Monday January 28th: New Homes Sale
• Tuesday Jan. 29: Durable Goods Orders
• Tuesday Jan. 29: Consumer Confidence
• Wednesday Jan 30: Chain Deflator
• Wednesday Jan 30: Fed Announcement
• Thursday Jan 31: Personal Consumption Expenditure and Core PCE
• Thursday Jan 31: Employment Cost Index
• Thursday Jan 31: Chicago PMI
• Friday Feb 1: Hourly Earnings
• Friday Feb 1: Unemployment Rate

See the full calendar on Yahoo! Finance.

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Tags: economic reports, market, mortgage rates
Categories: Economics, Interest Rate, Mortgages
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I went to my first Barrett-Jackson show this past weekend. So, this is a late post. Barrett- Jackson fancies itself the worlds greatest collector cars event! And boy did that name live up to its hype. I was awe struck at the cars, the sheer number of people and the event itself. According to the East Valley Tribune 1,163 cars were sold for $88 million over the week long event. This is supposedly $24 million less that last year, so it was a downer in sales, but not in attendance.

Overall I had a very pleasant experience. Even though Steve Belt had offered me a parking spot in his office, I parked in the make shift parking lot on the corner of Princess and Hayden (North Scottsdale) and took the 10-minute shuttle. I was there at 9am so the lines were not long and I didn’t wait for to bus or at the main gate. You could buy tickets at the main gate, but I already had mine (bought over the Internet), so I just walked right through.

The first section was pretty much just concept cars and promotions from Ford. Then followed a range of vendor booths. There were vendors representing a wide range of businesses from car supplies and classic collector paintings to real estate agents and wine distributors! So, it was like a mini mall of sorts. However, the people manning the booths were just fantastic people, friendly knowledgeable and excited to be there.

Once you pass through the vendor booths and the food court, then you arrive at the main event - the auction. I sat at the back with my friends (you need a bidder pass to sit in the main area) and just watched the cars go by and get bought. There is no reserve in this auction so you must sell at the highest bid.

I am by no means a car enthusiast, so I had no idea whether the cars were selling at the right price or not. However, I was impressed by the enthusiasm, the cars (they really looked beautiful) and the organization. After an hour or so I finally understood what the auctioneer guy was saying (Imgoingtobidat$25,000,$25,$25forsomethingthatsworth$27,5,doIheara$27,5…..).

Finally, I strolled over the the last section where all the classic cars were on display. I got quite an education but alas no matter how hard I tried I couldn’t figure out a way to buy one of these classics! Maybe one day once I start making $1million/year I”ll get a Bentley, but for now I’ll have to do with my Hyundai Elantra!

Here are some pictures I took:

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Tags: auction, barrett Jackson, classic car
Categories: Arizona, Humor and Fun, Phoenix
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I’ve received a lot of calls asking about rates today. Everyone calls and wants to refinance since the Fed lowered the federal funds rate by 0.750%. I patiently tell everyone that the two rates (federal funds rate and mortgage rates) are not directly related. In fact the two are sooooo unrelated that they actually moved in opposite directions today.

As you know yesterday the Fed lowered the federal funds rate by 0.750%. The stock market rallied today in response to this Fed move and was up 300 points (after losing 323 in earlier trading).

Here is what the 30-year rates did today at CTX Mortgage (with 1% origination):

At 9:00 AM: Our rate sheet said 5.250% on purchases
At 1:00 PM: I received re-price notice and the rate jumped to 5.625% on purchases
At 2:47 PM: Another re-price notice and this time the rate jumped to 5.875% on purchases

Notice that as the stock market rallied in response to yesterdays rate cut, mortgage rates got worse. So, why is this? 

At the technical level, when stocks rally, money moves from bonds to stocks and this lowers bond prices and increases yield. Mortgage rates are the yeild on mortgage backed securities (mortgage bonds). At the fundamental level, the Fed move is inflationary. Inflation is the bond markets worst enemy. So, bond prices fall again and increase yield. So, today we saw a double whammy!

I will venture to say that if the Fed lowers short term rates another 0.50% next week (as some expect), 30 year fixed rates will inch higher and higher through the spring and summer of this year. Only time will tell, but if you’re on the fence, now is the time to lock in the rates and move on with your transaction.

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Tags: federal reserve, funds rate, Interest Rate
Categories: Economics, Interest Rate, Mortgages
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As you probably konw by now, short term rates are down. The Fed just cut the Federal Funds rate by 0.75% - which means prime is down as well. As a homeowner if you have a HELOC tied to prime then your monthly payment will go down by 0.75%.  Be aware that this cut does not directly change mortgage interest rates.

There is a lot of talk about this emergency rate cut and for good reason. Below is a chart showing how prime has changed over the past two years.

In the beginning of 2006 it was at 7.50%. It rose to 8.25% in June 2006 and stayed flat until September 2007. After that it’s been all down hill. In fact since that time prime is down 1.750%. Today it sits at 6.50% (lower than what it was two years ago).

What does this mean to you? Well if you have a $50,000 home equity line of credit (HELOC) at prime then here is how your monthly payment has changed these past two years.

Since August of last year your monthly payment on this HELOC has fallen by $72.92. Not bad! Now you can’t say you don’t have money to save for retirement.

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Tags: HELOC, monthly payments, prime rate
Categories: Debt, Interest Rate, Mortgages
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Wow! 0.750% cut in rates. That means the Federal Funds rate is now at 3.50% and prime is at 6.50% (a full 1.750% reduction since September 2007).

This is a complete surprise. The Fed wasn’t going to meet until next week. A rate cut was expected, but with the plunge in global markets yesterday, the Fed comes out with an amazing slash and burn announcement.

Now, is this panic? I think it is. Instead of a cool approach, the Fed has just reacted to something it sees as drastic. Now, if the markets don’t pick up over the long term and the information comes out to be not as alarming as it appears then the Bernanke has a serious credibility issue on his hands. For the short term the Dow has reversed course.

Fundamentally, it is hard to move a multi-trillion dollar economy in the direction of your choice, why government insist on control of this monster I don’t know. I can understand wanting to influence it, but to try to achieve a complete course correction, that to me can only backfire. This is especially true when Washington’s fiscal house is such a mess. With deficit spending, weak exports and a falling dollar, a rate cut can only do so much!

From Yahoo Finance this morning:

WASHINGTON (AP) — The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, slashed a key interest rate by three-quarters of a percentage point on Tuesday and indicated further rate cuts were likely.

The surprise reduction in the federal funds rate from 4.25 down to 3.5 percent marked the biggest funds rate cut on records going back to 1990.

Only time will tell whether this was a good or bad move, but I don’t like the smell of it!

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Tags: federal reserve, funds rate, Interest Rate
Categories: Congress and Government, Economics, Interest Rate
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It’s MeMe time. And I got tagged, thanks Lani. Sure pick the foreign kid first, he doesn’t know what’s going on anyways, right?

So, here are the rules for a MeME: (1) list 7 things about yourself, (2) tag 7 people to do the meme on themselves including a link to their site.

So in case you are interested here are a few things about me:

1. I am from Nepal and NO, I have not climbed Mt. Everest or met the Dalai Lama!

2. I know the 9 digit value for the speed of light (in meters/second).

3. In High School I played Duncan in MacBeth and Bernardo in West Side Story.

4. I can not understand why anybody would play Cricket let alone WATCH it on TV!

5. I would love to visit all the seven man-made wonders of the world.

6. I first surfed the Internet using Mosaic back in early 1994 and consider the Internet my first love! Thanks for your understanding Aimee.

7. I love beer, coffee, chocolate chip cookies, cheesecake and fried MoMos! Thank God for a metabolism that hasn’t slowed down!

Did I wet your curiosity? No worries. I did a more detailed version of this on ActiveRain last fall (log-in required).

So, here are my seven victims: Christoph, Heather, Ginger, Kevin, April, McKenzie and Benn (the genius himself!)

8:20 pm Update: Lani alerted me that both April and Benn have been tagged already. So, I’m adding two others. Here’s to you Valorie and Drew.

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Tags: meme, shailesh ghimire
Categories: Humor and Fun
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A reader reacts to my post titled “Why Lenders Care About Credit Scores” and sends this excellent question:

How much more of a positive effect does putting a greater percentage down on the home purchase vs. a low credit score.

For example, if I have a credit score of 620, but put down 20% down, how much more “pleasing” is this to a lender vs. if I have a credit score of 750, but put 0% down (or only 5%).

Again, this is an excellent question.

In a regular conventional loan, a higher down payment significantly improves your chances of obtaining an approval. So, if you had a 640 score and put 20% down, you’re more likely to get an approval than with only 5% down. So, in that sense a higher down payment is more “pleasing” to the lender. In the case where the credit score is already very high, then the down payment doesn’t play as much of a role. Meaning, whether you put 5% down or 20% down you will most likely get an approval in either case.

Going back to your question, when you have a score as low as 620, putting a higher down payment will help; but it’s still harder to get an approval compared to putting 5% down with a 740+ score. While the down payment helps, it still does not completely mitigate the possibility that the borrower has had serious credit issues in the past. Having said that putting more than 35% down changes everything. Lenders will most likely lend at any reasonable score with so much down as long as other factors are acceptable.

In terms of loan interest rate the new guidelines stipulate rates based solely on the borrowers credit score. So, whether you put 5% down or 20% down your interest rates will be higher if you have a score less than 680.

Bear in mind these rules apply to conventional loans. If you do the FHA program then these rules have no bearing. The FHA program is not credit score driven and hence will not factor in your score to the same extent as conventional. Also, FHA assumes you will not put any money down (it’s a 97% program and 3% to come from gifts). The approval is based on an overall picture involving your income/employment, liquid cash reserves, borrower credit and property type.

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Tags: credit score, down payment, Mortgages
Categories: Credit Scores, Interest Rate, Mortgages
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