Bernanke Says “Fed Prepared to Help Economy”

WASHINGTON (Reuters) – Federal Reserve Chairman Ben Bernanke on Wednesday signaled the U.S. central bank was ready to cut interest rates again to prevent a housing slump and shaky credit markets from further damaging a weak economy.

Delivering the Fed’s semiannual report on the economy to Congress, Bernanke took note of recent elevated readings on inflation, but made clear the central bank’s main concern was the economy would fail to revive later this year.

“It is important to recognize that downside risks to growth remain,” Bernanke told the House of Representatives’ Financial Services Committee.

“The (Fed) will be carefully evaluating incoming information bearing on the economic outlook and will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” he said.

The central bank has lowered overnight interest rates to 3 percent from 5.25 percent in five steps since mid-September. Financial markets saw Bernanke’s testimony as validating bets on another half-percentage point cut at the Fed’s next meeting on March 18.

“I think they are probably doing the right thing in focusing on sluggish growth more than on inflation. They’re willing to inject more juice into the system, and that’s what they need to do,” said Firas Askari, head of currency trading at BMO Capital Markets in Toronto.

The dollar hit a record low against the euro on Bernanke’s remarks, and U.S. government debt prices fell.

Stocks initially stayed mired in negative territory, but reversed course as a U.S. regulator gave a green light to housing finance companies Fannie Mae and Freddie Mac to invest more money in the mortgage market.

DELICATE BALANCE

Bernanke said that while the central bank expects inflation to moderate, risks that price pressures could remain elevated have climbed, underscoring the difficult situation policy-makers face.

“The further increases in the prices of energy and other commodities in recent weeks, together with the latest data on consumer prices, suggest slightly greater upside risks to the projections of both overall and core inflation than we saw last month,” he said. A government report last week showed consumer prices rose a steeper-than-expected 0.4 percent in January.

The Fed typically lowers interest rates to boost growth but raises borrowing costs if it wants to cool inflation pressures. Higher-than-desirable inflation could limit the central bank’s options as it seeks to put a floor under the slowing economy.

If the public began to doubt the Fed’s willingness to take measures to keep inflation at bay, it could hurt the central bank’s ability to support growth, Bernanke added.

“Any tendency of inflation expectations to become unmoored or for the Fed’s inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and could reduce the flexibility of the (Fed) to counter shortfalls of growth in the future,” Bernanke added.

A week ago, the central bank lowered its forecast for 2008 economic growth by a half-point to between 1.3 percent and 2 percent, while raising its projection for unemployment and inflation.
“The risks to this outlook remain to the downside,” Bernanke said.

POLICY LAGS

He noted that monetary policy affects the economy with a lag and said the Fed needed to keep in mind the economy’s likely path, as well as the risks it faces.

“A critical task for the Federal Reserve over the course of this year will be to assess whether the stance of monetary policy is properly calibrated to foster our mandated objectives of maximum employment and price stability in an environment of downside risks to growth, stressed financial conditions, and inflation pressures,” he said.

The struggling housing market should weigh on growth in coming quarters, he said. Higher energy prices, lower home and stock market values, and slowing job creation are likely to damp household spending, Bernanke added.

Households feeling the pinch of sliding home and stock values, and higher energy prices may hold back on the spending that provides two-thirds of the economy’s thrust, Bernanke said. Slower hiring is also likely to weigh on consumers, he added.

Bernanke said financial markets remained strained in the wake of rising mortgage delinquencies and worries about credit quality. However, steps taken by the Fed and other central banks to ease credit market conditions appear to have helped.

 

Lenders Cut Off Home Equity Tap

By Liz Pulliam Weston

For more than a decade, banks encouraged homeowners to tap their equity for everything from paying off credit cards to covering college tuition.

Now lenders are abruptly shutting off the spigot.

More than 100,000 homeowners at one lender already have been told that their home-equity lines of credit have been frozen and that they can’t use them to borrow more money. Others have seen their credit limits abruptly lowered.

Meanwhile, lenders are tightening standards so that getting a home-equity loan in many markets is more difficult, even when the value of your home is still well above what you owe on it.

Loan experts predict many more homeowners will find themselves cut off from home-equity loans and lines of credit as lenders flee the so-called second-mortgage market.

“I don’t think the worst is over,” said mortgage expert Dick Lepre. “I think there are going to be more (lenders) who will stop originating second mortgages and more who will be sending people notices that they’re no longer able to draw on their existing lines of credit.”

A grim reminder about risk: Home-equity loans and lines of credit are known as second mortgages because they are loans made after a primary mortgage has been granted. If a homeowner defaults, the proceeds of the home’s sale go first to the lender that holds the primary mortgage. The second-mortgage holder gets whatever is left over, if anything.

Declining home values and spiking default rates in recent months have reminded once-enthusiastic second-mortgage lenders of the risks of these loans. The biggest home lenders are scrutinizing how much their borrowers owe in relation to those declining values, as well as examining any deterioration in their customers’ credit scores or payment habits.

Here’s what they’re doing:

Countrywide, the United States’ largest home-equity lender, notified 122,000 homeowners in January that their home-equity lines had been frozen because their homes had lost “significant” value. Countrywide lost billions because of spiking defaults in mortgages made to people with troubled credit and recently said it was experiencing higher delinquencies in its portfolio of prime home-equity loans, made to people with good credit. Countrywide is in the process of being acquired by Bank of America.

Wells Fargo has stepped up “case-by-case reviews” of home-equity accounts and has “seen an increase in the number of borrowers affected,” although spokeswoman Mary Trigg declined to say how many customers’ home-equity lines have been frozen. She said the reviews “may include a variety of factors such as credit scores, debt levels, payment history, property-value changes and others.”

Chase is reviewing customer accounts but so far has not shut down large numbers of credit lines, spokesman Tom Kelly said. It has, however, reduced the percentage of home values that borrowers can tap with new home-equity lines of credit. Previously, homeowners in some cases could get a line of credit on top of their mortgage that equaled 95% of their home’s value; today, the percentage is usually capped at 85% and may be as low as 65% in some rapidly declining markets, such as in Nevada.

Bank of America is “reviewing all home-equity lines of credit to ensure our credit exposure is commensurate with current market conditions and to assess the value of the collateral securing our home-equity lines of credit,” spokesman Terry Francisco said. “In areas of the nation where home values have declined consistently, Bank of America has begun contacting customers to inform them about changes in their ability to access existing lines of credit due to the decline in property values.”

Washington Mutual, another large home-equity lender, did not return calls for comment but is believed to be conducting similar reviews.

Cut off and in a tight spot: The notices have been coming at a bad time for some borrowers. One woman received a notice from Countrywide shortly before she planned to tap her line of credit for an international adoption. Others were in the middle of remodeling projects or planning to use the money to pay children’s college tuition bills in the fall.

Sandy V. of Las Vegas used her home equity to buy other properties in Nevada, and now all her real estate is losing value. She got a letter a week ago from Bank of America saying that her nearly tapped-out $130,000 line of credit had been frozen. She estimated that between the line of credit and her $200,000 mortgage, she owes $30,000 more than her house is now worth.

Before receiving the letter, Sandy had paid down the credit-line balance by $5,000. “Now I wish I had that money back,” she said.

Many borrowers with frozen lines of credit have few options because, like Sandy, they now owe more on their homes than the homes are worth. They typically can’t refinance into other loans.

But not everyone affected is trapped.

How flexible are you? Sarah Ordonez of Whittier, Calif., said she had received a notice from Countrywide in November, well before the mass mailing. The lender said it was freezing her line of credit, which had a $24,000 balance, after she was 10 days late making a payment. The payment wasn’t late enough to show up on her credit report or affect her credit scores, but it was enough to trigger the freeze.

“They said if I made my payments on time for six months, they’d reinstate” the ability to tap the line, Ordonez said.
Unlike some other borrowers, though, Ordonez still has plenty of equity left in the home she bought five years ago. She owes about $265,000 on her first mortgage, and homes in her area are still valued at $400,000 to $500,000. So she’s planning to refinance both loans into a single, larger mortgage.

Ordonez is in a good position precisely because she didn’t drain every dime of equity from her house as its value rose during the boom. I’ve never been a fan of using your home as a piggy bank, and I believe it’s always smart to leave at least 20% of its value untapped.

If you haven’t been so cautious, however, consider taking the following steps: Try to estimate the current value of your home as well the general trend for home prices in your area. Zillow.com is one place to check, although it’s far from a foolproof resource; a chat with an experienced local real-estate agent can help fine-tune your figures. Sharply falling home prices may put you more at risk of home-equity-line freezes.

Total what you owe. If the combination of your primary mortgage and your home-equity borrowing exceeds your home’s value — or comes within 10% or so — consider yourself at high risk of having your line of credit frozen. If home values are falling fast in your area or your credit scores have declined, you might be at risk even if you have a pad of equity in your home.

Consider your next steps carefully. You shouldn’t borrow just to borrow; you’ll have to pay interest on any money you tap. But if you had planned to pull out equity for a legitimate purpose — fall tuition bills, for example, or to complete an in-progress remodel — you might want to do it sooner rather than later, as long as you can make the payments.

If your line is in danger of being frozen, you also may want to hold off on paying down its balance unless you’re
planning to sell your home soon. That may seem counterintuitive, but if your line is frozen, you won’t be able to tap any of the credit you free up with extra payments. You may be better off paying down credit card debt or putting the money into savings instead. (For more on this concept of maintaining your financial flexibility, read “The $0 emergency fund.”)
 

 

WaMu Loan Status Display

Just received in email today, a notice that on WaMu Broker, the online decision and processing site of Washington Mutual, there will be a status display for tracking where your loan is in the underwriting process.

The status of the loan will be updated at least once a day (if there is no change then there will not be a change in the status) in the evening, and will hopefully make it a little bit easier to know where files are at in the system.

Of course you will need to have your own logins to see the status of the loans you want to track, but don’t be dismayed, I would be glad to help you track status of loans that are in underwriting at WaMu.

 

IndyMac Bank – Key Information

After a recent visit from IndyMac’s representative, I sent and email out to the office. The contents of that email are as follows:
Don’t forget IndyMac for your conforming files because they are pretty competitive as to pricing, and they are reportedly prompt with their underwriting, as in, if you email the file to them before 10 AM, you’ll have a decision by end of day.

IndyMac uses an automated decision system. I have run files with it before, I feel pretty good about it. LandSafe has been an acceptable report that I can re-issue right from their site at the time I get the decision.

When the decision is received, and you want to take action on it, you will need a full packet before your file will be given the time of day by UW.

Here’s what to do:

Send in the appraisal to the appraisal email address 1 day before you plan to send the file.

Gather the necessary documents that I have listed in the HELPFUL INFORMATION section of IndyMac’s page on Office Tools. According to the rep these documents don’t need to be signed, just need to be present.

Get those documents to a processor near you for scanning – no need to print the Point files cuz we can make them into .pdf’s right from the computer – and once scanned they will be emailed.

Conditions are sent via fax to the fax number on IndyMac’s CONTACT page in Office Tools – the document satisfying each condition must be tagged with the number of condition it is going to satisfy.

Happy using IndyMac, to each of you!

 

Wells Fargo Secure Document Delivery

Have you ever wondered what happened to the submission or conditions that you sent off to the lender?

Worry no more (if your file is at Wells), because Secure Document Delivery is here!

Wells Fargo has transitioned to a mostly paperless (environmentalist?) processing style and is at every step encouraging the use of their delivery method, Secure Document Delivery.

What does that mean to you? Well, many of you are realizing that if you want a loan submitted that it takes a scanner to put the documents in digital format. The scanning process has been refined quite a bit, allowing documents of all sizes and contents to be delivered to many lenders without having to overnight or fax them.

With Wells this includes documents that satisfy conditions and even your requests to close/fund loans.

For Wells Fargo, the nice thing about it (now that I have been doing it) is that we can track a file through Rosemary’s help, as long as the delkivery confirmation is stored for such purposes.

So be at ease because your submissions can be processed immediately and put in line for UW without having to wait for UPS delivery overnight.

Now if underwriting times were just as quick as scanning and uploading …..

If you have any questions about secure document delivery, feel free to ask!

 

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