Credit Card rule changes go into effect in February
January 30, 2010 by admin
Starting next month, consumers will gain some ground on the banking and credit card industry. Advocates for changes to reduce fees, rates and offer additional protections to consumers are getting a lift in February as the industry is finally forced to offer new policies that lawmakers pushed for late last year. The tug of war between consumer groups and the credit card marketplace will probably never end as banks an lenders look to hold on to their multi billion dollar industry and consumer watch groups try to level the playing field by reducing rates and fees.
Last year, the credit card industry finally agreed to some tough changes to help reduce fees charged to consumers, mainly focused on overdrafts, sudden interest rate changes and policies regarding payments. Starting next month, a credit card company can not raise your interest rate if you miss a payment by a few days, as was the case in years past. Your interest rate is essentially locked in for the first year you have the card, with only a few exceptions, eliminating the bait and switch advertising practices of the past. Payments will be do on the same day every month, eliminating the confusion over sporadic monthly billing. When a card issuer wants to raise your interest rate, the new interest rate will only be in effect for new purchase, not previous balances. Consumers will no longer be able to exceed their monthly credit limit, unless they choose to “opt in” for extended coverage if they exceed their balance. This will help eliminate paying excess fees for payments only a few dollars above a credit line. Interest rate changes will require notice of a minimum of 45 days in advance, although the credit card companies are not required to provide any notice for reduction in balances or when closing an account.
Clearly consumer groups are going to be pleased when the new rules go into effect next month. The downside to the changes is that consumers are likely to see most banks offset the reduction in fees with an increase of interest rates across the board. Most card companies today are moving away from fixed rate credit cards and offering only variable rate products, which may look attractive today with the prime rate at zero, but could quickly spike up in the years ahead if the economy shows signs of stabilizing and the FOMC begins to raise interest rates.
The best advice for consumers is:
When possible, pay your balances in full each month.
Make your monthly payments on time to avoid late fees and rate increases
Avoid applying for cards you are not fully invested in as this will lower your credit score
Explore balance transfer promotions carefully to ensure there is a savings when you add back in a fee for the balance transfer (very common in today’s marketplace)
Check with your credit union or bank to see if you can leverage an existing relationship into more favorable terms
January 28, 2010
January 28, 2010 by admin
Mortgage rates have dropped for the second straight week as bond yields continue to benefit from the uncertainty in the marketplace. Yields on the ten year Treasury bond have dropped down to 3.63%, gaining over twenty basis points in the New Year. Fixed rate home loans have dropped by a little over .125% this year, sending fixed rates for thirty year home loans to 5.125% with most major national mortgage lenders. Fifteen year fixed rate home loans continue to be in the mid four percent range. The market uncertainty has benefitted the mortgage industry in helping to keep interest rates near historic lows, but the enticing low interest rates appear to be having minimal impact on rejuvenating the housing markets. Dismal reports for new home sales and existing home sales for December are clearly a strong indicator that housing is anything but near a bottom. The lack of job growth remains the nations number one road block to fixing the housing markets and providing a quick turnaround for the economy. President Obama has pledged additional assets to rejuvenate small businesses and has reiterated the administrations number one goal is to get the labor markets corrected.
The markets have been heavily influenced by the political turmoil over the past two weeks. The Volker plan to reign in banks sent the market south last week, and renewed concerns over the integrity of the TARP system as it relates to the AIG bailout were raised again this week. Politicians are finally getting the message that main street is fed up with bonuses and lies from the old boy network of politics. The recent hearings for Timothy Geithner and Henry Paulson should have occurred months ago, as soon as it became public knowledge that bailout funds for AIG were being passed directly through to Goldman Sachs, who bet against the housing markets and netted nearly fourteen billion dollars in taxpayer monies that helped position the company to post record earnings and bonuses exceeding $500,000 per employee. The relationship between the TARP recipients and the former executive of Goldman Sachs (Paulson) are no mere coincidence. The unfortunate outcome is there is no recourse to recover the “stolen taxpayer money” and no political fallout for Mr. Paulson.
The Federal Reserve was back in the news this week, with pledges to keep interest rates low for the foreseeable future. At this point it is hard to imagine a scenario where the government is not subsidizing housing well into 2011. Eliminating the tax rebates at the end of April or pulling out of the mortgage back security market seem highly unlikely at this point. Job growth will take months and the recovery is going to last years, according to many economists who recognize the worst of the recession may be over, but there is no magic pill to recovery. Corporate earnings have also influenced the markets over the past two weeks as companies across many industries have beat expectations, but are offering very cautious growth outlooks for the future.
Housing reports are ugly and future is uncertain
January 25, 2010 by admin
The housing market has quickly lost all of the momentum the government worked so hard to achieve with numerous stimulus programs over the last twelve months. Today’s existing home sales report was anything short of disastrous for the month of December as home sales continue to decline and lose ground. The market has been extremely pessimistic about the possibility of continued improvement as consumers appear to have made there last push in the months of November to lock in on last minute purchase contracts. The downturn in November and December for the housing markets, come after six straight months of positive gains from the real estate market. The most recent two months of data on housing should be sending major red flags to the politicians in Washington that the real estate market is nowhere near stable and the idea of eliminating a government tax credit as early as the end of April is likely to have disastrous effects on the property industry.
The real estate market had shown some early signs of reaching a bottom in 2009 as tax rebates and extremely low mortgage rates helped to spur buyers back into the markets. Investors lined up to purchase properties, often ones that had been foreclosed by banks and requiring significant property restoration for twenty percent of values during the peak of the real estate boom. The low mortgage rates, pushed even lower with a strong influence by the government to try and subsidize the housing markets.
2010 could paint an entirely different picture for the housing markets. The first time and move up tax credits are due to expire in the next ninety days. The employment market has shown zero signs of improvement. Confidence in the government and Ben Bernanke are quickly eroding as concerns over the FOMC’s role in the bailout of AIG and the relationship of Goldman Sachs to Henry Paulson and Timothy Geithner are certainly going to be further investigated through congressional hearings. President Obama has taken bold steps, endorsing a plan referred to as the Volker to reform the supermarket banks, which many are labeling as socialist in nature. The distance between Main Street and Wall Street continues to grow larger, especially as reports that banks continue to neglect lending money, a move that is further slowing the economic recovery down. News out of HUD and the FHA mortgage program are another indicator that the government has no concept of a meaningful solution to bring buyers into the market to balance out the housing supply. The Making Home Affordable program continues to be criticized as too little, too late and too much red tape to really help homeowners in need. All in all, the hope for a better real estate market this year is going to take a bit more than a miracle to accomplish.
January 20, 2010
January 20, 2010 by admin
Stocks dropped sharply, setting up a two day roller coaster ride for investors on Wednesday. Following a 100+ point rally in the markets on Tuesday, the DOW reversed course and dropped in excess of 100 points, inter-day trading had the market down nearly 200 points. The volatility in the market is clearly in a state of uncertainty as investors and analysts look for direction in the New Year. Corporate earnings have played a large role in the markets volatility year to date and this week, some of the world largest companies have been reporting earnings, including today’s reports from Bank of America and Wells Fargo, two of the countries largest financial institutions.
Financial companies have been posting better than expected numbers this year, excluding the charges they have incurred in repaying the government TARP funds. The challenge is that collectively banks are echoing concern for future challenges in the market as concerns over unemployment are putting additional strains on their balance sheets. The lack of job growth has been a strong catalyst in the banks guidance for the balance of the 2010, but clearly they all believe that the worst of the economic challenges is in the rear view mirror. The World Bank released a pessimistic report today on the state of the economy, signaling the possibility that the economic recovery has the potential to run out of steam in 2010. The bank was predicting positive global GDP growth, but was airing on the side of caution with its views of growth this year.
Politics also played a role in today’s market activity. The Massachusetts interim Senate election shifted the balance of power in the Senate and provided Republicans with an opportunity to Veto the proposed health care proposals. This news was a boost to the Health Insurance and Pharmaceutical markets and clearly will place additional strain on the President and Democratic party to create a health care proposal that is less reliant on government assistance.
Mortgage rates continue to benefit from uncertainty in January. Yields on the governments ten year Treasury bond have dropped to 3.66 on Wednesday, nearly twenty basis points lower than where they started the year at. Fixed rate home loans are now hovering closer to 5.125% with most national mortgage lenders on thirty year loan terms. The spread between fifteen and thirty year mortgage loans continues to be approximately ½ of a percent different, allowing for consumers who choose a shorter loan term to secure interest rates in the mid four percent range on fifteen year loan terms.
Also today, the FHA loan programs officially got a bit more challenging for consumers. The loans, which are offered and underwritten through HUD will require a larger contribution to the upfront mortgage premium, moving to 2.25% of the total loan (this is typically rolled into the mortgage) and increasing the amount required for a down payment for borrowers who have credit scores below a 580 to ten percent, up from 3.5%. In addition FHA will seek to increase the monthly PMI requirement from its present levels and members of Congress are pushing for the agency to further increase down payment requirements. As we discussed several months ago, dramatic changes to the FHA loan program appear to be misguided. The agencies financial problems appear to be a result of the broader economic challenges and not loose underwriting guidelines. Further restrictions on FHA mortgage loans, will work against stabilizing the housing markets as it reduces the supply of buyers in the marketplace.
January 18, 2010
January 17, 2010 by admin
The roller coaster ride returned to the market last week, thanks in large part to JP Morgan Chase on Friday, sending the financial sector lower. The company which is considered “Too Big Too Fail” and a Supermarket Bank, meaning they offer every product and service reported net earnings in excess of three billion dollars for the fourth quarter to 2009, surpassing expectations from almost every analyst in the industry. The surprisingly strong quarter, was a reflection on the improvement in the stock market during the second half of last year and record earnings in the companies investment brokerage divisions.
The initial reaction to almost everyone should be that the companies record earnings are great news and a signal that the economy is heading in the right direction, followed by a solid jump in the DOW. Unfortunately, it was the dialogue relating to the health of the economy, the companies position to stay firm with their present dividends and the increase in loan loss reserves that send the stock market lower. Chase was one of the best managed companies over the past decade and did a great job in avoiding large investments in sub prime mortgage loans, and completely avoided playing roulette in the derivative markets. The companies conservative risk management approach helped it ride out the worst economic downturn in the past twenty years, while still churning out a healthy annual profit. The market moved lower, as the company cautioned that they remain concerned over the health of the U.S. economy in the near term. The major concern with the economy in 2010 is the lack of job growth and stabilization in the employment markets. The fact that the economy shed almost 100,000 jobs in December of last year, had to be a key factor in the companies bearish stance for near term improvement. Increasing the companies loan loss reserves reflects the challenges that still remain in the U.S. housing markets, despite better than expected home sales for most of the second half of 2009. Home foreclosures remain problematic for large banks that have been slow to modify and refinance mortgages for troubled home owners. This could become a larger issue in the coming months as the tax rebates and interest rate subsidies are coming to an end.
Mortgage interest rates have started the year by gaining ground and moving lower. Yields on the closely followed ten year Treasury bond have dropped by over ten basis points, sending fixed rate loans back into the 5.25% range or lower for thirty year mortgages. Interest rates have moved up sharply over the past sixty days, as fears of inflation were creeping into the minds of investors. The dismal numbers from the labor market, and pull back in equities have helped to push more money back into the bond market, assisting with dropping long term mortgage rates. The week ahead features a number of major earnings releases from companies such as Google and Citigroup, so there is likely to be continued volatility in both stocks and bonds in the near future.
Payday loans can lead to financial problems
January 14, 2010 by admin
Finding yourself in a financial bind is never a comfortable position. As the lending landscape has changed, consumers find themselves with fewer and fewer options to obtain financial assistance. One of the more common avenues that borrowers are now turning there focus on is a short term cash advance or payday loan. The short term payday loan industry is challenge to navigate for almost every consumer. Finding a payday loan is not difficult, but finding the best option for short term financing becomes more complex.
Emergency short term loans carry the burden of trying to make good financial decisions under the pressure of needing cash in a hurry. In years past, consumers often were able to obtain personal or signature loans from their banks or credit card companies. These loans often were based on the borrowers relationship with their bank and carried low rates and fees. Over the years, personal loans were replaced with higher rate credit card cash advance loans, offering borrowers convenient financing alternatives to borrow money with no additional underwriting or borrowing requirements. Credit card cash advances were convenient and simple, often borrowers were enticed with checks arriving from their card companies on a regular basis that simply required a signature on a piece of paper. The simplicity and ease of borrowing money was a key ingredient in fueling the economy during the peak of the housing boom and led to a large increase in the demand of credit card consolidation loans through refinancing of mortgages and newly created home equity loans.
As the credit markets collapsed over the last two years, banks and credit card companies significantly reduced the availability of financing to the public. One of the quickest ways they pulled back on consumers was the elimination of available credit card cash advances. Eliminating the short term financing has put the payday lending industry in the drivers seat for offering short term and emergency loan options to fill this void. The challenge with the surge in demand for short term payday lending is that there is a wide degree with the integrity of lenders and many states have been slow to adopt guidelines to protect consumers with this type of financing. It is not uncommon for payday lenders to charge consumers APR’s in excess of six hundred percent annually for a short term payday loan. The excess of rates and fees can lead to financial hardship for consumers who become trapped in the cycle of payday loans. Often when consumers fall into the trap, they are constantly pledging a future paycheck for the cash in hand today. Short term loans should be used for emergencies and not as a means to maintain lifestyles. Falling into this financial cycle can lead to hardship and ruin if a borrower is not able to pull out of this trap.
January 10, 2010
January 10, 2010 by admin
January is starting where the market left of in 2009. The New Year is providing a clearer picture that investors are confident that economic conditions have stabilized, even in the wake of disappointing news from the labor markets as was received on Friday of last week. The first week of the new year saw the stock market finish higher, a sign that buyers are returning and pulling cash from the sidelines to reinvest into the market.
Mortgage interest rates continue to garner more national media attention. As we have been reporting for the past two months, rates continue to be under pressure to move upward, thanks in part to the exit strategy of the Federal Reserve and their role in supporting the secondary MBS market. Interest rates moved up sharply in December, as yields on Treasury bonds rose over fifty basis points. National averages with most banks and direct lenders indicate thirty year fixed rate mortgage loans are available around 5.25%. Fifteen year fixed rate home loans continue to hover in the high four percent range. Today, new reports from several leading experts, including a panel of Bankrate and Moody’s economist are reporting they believe long term rates will move up another half of a percent in the first half of 2010. This would be long term rates in a range of 5.75-6%, their highest levels in nearly 18months. Mortgage rates in this range, would still represent financing that is near historical low levels and provide ample opportunity for homebuyers to secure low monthly payments, but would certainly hurt the volume of mortgage lenders who have capitalized on refinance mortgage loans over the past year.
Moving forward in January, it will be interesting to follow the economic data ahead of key corporate earnings. The results of the non farm payroll report had minimal impact on the market last week, considering most experts were predicting that the economy would actually show net job growth for the first time in the past year. The markets limited selloff could be perceived as a signal of strength to start the new year and will need to be closely followed to better predict the impact on the bond market. Inflationary pressure is likely to continue moving up and the Fed will certainly address this in 2010, but it is more likely to be at the end of the year following all of the recent data. Pressure to raise the Fed Funds and Discount Rate will be lessened until the economy shows net job growth, despite what CPI and PPI reports show over the next sixty days. Without positive job growth the Fed will stand on the sidelines as they can’t risk derailing the economy ahead of its potential recovery.
Consumers encouraged to compare mortgage lenders thanks to RESPA changes
January 7, 2010 by admin
The mortgage industry is about to get turned upside down thanks to some recent changes from RESPA, the real estate settlement and procedure act. The agency is attempting to streamline the way consumers obtain mortgages and significantly alter the way lenders charge settlement fees.
The first major change is that being introduced is a standardized good faith estimate that all lenders will be required to follow. The good faith estimate is a part of the borrowers loan application that outlines the fees a lender is charging a borrower in conjunction with their loan as well as identifying the loans interest rate. Yield spread premiums are now going to be required to be disclosed to borrowers upfront. Yield spreads are the expected revenue a mortgage broker will earn from the lender they are securing the mortgage for. This has been strongly contested from the Mortgage Brokers Association who believe
this is an unfair policy.
One of the more critical elements with the proposed changes to the GFE will be the elimination of the bait and switch practices lenders have made common practice of. Consumer groups have often complained that mortgage brokers and lenders offer consumers one offer and dramatically change this when the borrowers gets to closing. The new changes will eliminate the possibility of lenders to change certain fees they quoted to consumers up front as well as limit the fees that can change through the course of underwriting. Loan fees can adjust due to a properties loan to value which can raise or lower fees based on the equity in a property, which is often determined after the GFE is originated and the appraisal is completed.
A new part of the RESPA changes will be an encouragement for consumers to shop and compare mortgage rates and offers. The process of obtaining a home mortgage should include comparing offers from multiple lenders or banks to help consumers be certain they are obtaining the best possible finance scenario. Consumers who can do an apples to apples mortgage comparison will benefit from uniform GFE’s to identify which lenders are offering the best rates and fees in a uniform process.
The mortgage industry has benefitted from extremely low mortgage rates and tax incentives from the government this year to help drive loan volume. The government has been adamant about pushing for changes following the subprime mortgage meltdown. There is a strong belief that mortgage brokers played a large role in pushing consumers into loans they should not have qualified for as charging extremely large fees. The new RESPA changes are specifically designed to level the playing field and make the process of shopping for a mortgage easier.
January 5, 2010
January 5, 2010 by admin
The stock market experienced a minor selloff on Tuesday, the second day of trading in the New Year. January could be a wildcard for the market to springboard ahead for the balance of the year or fear of growth could return setting the market up for a roller coaster ride. Mortgage loan rates have been moving up, and have found little resistance in January to slow down. Yields on the closely followed Ten Year Treasury remain above their sixty day moving average and could approach the four percent level with a strong Non Farm payroll report due out this Friday. Long term fixed mortgage rates remain well above five percent for thirty year loan terms, fifteen year loan terms are hovering in the high four percent range with most national mortgage lenders this week. The ADP private sector payroll report due out on Wednesday will also have an impact on setting the stages for a rally past the 11,000 mark or continued uncertainty in the markets.
Today, the markets looked to extend some momentum from a sharp rally on Monday, but the real estate industry delivered a strong dose of uncertainty with the release of the pending home sales report which dipped over fifteen percent in the month of Decmeber. Home sales remain a large concern for the overall market rebound, and one thing is very certain the market is very much relying on government subsidies for the foreseeable future. The housing market has benefitted from the government tax credits which were extended until the end of April and the low mortgage rates, thanks in large part to the FOMC commitment to purchase mortgage backed bonds. Its reasonable to assume home sales to rebound over the next few months as buyers again will be pressed to lock in contracts or risk losing out on tax rebates up to $8,000. The long term housing prospects remain a larger concern as its not clear when the market will be able to stand on its own, especially as home foreclosures continue to drag down home values and add unnecessary inventory.
January starts with added pressure for rates to move higher
January 1, 2010 by admin
The New Year starts with speculation that interest rates will continue moving up in January as the market continues to gain momentum. Late last week, Freddie Mac reported that interest rates have reached their highest levels in the past sixty days as long term mortgage rates continue to climb up. The threat of inflation entering into the market is now a possibility for the first time in the last 12 months as the probability of GDP growth will continue and a strong possibility of a turn around in the labor markets is present. The first week of the new year will be critical for setting the tone for the month of January for the market, the ADP payroll report and governments non farm payroll report will both be released next week and will certainly play a large role in determining what direction the stock/bond market heads.
Yields on the ten year treasury bond rose over fifty basis points in the month of December, the largest increase in the bond market over a thirty day period since June and pushing yields on the closely followed ten year bond closer to 4%. The market is closely following the increase in the spread between long term and short term rates. The FOMC is certainly going to begin increasing the rate on the Fed Funds rate in 2010, but until this actually begins to happen, the yield curve will feature a large spread between long and short term interest rates, similar to the market in 2004 and early 2005, which was the height of refinancing into variable rate mortgage loans for the housing market. Yields on long term rates have been under pressure as investors are gaining confidence that the economy will fully recover over the next 12-24 months, and with the improvement inflation will again be an area of concern. The dramatic decline in the economy over the last year has almost created a deflationary marketplace. Energy remains one of the only areas of the economy that has seen a steady price increase in 2009, but remains well below levels of 2008 for oil.
Consumers and confidence will be the topic of the year. Improvements in the labor market will help boost spending and production, but there is certainly going to be a more cautious outlook with consumer spending in the future. The elimination of easy credit financing will play a lingering role in the recovery of the economy. Government financial subsidies will also begin to wind down in 2010, but the possibility of a national health care overhaul remains a wildcard in the market and could change health care and insurance for good. The month of January will be a good test to see if the recovery will be sustainable and could test the DOW and Ten Year Treasury twelve month moving averages.