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Mortgage rates move back up

Steven — Tue, 22 May 2007 11:31:32 GMT

Mortgage rates move back up

Remarks about inflation in the Fed's most recent statement push up rates, Freddie Mac reports.

Mortgage rates climbed this week after trending lower recently, Freddie Mac said Thursday, after Federal Reserve said it continues to worry about the threat of inflation.

The average rate on 30-year fixed-rate loans was 6.21 percent for the week ending May 16, up from 6.15 the previous week, the mortgage finance firm said. Last year at this time, 30-year mortgage rates averaged 6.60 percent.

"Mortgage rates inched up this week following the Federal Open Market Committee statement reiterating that the predominant concern remains the risk that inflation will fail to moderate as expected," Frank Nothaft, Freddie Mac vice president and chief economist, said in a prepared statement.

"However, as long as core inflation continues to trend downward and economic growth remains sub-par it is unlikely that we will see any big movement in mortgage rates."

Last week the Federal Reserve held interest rates steady for the seventh straight time, but indicated in its statement it was concerned about slower economic growth as well as inflation, suggesting that the central bank will not raise interest rates time soon.

Consumer prices rose less than expected in April, the government reported earlier this week, but core prices of the Consumer Price Index rose at faster pace.

The rate on 15-year loans averaged 5.92 percent, up from 5.87 the previous week, Freddie Mac (Charts, Fortune 500) said. A year ago, the 15-year rate averaged 6.20 percent.

Five-year adjustable-rate mortgages rose to 5.92 percent up from 5.89 percent last week. The five-year ARM averaged 6.23 percent a year ago.

The average one-year adjustable-rate mortgage averaged 5.48 percent, unchanged from the previous week. At this time last year, the loan averaged 5.62 percent.

WaMu mortgage will combine fixed, adjustable

Steven — Sat, 05 May 2007 06:50:36 GMT

Homeowners can, for a fee, switch back between rates twice a year.

Washington Mutual Inc. has begun offering a new mortgage and home equity line of credit bundled into a single loan that allows customers to reset interest rates or switch between fixed and adjustable rates up to twice a year without having to refinance.

The Seattle-based thrift said WaMu Mortgage Plus is designed to help consumers take advantage of changes in their financial needs or market conditions without having to bother with mounds of refinancing paperwork or steep fees.

“We constructed this product with an eye toward what we think is a very large group of customers ... looking for more control and flexibility,” Steve Rotella, Washington Mutual’s president and chief operating officer, told The Associated Press.

Washington Mutual, the country’s largest savings and loan, began offering WaMu Mortgage Plus in mid-March and is kicking off a nationwide marketing push Thursday.

The company will charge customers $250 each time they reset terms of their mortgage-home equity loan, up to twice a year, though the first reset will be free. It won’t cost anything to switch from a fixed rate — generally viewed as the safer option — to an adjustable rate.

Borrowers have to put 10 percent down, but Washington Mutual charges no origination fees and waives various other costs home buyers typically pay, such as appraisal and title fees.

Once borrowers begin paying down their mortgage, they’ll be able to tap into their equity with a check, cash advance or, in most states, a credit card. That available line of credit will grow as they pay down their mortgage.

Rotella said that by giving customers a simpler way to get cash for remodeling projects, college tuition and the like, Washington Mutual should be able to retain customers who might otherwise refinance with another lender.

Rotella acknowledged that some banks offer products with similar features, but he predicted that Washington Mutual “will grab market share from our competitors” because it’s the only one offering the features as an all-in-one package.

WaMu Mortgage Plus is not available to subprime consumers, those who pay higher interest rates because of sketchy credit histories or low income.

Customers who get the new loan can choose between the conventional method of paying both interest and principal or making interest-only payments.

Washington Mutual’s home loan group has suffered amid a stumbling housing market, losing more than $250 million in the past three fiscal quarters.

The company places much of the blame on rising delinquencies and defaults among subprime borrowers. It has reined in its subprime business, and expects an improving economy and strength in prime lending — including its latest offering — to boost the home loan unit back to profitability.

“As the home loans organization continues to improve, this is just going to accelerate the momentum we believe we’re building in that business,” Rotella said.

Without disclosing how many customers have signed up for WaMu Mortgage Plus since it was first offered, Rotella said the company is pleased so far. “It’s been above our early expectations by a fair amount,” he said.

Real estate sales plunge

Steven — Thu, 03 May 2007 15:14:17 GMT

House sales plunge

Latest forward look at existing home sales show sharp drop in sellers finding buyers for home, according to Realtors.

By Chris Isidore, CNNMoney.com senior writer

May 1 2007: 10:47 AM EDT

NEW YORK (CNNMoney.com) -- Problems in subprime mortgages caused a sharp drop in home sellers being able to find buyers for their homes in March, according to a trade group report Tuesday that showed the battered real estate market was much weaker than expected.

The National Association of Realtors' Pending Home Sales Index fell 4.9 percent in March, following a 1.1 percent increase in February. The index was down 10.5 percent from the March 2006 reading.

Economists surveyed by Briefing.com had been looking for a 0.4 percent rise in the index, which tracks the number of existing homes for which a sales contract has been signed but a closing has not yet taken place.

Type	Avg
30 yr fixed mtg	5.76%
15 yr fixed mtg	5.49%
30 yr fixed jumbo mtg	6.10%
5/1 ARM	5.51%
5/1 jumbo ARM	5.74%

"Although the weather improved in March, we're starting to see the effects of a decline in subprime lending and tighter lending standards," said a statement from David Lereah, the chief economist for the trade group. "Home sales will be relatively sluggish in the second quarter, but a modest uptrend should resume during the second half of this year."

Subprime mortgages, which are the types of home loans made to potential buyers with less than top credit, have become a significant problem in recent months, with rising deliquencies and defaults by borrowers and a number of lenders pulling out of the market. That, in turn, has choked off the supply of credit to some potential home buyers.

The Pending Home Sales Index, which started in 2001, is considered a more forward-looking indicator of market strength than the traditional existing home sales report, which records sales at the time of closing.

The Realtors' existing home sales report and the government's new home sales reading have both shown tremendous weakness in the pace of sales in recent months, along with a glut of both types of homes on the market, which has depressed prices. The Pending Home Sales Index does not contain any home price measure.

A reading of 100 in the index is equal to the average level of contract activity during 2001, the first year of the index, which coincidentally was the start of the home sale and home building boom in the country that extended into 2006. But the market softened significantly in the later part of last year and has been battered by the subprime mortgage problems so far this year.

The weak real estate market has badly hurt results of the nation's largest builders. Monday Centex (Charts, Fortune 500), the nation's No. 3 builder, reported a larger-than-forecast loss in the most recent quarter, its second straight quarter in the red. No. 4 builder Pulte Homes (Charts, Fortune 500) also reported its second straight losing quarter Wednesday. Also in April No. 2 home builder D.R. Horton (Charts, Fortune 500) reported the typical start to the spring home buying season hasn't begun.

The nation's largest home builder Lennar (Charts, Fortune 500) and No. 5 KB Home (Charts, Fortune 500) both reported losses in their quarters ending in November before returning to the black in the most recent period.

Private equity and the job cut myth

Steven — Thu, 03 May 2007 15:09:57 GMT

Private equity and the job cut myth

Private equity firms have a reputation for destroying jobs, but it isn't clear how they impact employment in the long term.

By Grace Wong, CNNMoney.com staff writer

May 2 2007: 3:55 PM EDT

NEW YORK (CNNMoney.com) -- Amid all the criticism of private equity, none perhaps has been as scathing as this: Buyout firms above all want to enrich themselves and their investors - and often cut thousands of jobs in the process.

The Service Employees International Union, which represents about 1.8 million workers in the U.S. and Canada, published a report last week that criticized the private equity industry for not doing more to measure the impact buyouts have on jobs and communities.

United Auto Workers union President Ron Gettelfinger has blasted the buyout firms circling Chrysler, criticizing them for "stripping and flipping" companies.

Private equity firms, which buy mature companies and typically load them up with debt, are notorious for slashing jobs. In order to make their debt payments, they have to increase revenue or cut costs, or both.

"Typically it's easier to decrease costs quickly by cutting heads, which is why buyouts have typically been accompanied by layoffs," said John Adler of the SEIU.

The SEIU report pointed to the buyout of Warner Music Group (Charts) as an example. When a group of private equity firms bought the company from Time Warner (Charts, Fortune 500) in 2004, it cut 1,000 workers, or about a fifth of its work force, the report said. (CNNMoney.com is a unit of Time Warner.)

But Scott Sperling, co-president of Thomas H. Lee Partners - one of the private equity firms involved in the deal - defended the buyout. Speaking at a conference last week, he said Warner Music was burdened with an "unsustainable business model" and had too many layers of decision makers.

Industry groups like the Private Equity Council argue that buyouts generate, rather than destroy, employment over the long term and point to reports like the one recently issued by consulting firm A.T. Kearney, which found that private equity created about 600,000 jobs in the United States between 2000 to 2003.

No good numbers

Private equity's impact on employment has become a hot-button issue as buyouts have boomed. Private equity firms have been on a buying spree, inking deals of unprecedented scale at quick-fire pace.

But private equity scholars say it's difficult to gauge the impact of buyouts on employment, largely because there's a lack of good numbers. Once companies are taken private, they aren't required to disclose details of their operations.

"It's very hard to get a good answer because it's virtually impossible to get data on firms once they've gone private," said Steven Kaplan, a professor at the University of Chicago's Graduate School of Business who studies private equity.

Some studies, like the one from A.T. Kearney, have to be weighed carefully because they use a broad definition of private equity that includes venture capital and doesn't focus solely on buyouts, experts say.

One study that does track the impact of buyouts on jobs was conducted by the Center for Management Buyout Research at the Nottingham University Business School in the United Kingdom.

That study, one of the few larger-scale studies that tracked 1,350 buyouts in the U.K., found that employment dips in the first year after a management buyout. But four years afterward, employment levels rise above to where they were the year before the buyout.

Similar data isn't available for the U.S., but the evidence from Europe suggests that while employment may fall initially after a buyout, it increases over time, said Douglas Cumming, a professor of finance at Rensselaer Polytechnic Institute and an author of the study.

But it's tricky to draw inferences from the research because it's difficult to know what employment levels would have been at the company if there were no buyout. "You just don't know whether the company would be doing better or worse if the buyout didn't occur," Cumming said.

Unions like the SEIU are pushing the private equity industry to provide more information on the deals they do. They want data to track how buyouts are affecting the lives of everyday workers.

But that isn't necessary, according to the University of Chicago's Kaplan, who said private equity's impact on jobs may be an emotional issue, but it's largely a moot point.

"Private equity is both a job creator and job destroyer," Kaplan said. "Part of what private equity does is make companies more efficient - which may mean cutting jobs. But you can create value by growing faster or doing things better, which can increase jobs."

Bank rates may have peaked

Steven — Sun, 29 Apr 2007 00:01:56 GMT

Interest rates on bank deposits seem to have peaked for the time being. With Reserve Bank of India (RBI) deciding to maintain status quo on key interest rates and keeping the inflation target at 4-4.5% in the medium-term, there is apparently no pressure on the banking industry to raise deposit rates further from current levels.

According to a cross-section of bankers, chances of deposit rates rising any further is lot less than them actually dropping from current levels. Bankers, therefore, feel this is the best time for small depositors to lock in their monies at the current available rates. Fortunately, there is no dearth of innovative deposit schemes to suit individual depositors. Some offer 9-9.5% rates for a one-year period, while monies can also be locked in for longer terms at slightly lower rates.

Senior citizens get another 0.25-0.5 percentage point higher rates over the card rates, making these deposits more lucrative compared to several postal savings deposit schemes. “For quite sometime, deposit rates have been moving in just one direction: northward. At the current level, deposit rates are attractive by any standard.

Going forward, if we see inflation easing from the current level, one may come to a conclusion that chances of deposit rates going down from current levels are higher than going up,” ICICI Bank’s head for liability products Maninder Singh Juneja told ET. Although inflation moved up again to 6.09% in the first week of April after hovering below the 6% mark in the two consecutive weeks prior to April, RBI expects inflation to ease to below 5% level in the medium term.

Toeing the RBI line, Centurion Bank of Punjab managing director & chief executive officer Shailendra Bhandari said on Wednesday: “Both inflation and credit growth are likely to be within the target during April-June quarter. Therefore, no altercation in deposit rates is expected till June.

The scenario may change post-September when the busy credit season kicks in.” United Bank of India’s chairman and managing director PK Gupta agreed. “For the moment , there is no pressure for banks to increase deposit rates further. Inflation is likely to be under control. We also expect a moderate credit growth this year. Therefore, we don’t feel a further rise in deposit rates is necessary at this point in time. At least till June 2007, there may not be any change in interest rates,” Mr Gupta said.

Incidentally, days ahead of the RBI policy announcement, UBI has announced a new deposit scheme whereby depositor get 9.5% interest (0.5 percentage point more for senior) if they park their monies for 500 days. This scheme will be available for up to May 31, 2005.

Obc To Raise Home Rates by 50-75

Sat, 28 Apr 2007 23:56:39 GMT

NEW DELHI: Oriental Bank of Commerce today said it will raise home loan rates in the range of 50 to 75 basis points for new borrowers seeking loan up to Rs 20 lakh.

"We may increase it around 50-75 bps probably from May 1," OBC Executive Director Allan C A Pereira told reporters here.

The bank has passed on three consecutive increase in PLR to its home loan borrowers but in light of increasing cost of deposit it needs to revise home loan rate, which is around 9 per cent, he said adding that decision to this effect will take place at Asset Liability Committee (ALCO) meeting on Monday.

Home Equity Loan Beware

Sat, 21 Apr 2007 17:08:38 GMT

Home Equity Loans: Borrowers Beware!

Do you own your home? If so, it's likely to be your greatest single asset. Unfortunately, if you agree to a loan that's based on the equity you have in your home, you may be putting your most valuable asset at risk.

Homeowners-particularly elderly, minority and those with low incomes or poor credit-should be careful when borrowing money based on their home equity. Why? Certain abusive or exploitative lenders target these borrowers, who unwittingly may be putting their home on the line.

Abusive lending practices range from equity stripping and loan flipping to hiding loan terms and packing a loan with extra charges. The Federal Trade Commission urges you to be aware of these loan practices to avoid losing your home.

The Practices

Equity Stripping

You need money. You don't have much income coming in each month. You have built up equity in your home. A lender tells you that you could get a loan, even though you know your income is just not enough to keep up with the monthly payments. The lender encourages you to "pad" your income on your application form to help get the loan approved.

This lender may be out to steal the equity you have built up in your home. The lender doesn't care if you can't keep up with the monthly payments. As soon as you don't, the lender will foreclose-taking your home and stripping you of the equity you have spent years building. If you take out a loan but don't have enough income to make the monthly payments, you are being set up. You probably will lose your home.

Hidden Loan Terms: The Balloon Payment

You've fallen behind in your mortgage payments and may face foreclosure. Another lender offers to save you from foreclosure by refinancing your mortgage and lowering your monthly payments. Look carefully at the loan terms. The payments may be lower because the lender is offering a loan on which you repay only the interest each month. At the end of the loan term, the principal-that is, the entire amount that you borrowed-is due in one lump sum called a balloon payment. If you can't make the balloon payment or refinance, you face foreclosure and the loss of your home.

Loan Flipping

Suppose you've had your mortgage for years. The interest rate is low and the monthly payments fit nicely into your budget, but you could use some extra money. A lender calls to talk about refinancing, and using the availability of extra cash as bait, claims it's time the equity in your home started "working" for you. You agree to refinance your loan. After you've made a few payments on the loan, the lender calls to offer you a bigger loan for, say, a vacation. If you accept the offer, the lender refinances your original loan and then lends you additional money. In this practice-often called "flipping"-the lender charges you high points and fees each time you refinance, and may increase your interest rate as well. If the loan has a prepayment penalty, you will have to pay that penalty each time you take out a new loan.

You now have some extra money and a lot more debt, stretched out over a longer time. The extra cash you receive may be less than the additional costs and fees you were charged for the refinancing. And what's worse, you are now paying interest on those extra fees charged in each refinancing. Long story short? With each refinancing, you've increased your debt and probably are paying a very high price for some extra cash. After a while, if you get in over your head and can't pay, you could lose your home.

The "Home Improvement" Loan

A contractor calls or knocks on your door and offers to install a new roof or remodel your kitchen at a price that sounds reasonable. You tell him you're interested, but can't afford it. He tells you it's no problem-he can arrange financing through a lender he knows. You agree to the project, and the contractor begins work. At some point after the contractor begins, you are asked to sign a lot of papers. The papers may be blank or the lender may rush you to sign before you have time to read what you've been given. The contractor threatens to leave the work on your house unfinished if you don't sign. You sign the papers. Only later, you realize that the papers you signed are a home equity loan. The interest rate, points and fees seem very high. To make matters worse, the work on your home isn't done right or hasn't been completed, and the contractor, who may have been paid by the lender, has little interest in completing the work to your satisfaction.

Credit Insurance Packing

You've just agreed to a mortgage on terms you think you can afford. At closing, the lender gives you papers to sign that include charges for credit insurance or other "benefits" that you did not ask for and do not want. The lender hopes you don't notice this, and that you just sign the loan papers where you are asked to sign. The lender doesn't explain exactly how much extra money this will cost you each month on your loan. If you do notice, you're afraid that if you ask questions or object, you might not get the loan. The lender may tell you that this insurance comes with the loan, making you think that it comes at no additional cost. Or, if you object, the lender may even tell you that if you want the loan without the insurance, the loan papers will have to be rewritten, that it could take several days, and that the manager may reconsider the loan altogether. If you agree to buy the insurance, you really are paying extra for the loan by buying a product you may not want or need.

Mortgage Servicing Abuses

After you get a mortgage, you receive a letter from your lender saying that your monthly payments will be higher than you expected. The lender says that your payments include escrow for taxes and insurance even though you arranged to pay those items yourself with the lender's okay. Later, a message from the lender says you are being charged late fees. But you know your payments were on time. Or, you may receive a message saying that you failed to maintain required property insurance and the lender is buying more costly insurance at your expense. Other charges that you don't understand-like legal fees-are added to the amount you owe, increasing your monthly payments or the amount you owe at the end of the loan term. The lender doesn't provide you with an accurate or complete account of these charges. You ask for a payoff statement to refinance with another lender and receive a statement that's inaccurate or incomplete. The lender's actions make it almost impossible to determine how much you've paid or how much you owe. You may pay more than you owe.

Signing Over Your Deed

If you are having trouble paying your mortgage and the lender has threatened to foreclose and take your home, you may feel desperate. Another "lender" may contact you with an offer to help you find new financing. Before he can help you, he asks you to deed your property to him, claiming that it's a temporary measure to prevent foreclosure. The promised refinancing that would let you save your home never comes through.

Once the lender has the deed to your property, he starts to treat it as his own. He may borrow against it (for his benefit, not yours) or even sell it to someone else. Because you don't own the home any more, you won't get any money when the property is sold. The lender will treat you as a tenant and your mortgage payments as rent. If your "rent" payments are late, you can be evicted from your home.

Protecting Yourself

You can protect yourself against losing your home to inappropriate lending practices. Here's how:

Don't:

Agree to a home equity loan if you don't have enough income to make the monthly payments.
Sign any document you haven't read or any document that has blank spaces to be filled in after you sign.
Let anyone pressure you into signing any document.
Agree to a loan that includes credit insurance or extra products you don't want.
Let the promise of extra cash or lower monthly payments get in the way of your good judgment about whether the cost you will pay for the loan is really worth it.
Deed your property to anyone. First consult an attorney, a knowledgeable family member, or someone else you trust.

Do:

Ask specifically if credit insurance is required as a condition of the loan. If it isn't, and a charge is included in your loan and you don't want the insurance, ask that the charge be removed from the loan documents. If you want the added security of credit insurance, shop around for the best rates.
Keep careful records of what you've paid, including billing statements and canceled checks. Challenge any charge you think is inaccurate.
Check contractors' references when it is time to have work done in your home. Get more than one estimate.
Read all items carefully. If you need an explanation of any terms or conditions, talk to someone you can trust, such as a knowledgeable family member or an attorney. Consider all the costs of financing before you agree to a loan.

For More Information

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.