Consumer Confidence Lowest Since 2003

A slumping housing market and skyrocketing gas prices have pushed consumer confidence to a five-year low.

The Conference Board, a business-backed research group, reported Tuesday a Consumer Confidence Index score of 64.5 for March, a drop from the score of 76.4 in February. The March score is far below the 73.0 expected by analysts, and is the worst since March 2003, prior to the U.S. invasion of Iraq. The score then was 61.4.

The Consumer Confidence Index has shown a pattern of decline since July of 2007. The Conference Board and industry analysts predict sagging consumer confidence will continue, deriving from a depressed job market, uncertain business conditions, and the credit crunch.

Weakened consumer confidence is an important factor in determining the overall strength of the economy, and the outlook for the future. Lower confidence usually translates to reduced consumer spending. Less money pumping in from consumers will further damage the sputtering economy.

The Conference Board also reported steep declines in companion indexes. The present situation index dropped to 89.2 in March, a slump from 104.0 in February. The expectations index dropped to 47.9, the lowest score in 35 years. Contributing to this index score is a growing number of consumers who are pessimistic about business conditions, expecting them to worsen in the next six months. Consumers also expect fewer jobs to be created during this time.

These reports also came with new data on the freefall in home prices. Standard & Poor's/Case-Shiller home price index reported the biggest drop in U.S. home prices in over 20 years. Prices fell 11.4 percent in January, the largest decline since 1987, when the index was first collected.

Taken with the prices from the last 19 months, the recent drop shows a pattern of over a year and a half of declining or slowly growing home prices.

Figures like these are encouraging some analysts to announce the existence of a recession. Many policymakers, government members and economists have been reluctant to suggest a recession is here, but others contend it's already arrived.

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Is the Fed Rate Cut What the Housing Doctor Ordered?

Source: Informa Research Services

Today, the U.S. Federal Reserve slashed the discount rate by 75 basis points down to 2.25%. But how does the Fed rate cut affect you and your search for a new home? Is the Fed rate cut the miracle elixir to cure the housing market pain?

When the Fed makes a rate cut, it actually doesn't affect consumers directly since the Fed funds rate is the rate that financial institutions are charged for overnight loans to fulfill reserve funding requirements. However, this does affect consumers indirectly by allowing financial institutions to offer more financing options, possibly at lower rates.

The Fed cut should not directly affect fixed rate mortgages, but it can have a more immediate impact on short term loans, such as adjustable rate mortgages (ARMs). Check online rate comparison tables to stay up to date with rates in this volatile market.

This should be good news for responsible borrowers looking to purchase a home. If home prices either continue to drop or stay put, and more financing options become available, the market may look like a buyers market soon enough.

But if you already own a home, don't fret! The Fed rate cut could mean an opportunity to refinance an existing mortgage at a lower rate or use your equity to fund home improvement projects. However, be aware that some lenders will have set floor rates. These floor rates may be set slightly higher than how the rate is typically calculated, which is prime rate plus a margin. To be sure you are getting a good rate, check convenient home loan equity rate tables.

Fed Working Overtime This Weekend

In order to head off the global market repercussions that a collapse at Bear Stearns would surely have, the Fed worked through the weekend to help facilitate an acquisition deal between Bear Stearns and JPMorgan Chase. Just last Friday the Fed, in conjunction with JPMorgan Chase, worked quickly to save Bear Stearns from the brink of insolvency and over the weekend the Fed made further strides by offering special financing to JPMorgan Chase so it can proceed with an acquisition of Bear Stearns. Many details have yet to be disclosed but it appears that the Fed will fund up to $30 billion of Bear Stearns illiquid mortgage-backed assets and that JPMorgan Chase will acquire the battered 85 year old institution for approximately $236 million. Then as added insurance, the Fed moved to cut the discount rate, that is the interest rate which banks are charged on loans received through their regional Federal Reserve Bank's discount window, from 3.50% to 3.25%. It is hoped this move will help prevent the deepening crisis from spreading even further as financial markets re-open on Monday. The Fed is also expected to cut the fed funds rate, that is the interest rate which banks charge each other for overnight loans, when it holds its scheduled FOMC meeting this coming Tuesday and Wednesday.
To find some of the Lowest Mortgage Rates click the map on our homepage.

Fed Pulls Out Depression Era Stops in an Effort to Save Bear Stearns

The hits just keep coming for the Fed as things continue to go from bad to worse as they are forced to utilize provisions not employed since the Great Depression in order to rescue beleaguered Bear Stearns from insolvency. The nation's fifth largest investment bank has been struggling on life support as a result of problems related to wide-spread losses incurred by mortgage-backed securities. Bear Stearns was amongst the first to disclose mortgage related problems in the summer of 2007 when several of its hedge funds collapsed; it has amassed up to $2.75 billion in write-downs to date. The situation snowballed as rumors of insolvency circulated and what amounted to a bank run on the investment banker occurred as nearly $6 billion (half the institution's value) was abruptly wiped out as customers, lenders and investors began to pull their accounts. Bear Stearns has nearly 14,000 employees globally. The Fed was then forced to act quickly, applying a depression era provision, by essentially using JPMorgan Chase as a conduit to lend funds to Bear Stearns for a 28 day period. The size of the loan was predicated on the amount of collateral that the besieged institution could put up but it is the Fed who will assume the default risk rather than JPMorgan Chase. However JPMorgan Chase is considered to have one of the healthier balance sheets on Wall Street today and as a result was seen as a good candidate to help in this situation. The loan's 28 day time frame is expected to allow sufficient time for a potential buyer of Bear Stearns to evaluate the extent of their mortgage related losses and come up with an acquisition proposal. Naturally JPMorgan Chase is tops on the list of potential suitors. Speculation grows about what may lie ahead in the coming weeks and what other financial land mines have yet to be unearthed.

Plans in Place to Help Distressed Homeowners and Their Lenders

It appears that the full extent of the damage has yet to be revealed when it comes to the fall out from the mortgage crisis which began unraveling back in August of 2007. Since the disaster first unfolded a number of programs have been introduced to stem the growing tide of mortgage delinquencies and foreclosures. Lenders, servicers and investors are running scared as foreclosure numbers are expected to hit the million mark, almost four times the level which occurred in 2007, with the number of serious mortgage loan delinquencies now exceeding a million. It is estimated that 30% of home buyers of the past several years may currently be upside down on their loans, meaning the value of the home is less than what they owe on the mortgage. Another apparent problem with the so-called workout plans being promoted is that a high percentage of borrowers who take advantage of them may end up going into foreclosure anyway, that number is estimated to be as high as 40%. Many industry experts believe this is due to declining real estate values which encourage many borrowers to simply walk away from the home rather than renegotiate the mortgage terms. It has been proposed that a re-negotiated, reduced principal loan balance, based on current market values, would be a more realistic approach to the problem and would certainly make sense when one considers that IRS guidelines technically do not permit homeowners to even deduct the interest on a mortgage that exceeds the value of the property further compounding the problems of already distressed homeowners. Here is an overview of the some plans available to assist eligible homeowners:


Hope Now Alliance - this plan was initiated by the Treasury Department and the Department of Housing and Urban Development (HUD). The objective of the alliance is to help those adjustable rate borrowers who have been able to make their mortgage payments at the start or initial teaser rate but would be unable to do so once the rate is re-set at the first loan adjustment. The suggested goal is to freeze an ARMs initial start rate for a period of 5 years and would apply only to those borrowers having less than 3% equity in their homes and having provided full income documentation on an owner-occupied residence (investment properties do not qualify). This plan is proposed for loans originated from Jan. 1, 2005 to July 30, 2007 which are due to re-set between Jan. 1, 2008 and July 31, 2010. The plan is voluntary for both lenders and borrowers as mortgage lenders and servicers are not required to comply.


Project Lifeline - this plan was initiated by the six major lenders comprising 50% of the mortgage market in hopes of stemming the swelling numbers of REOs hitting their books. The goal of this plan is to extend help to all borrowers in distress, not just those in the sub-prime and adjustable loan categories, whether they are delinquent on their payment or not. It would give borrowers a 30 day window to work out an alternative to foreclosure, essentially offering a 30 day "pause" in the foreclosure process. This plan is available to owner-occupants only and does have some restrictions on eligibility and excludes: those who are bankrupt, borrowers who are more than 3 months behind on their mortgage payments and have a foreclosure date scheduled within 30 days. Those who are eligible for the plan are to receive an unsolicited letter advising them so, sent directly from their lender instructing them how to take advantage of this option. Find some of the lowest mortgage rates in your state.


Operation Protect Your Home - this state sponsored plan was initiated in New York by both the New York Senate Democratic Conference and the New York State Banking Dept. The goal of this plan is to address the sub-prime crisis, particularly in the area surrounding the loan modification effort, in a more coordinated way to benefit all effected parties. With the primary goal of assisting those having difficulty making their payments or having already fallen into default. Letters are sent to at risk borrowers by their respective Democratic State Senator inviting them to participate in a local lending forum. Those borrowers whose mortgages are on tap to re-set or those who are already delinquent in their payments will receive priority, however the meetings are free and are open to the public. Check your state government website to see what resources are available in the state you live in.

Fannie Mae and Freddie Mac Tighten Appraisal Standards

In yet another regulatory rule sparked by the housing market decline, Fannie Mae and Freddie Mac have announced an agreement to stricter appraisal standards for home mortgages.

The agreement is with New York Attorney General Andrew Cuomo, who has been probing fraud in the mortgage industry for the past year. The agreement is intended to discourage inflated appraisals, one of several major problems behind the subprime collapse and general housing slump.

Fannie Mae and Freddie Mac are the government-sponsored entities that provide mortgage market liquidity and funding for mortgage loans. The two companies buy about 60% of all home loans originated in the country. With this agreement, Fannie Mae and Freddie Mac will buy only those loans from banks that meet strict standards of independent, reliable appraisals. The code of conduct will take effect in January of 2009, and will set a standard for the industry.

The agreement includes several key components:

> Lenders and their representatives will be barred from interfering with appraisals. Pressure from these sources cause appraisers to supply inflated estimates of property values. Appraisers are encouraged to succumb to such pressure: without appraisal values that allow loans to be extended, the appraisers risk losing business. aklamentilibin

> Bank employees will not be allowed to choose appraisers.

> Lenders will be prevented from using employee or affiliate appraisals as a basis for making loans.
Lenders will not be allowed to use appraisals ordered by mortgage brokers.

> An independent monitoring organization will be created to ensure compliance with the new regulations.

Appraisals are usually required by lenders before home loans are extended. The purpose of an appraisal is to provide a reliable estimate of the property's value. Inflated appraisals can encourage bigger loans than necessary. This can hurt the borrower in their monthly payments and when home prices fall; it can also expose the lenders to losses. Some experts contend that appraisals nationwide are inflated at least 10 percent.


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