May 22, 2008 - News from the mortgage realm this week indicated a further plummeting housing market, but hope in the form of new legislation and Federal Reserve confidence.
Home Price Index
Home prices have posted the biggest decline in 17 years, said the Office of Federal Housing Enterprise Oversight this week.
Home prices fell 3.1 percent in the first quarter of this year compared with last year. This is the only second quarter of price declines in the home-price index history, beginning in 1991. The price index first dropped on a year-over-year basis in the final quarter of 2007, when it dropped 0.45 percent.
The government index is important as it focuses less on expensive properties and includes fewer homes bought with subprime and other risky mortgages. Taking a more moderate view, prices still fell in 43 states, especially in California, Florida and Nevada. This index shows the depth of the housing market troubles nationwide.
FHA Bill Nears Passage
The Senate Banking Committee approved the government plan to assist hundreds of thousands of homeowners at risk of foreclosure, a major political hurdle on the way to eventual passage. The vote points the way towards Senate approval of the plan, expected after the Memorial Day break.
This plan, one of several making their way around Washington but the plan with the most political clout and support, authorizes the Federal Housing Administration to help at-risk borrowers. These borrowers would be able to trade adjustable-rate mortgages and subprime loans for more affordable loans backed by the federal government.
The plan would also create a new government regulatory agency with power to control Fannie Mae and Freddie Mac, and push a portion of these groups' profits (about $500 million a year) to a new fund for low-income rental housing.
Interest Rate Cuts On Hold
The Federal Reserve is probably done with rate cuts, according to recently released minutes from their last meeting. The last interest rate (30 year mortgage rates)cut was passed with the strongest division among the members.
Members of the Federal Reserve believe the seven cuts in the federal funds rates since September, totaling 3.25 percentage points, will probably be enough to stimulate the economy, according to the minutes.
Since the last meeting, economic data has been troubling, but not terrifying, say analysts, another sign that additional rate cuts are on hold. In addition, financial markets have begun to stabilize.
The drawbacks of additional interest rate cuts when unnecessary include an increased risk for inflation.Refinance at Today's Low Rates!
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