Late yesterday (Tuesday) afternoon, the Federal Reserve slashed its target for the overnight federal funds rate to a range of 0 to 0.25 percent. That may sound like meaningless gobbledygook, but it’s not. It’s an all-time record low. Read the rest of this entry »

California legislators are in the process of approving a bill that would provide state tax relief for eligible homeowners who’ve had debt forgiven by mortgage lenders through relief provisions including mortgage modifications and short sales. This is another step toward cleaning up the mortgage mess; If homeowners facing the loss of their homes can also expect to lose their shirts paying taxes, what’s their incentive for staying in their homes and cooperating with lenders?  No one wants more people to walk away from homes they can’t sell, or mortgages they can’t pay.

The bill, which has been unanimously passed by California’s state Senate, is now in the hands of the state Assembly. It’s important to note that tax relief would be available only to owner-occupants.

While the action of the Federal Reserve to lower its rate to 2.25% grabbed the headlines, a little further behind the scenes were several positive indications for the mortgage markets:

• Regulators cleared the way for Fannie Mae and Freddie Mac to insure more mortgages
• Oil prices — a key element of inflation — took a sharp dive
• Yields on 30-year bonds fell nearly 30 basis points in one week

As much as the regulatory actions indicate a desire to ease the mortgage crisis and stimulate the economy, it is the financial market developments that could indicate a fundamental improvement in conditions on the way.

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One of the challenges faced by the average home owner or potential buyer is deciphering how to react to big-picture news about the mortgage market. Often, the right move runs counter to the news cycle.

Over the past week, that news cycle continued to focus on negative stories. For example:

• Mortgage foreclosures were reported to be up sharply in February over the prior year’s levels
• Treasury Secretary Henry Paulson outlined proposals to tighten regulation on mortgage lenders
• Meanwhile, one result of mounting economic concerns is that mortgage rates remain near the 6% level, which is low by a few different measures

In other words, the macro-economic view of housing and mortgages continues to be bleak. It may be counter-intuitive, but this could well be an environment which calls for action, on the part of home owners and potential buyers alike.

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Fannie Mae and Freddie Mac have raised their loan limits, a move designed to make mortgage funds available and to ease the loan approval process for borrowers living in areas where housing prices are very high.

The new lending limits vary according to region, but typically allow for more borrowing power in areas where housing prices far exceed Fannie and Freddie’s previous loan limit of $417,000.  As an example, borrowers in Honolulu, HI may now qualify to borrow as much s $793,750 under the new loan limits.

This is great news, as it evens the playing field for borrowers and mortgage lenders in areas with astronomical home values. The ability to qualify for conforming mortgages can  ease the mortgage applicaton process and help borrowers save on financing costs associated with non-conforming jumbo loans.

Hope Now, the housing assistance coalition, has assisted more than one million households struggling with foreclosure. It’s important to note that approximately 278,000 of these cases involved loan modifications. Modifying the terms of a mortgage loan can help homeowners maintain their payments by eliminating rapid rate increases, negative amortization and other “exotic” terms that can make it difficult for homeowners to make payments once the initial period of very low payments expires.

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The S & P Case/Schiller Home Price Index dropped by 9.1 percent at the end of 2007, which represents the largest drop in the index’s 20 year history. The index measures home prices in 20 key market areas throughout the US. Decreasing home prices can make it difficult, if not impossible, to sell a home or refinance home mortgage loans.

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Mortgage news this week was dominated by the announcement of Project Lifeline, a program to help mortgage borrowers who are on the brink of foreclosure.

To appreciate the context of Project Lifeline, it is important to also consider two other stories from this past week:

• Figures from the first four months of this fiscal year show that the U.S. Government budget deficit is running at about twice the pace of last year’s
• Morgan Stanley became the latest in a series of financial firms to bite the bullet because of the mortgage crisis, with the announcement that they would lay off 1,000 mortgage workers

Considering the circumstances, Project Lifeline might be the most pragmatic type of solution available.

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It was a mixed week for mortgage news. Here were some items of interest:

• Mortgage rates rose in the last week of January, breaking a streak of four straight weeks in which those rates declined.
• Mortgage application activity was a mixed bag. New purchase applications increased, but refinancing applications — which had been running hot and heavy — slowed down.
• A Federal Reserve survey reported that 55% of U.S. banks had tightened their mortgage lending standards.
• The service sector of the economy contracted sharply in January, heightening fears that the economy may already have slipped into a recession.
• Oil prices, which were tickling the $100 mark not too long ago, fell below $90 a barrel.

It’s these last two items which may turn out to be the best news of all for mortgage shoppers.

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