Pasadena CA Real Estate

Pasadena Real Estate Blog is very excited to announce that Brian Brady is going to author weekly posts about mortgage rates and mortgage industry.

Brian is a 19 year veteran of the financial services industry.  He started his career with Merrill Lynch, as a financial adviser, right after he graduated Villanova University. 

He moved out west in 1992 and have worked in residential real estate lending since 1994.  He has originated loans, managed branches, was the National Sales Manager for a regional mortgage bank, and successfully turned around an ailing mortgage banking firm to profitability.

He is now back to his first love - working with clients in a financial advisory capacity.  Ron Feinberg appointed him as a Managing Director at World Wide Credit Corporation. a long-time mortgage banking and brokerage firm in San Diego.  Brian considers himself a Mortgage Planner, which is a new title for mortgage originators who have expertise in financial planning.  This means that you'll get a whole lot more than rate and points from him.  He'll show you how to properly structure your debt so as to increase your liquidity, safety and return on your investments.  He'll even show you a tax trick or two to run by your CPA.

Brian, welcome to the Pasadena Real Estate Blog!!!

Mortgage rates for July 22, 2008.  Loan amounts up to $417,000:

3/1 ARM              5.750%

5/1 ARM              5.875%

7/1 ARM              6.250%

10/1 ARM            6.500%

30 Yr Fixed          6.500%

All rates offered to the borrower with 1 point cost.  Rate quotes assume a purchase transaction with a 20% down payment, 720 credit score, and full income qualification.  Rates are subject to fluctuation.  Custom rate quotes and rate lock advice are available by calling (858)-777-9751.

MORTGAGE RATE TREND:

Next 7 days:      Slightly Lower

Next 30 days:     Lower

Next 3 months:  Neutral

What a difference a week makes, huh?  Last Tuesday, I signaled that a short-term increase in rates was likely when I changed the 7-day outlook to "slightly higher" from neutral.  I felt that the rally in mortgage bonds was overdone and that traders would sell off a bit; I had no idea it would be this drastic.

If you click the link, you'll see that I offered a 30-year fixed at 6.0%. last Tuesday- today, the 30-year fixed rate loan is a full .5% higher.  In fact, almost every loan program is .5% higher than it was last week.  The problem?  Wall Street thinks the worst is over for banks and that inflation is going to be the #1 target for the Fed in the next few months.  ' Treasury Secretary Hank Paulson is certainly telling the markets that the banking crisis should be averted by Christmas.

So will the Fed raise interest rates in 2008?  I'm not so certain that they will.  The housing decline has been the worst since The Great Depression.  Fed Chairman, Ben Bernanke, is an expert on monetary policy in the Depression.  He subscribes to the Milton Friedman theory that monetary policy must accommodate a healthy banking system.  His 2004 speech signaled two things two us:

(1)- Bernanke believes that tightening during a slowdown could cause further economic declines:

According to Friedman and Schwartz, the Fed's tight-money policies led to the onset of a recession in August 1929, according to the official dating by the National Bureau of Economic Research. The slowdown in economic activity, together with high interest rates, was in all likelihood the most important source of the stock market crash that followed in October. In other words, the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it. Of course, the stock market crash only worsened the economic situation, hurting consumer and business confidence and contributing to a still deeper downturn in 1930.

 

(2) Bernanke believes that a contracting banking sector withdraws a HUGE amount of money out of the economy:

The banking crisis had highly detrimental effects on the broader economy. Friedman and Schwartz emphasized the effects of bank failures on the money supply. Because bank deposits are a form of money, the closing of many banks greatly exacerbated the decline in the money supply. Moreover, afraid to leave their funds in banks, people hoarded cash, for example by burying their savings in coffee cans in the back yard. Hoarding effectively removed money from circulation, adding further to the deflationary pressures. Moreover, as I emphasized in early research of my own (Bernanke, 1983), the virtual shutting down of the U.S. banking system also deprived the economy of an important source of credit and other services normally provided by banks

 

His conclusion is foreshadowing:

Some important lessons emerge from the story. One lesson is that ideas are critical. The gold standard orthodoxy, the adherence of some Federal Reserve policymakers to the liquidationist thesis, and the incorrect view that low nominal interest rates necessarily signaled monetary ease, all led policymakers astray, with disastrous consequences. We should not underestimate the need for careful research and analysis in guiding policy. Another lesson is that central banks and other governmental agencies have an important responsibility to maintain financial stability. The banking crises of the 1930s, both in the United States and abroad, were a significant source of output declines, both through their effects on money supplies and on credit supplies. Finally, perhaps the most important lesson of all is that price stability should be a key objective of monetary policy. By allowing persistent declines in the money supply and in the price level, the Federal Reserve of the late 1920s and 1930s greatly destabilized the U.S. economy and, through the workings of the gold standard, the economies of many other nations as well.

 

I don't see the Fed aggressively raising interest rates to prop up the dollar.  I think reduced demand will bring oil prices below the $100/barrel mark which will strengthen the dollar.  The Fed's focus should have been (in the 1930s) and will be (this decade) to promote a healthy banking system.    While the banks are reporting lower losses, they still aren't healthy. The recent good news from the banking sector needs to be sustainable.  Look for the Fed to restrain itself from raising rates until 2009.

Are higher mortgage rates on the horizon?  Sure, in 2009.  The run up in mortgage rates I predicted, two weeks ago, has already happened.  I don't think mortgage rates go much higher in 2008.

In the wake of Pasadena California IndyMac bank being seized by Federal Regulators today, the question most of us are asking is how safe are our deposits whether we were banking with IndyMac, WAMU, Wachovia, Wells Fargo or any other bank?

A quick background for those of you that are not aware of the situation.  IndyMac specialized in what many in the real estate industry called "Liar Loans".  If you could breathe and sign your name, IndyMac was glad to lend you money to buy a home whether or not you were financially qualified. 

Now... I'm being a bit harsh here, but really risky lending practices did get IndyMac in major trouble and put them in a precarious financial situation.

To help IndyMac along, Senator Schumer (NY) caused an old-fashioned bank run when he wrote a letter to the San Francisco Fed President concerned about IndyMac Bank's ability to weather the storm....then, he made that letter public. IndyMac Bank ceased new loan operations, in an effort to manage the loans they have on their books, on Monday. On Friday, the Feds closed IndyMac Bank down.

Read More: Brian Brady's Mortgage Rates Report - July 14, 2008

IndyMac becomes the largest OTS-regulated savings and loan to fail and second-biggest financial institution to close behind Continental Illinois in 1984, according to the FDIC.

Read More: IndyMac Bancorp is Seized

If you have money in IndyMac, what does it mean to you?

If you visit www.IndyMac.com, you will see that there is a link to the FDIC Website which provides some general information.  Here's an excerpt:

Principal and interest on insured accounts, through July 11, 2008, are fully insured by the FDIC, up to the insurance limit of $100,000.  You will receive full payment for your insured account.  Certain entitlements and different types of accounts can be insured for more than the $100,000 limit.  IRA funds are insured separately from other types of accounts, up to a $250,000 limit.

All accounts that exceed the $100,000 insurance limit, and/or all accounts that appear to be related and exceed this limit, are reviewed by the FDIC to determine their ownership and insurance coverage.  If you think you might have uninsured deposits you should call the FDIC Call Center to arrange for a telephone interview with  a Claims Agent at         866-806-5919        .

If it is determined that you have uninsured funds, the FDIC will generate and mail to you a Receiver Certificate.  This certificate entitles you to share proportionately in any funds recovered through the disposal of the assets of IndyMac Bank, F.S.B.  This means that you will eventually recover some of your uninsured funds.  The FDIC declared a 50% advance dividend for uninsured deposits.

If you have a home equity line of credit with IndyMac, the word on the street is that it has been frozen and will be reviewed on a case by case basis.

Credit lines to commercial construction contractors also will be frozen pending a review, but construction loans made to individual consumers will not be affected.

Customers of IndyMac's reverse-mortgage subsidiary will continue to have access to their funds. Reverse mortgages provide older homeowners with periodic payments or a credit line secured by their homes.

Read More:  IndyMac reopens after seizure

How diversified are your bank accounts?  Do you have all your accounts in the same bank?  Are you over FDIC insured limits?

I was over at Washington Mutual in San Marino earlier today making a deposit.  As I was waiting in line, I heard several conversations about FDIC limits.  Everyone is nervous, myself included.

There were long lines today on Lake and Walnut in Pasadena as IndyMac customers were trying to withdraw funds.  Some stood in line as long as 4 hours per my conversation with a bank representative of Wells Fargo who has been busily opening accounts all day today for IndyMac customers and others who want to diversify their accounts with various banks.  By the way, if you were fortunate to get through the long line and have a cashier's check from IndyMac, Wells Fargo is putting a hold on the money to ensure that it clears. 

What can you do to protect your money?

Read more »

Pasadena California Real Estate Home Blog is pleased to welcome a guest writer from Ann Arbor, Michigan - Missy Caulk.

Should you buy or rent if you are moving to Pasadena or the surrounding cities in the San Gabriel Valley? We get asked that question frequently.

The answer is "it depends on your individual circumstance".

One of the first things to ask yourself is,  How long will you be living in Pasadena?

In the past it definitely made more sense to buy a home, but now it really depends. If you are a Medical Resident working at the Huntington Memorial Hospital and will only be here 3-4 years, then perhaps renting is the best option. Do you have a dog, that needs space to run?  All of those personal decisions should enter into your decision.

Here's a mortgage - rent vs. buy - calculatorthat you can play around with. Put in what it will cost you to rent, and along side of it put it the monthly mortgage payment. You can add in the interest rate you have been quoted, and the cost of selling the house in the year you plan to move.

Home prices have never been better in Pasadena, so if after doing the research you can begin your home search here, to see all the homes on the market throughout San Gabriel Valley. You'll be happy to see the houses with Google Satellite Images, Google maps and multiple photos.

You can also find rentals, listed through the Pasadena area and surrounding cities like South Pasadena, San Marino, Arcadia, Altadena, Alhambra, Sierra Madre, Monterey Hills and more.

Renting vs Buying is a personal decision, and it is always best to speak to qualified professionals about your financial decisions.

Thank you Missy!

One of my readers emailed me and posed this question about FHA loans today:

       Is there a set rate for FHA home loans that's standard around the country?

For complete information about FHA loans and programs, I'd suggest visiting FHA's website at www.fha.com

I also asked Ernest Tepman of OCD Group who specialize in FHA loans and programs to give us an answer to this question and here's what he says:

The answer is that there is no standard rate for FHA loans, each lender and at times even individual Loan Officers from same lender can offer different rates. The guidelines for the FHA programs are almost identical from lender to lender (but there are lenders who sometimes add individual overlays on FHA guidelines above what FHA actually dictates), which results in strange things occasionally, where a specific file will be eligible for FHA financing with one lender and not the other, not often, but it does happen. Keep in mind FHA only insures the loans, the actual loans are made by banks, so even though your loan is FHA, it is still from Chase, Wells Fargo or Countrywide :-) 

READ MORE:    Advantages and Disadvantages to FHA