JTownRealEstate

Steve Adams with 1st Independence Mortgage gives us a great update on today’s market performance. 

Steve Adams - Mortgage Broker - 1st Independence Mortgage

So the Fed cut rates! What does this mean for you? Will your mortgage rate come down? Is it time to refinance? Maybe, but probably not. First the good news, the prime rate will almost certainly drop by the same amount as the Fed Funds target rate. Therefore a reduction in the Fed Funds Target rate will certainly help you if you have an adjustable mortgage that is tied to Prime such as a home equity line of credit.  A cut in the Fed Funds Rate will also translate into savings for you on credit cards that adjust according to the prime rate. A cut in the Fed Funds rate may also help with adjustable loans tied to other indices besides prime.  The rates that the Fed directy affects  tend to apply to extremely short term borrowing, such as overnight loans to member banks.  The effect of these rate movements tend to rub off a little bit on other short term rates.  If your adjustable mortgage is tied to another short term instrument like a 6 mo. treasury bill, or perhaps CD rates, then this move may cause your mortgage rate to ease a bit over time. 

What About Fixed Rates?

You may be surprised to learn that a Fed action like this may not help fixed rate mortgages at all.  In fact past Fed rate cuts have been known to drive fixed rates higher sometimes.

Fixed rate mortgages respond mort to what the Fed says then what the Fed does when they announce any changes.  Fixed mortgage rates are much more focused on the prospect of inflation than any movement in very short term rates.  Longer term fixed rates are moved by what the Fed says about inflation about inflation in particular.  Lets suppose for a second that you are the lender.  In fact you may very well be a lender and not know it.  I will talk about that in my next post.  Lets say you are a lender and you have made a fixed rate 30 year mortgage loan to a homeowner at 6.5%.  Lets say over that period inflation  averages 2.5%.  Each year your investment would earn 4% after inflation.  If inflation were to rise to 4.5% your earnings would be reduced by 50% to only 2% per year.   For this reason inflation tends to be the primary enemy of the fixed rate investor.The Fed has been using the Fed Funds and Discount Rate as tools to try to keep inflation in check.  They will typically raise rates to slow the economy if inflation danger arises.  If inflation is low and the economy appears soft, the Fed can lower rates to try to stimulate the economy however lowering the rates also tends to stimulate inflation at the same time.  The net result is that lowering short term rates may actually put upward pressure on long term rates, and vice-versa.For some time, the Fed has been trying to balance the risk of allowing our economy to slow, with the risk of stimulating inflation which is already running in the upper end of their target rate.  For this reason, the effect on long term rates is not so much the result of what the Fed does, as what it says as it does it.At the previous meeting, most bond market watchers felt the Fed would be more concerned about the strength of the economy and therefore expected a .25% cut by the Fed. The real question was what they would say about it. What they said was they viewed the risk of inflation is just about equal to the risk of economic slowdown. The Fed said they recognize the slowing in the economy and are going to go ahead and cut .25% this time but do not expect us to automatically cut each time because we still see a threat of inflation on the horizon.  Because they pointed out a threat of inflation but stimulated the economy anyway, investors saw the move as inflationary and we actually saw long term rates rise a bit in response.

Just prior to this meeting, Wall Street pundits became convinced that the Fed would acknowledge that growing signs of a slowing economy would certainly outweigh any threat of inflation.  They seemed to be calling for the Fed to cut their target rate as much as .50%. In other words the Pundits wanted the Fed to signal a definite change in their “bias” toward helping to spur the economy, from being equally concerned about inflation.  This mounting cry from the pundits seemed to actually cause upward pressure on long term rates over the few days leading up to the meeting. 

The actual announcement of a .25% reduction in both the Fed Funds Rate and the Discount Rate was met with great disappointment from every single one of the pundits interviewed on CNBC.  Jim Cramer appeared absolutely despondent. I wonder how much of the disappointment may be the result of a realization by these pundits that they can not dictate their desires to the current Fed Governors  and get what they want each time.  The Fed comments that accompanied the move continued to show concern for keeping inflation in check.  In any case the more modest cut will perhaps be less inflationary than what the pundits called for so long term interest rates may edge back down. 

With so many disheartening stories in both the local and national media regarding the effects of preditory lending and all the problems they have caused, it is nice to finally find a success story of how one local lender has helped a family turn their life around.

Steve Adams, a mortgage broker with 1st Independence Mortgage right hear in J-Town, teamed up with the local tv trouble shooter and was able to save a young woman’s home from the grips of foreclosure.

Please check out the story at the following link:

http://wave3.com/global/video/popup/pop_player.asp?clipid1=1966073&at1=News&vt1=v&h1=Lender+agrees+to+work+with+homeowner+to+avoid+foreclosure&d1=171000&redirUrl=www.wave3.com&activePane=info&LaunchPageAdTag=homepage&playerVersion=1&hostPageUrl=http%3A//wave3.com/global/video/popup/pop_playerLaunch.asp%3Fclipid1%3D1966073%26at1%3DNews%26vt1%3Dv%26h1%3DLender+agrees+to+work+with+homeowner+to+avoid+foreclosure%26d1%3D171000%26redirUrl%3Dwww.wave3.com%26activePane%3Dinfo%26LaunchPageAdTag%3Dhomepage&rnd=50652510

Great job Steve!

Steve Adams is a Senior Loan Officer with 1^st Independence Mortgage.  He can be reached at 502-897-5880 x249 or at sadams@1stindependence.com

Steve Adams-Mortgage Broker 

I remember as a child running weekend errands with my father.  Some days with time to kill, we would take the long way home, cruising through neighborhoods from Old Louisville to St. Matthews.  I was amazed by all of the “mansions” in this city!  As beautiful Victorian homes lined Eastern Parkway, stone three stories filled the Cherokee Park area.  I always enjoyed taking these weekend tours.  It allowed me to see how the rich live; or so I thought.  You see, as a child, I associated wealth with big homes, and big cars.  My thought process was this:  you get a job that pays lots of money, buy a big house, and big car, and live happily ever after!  Now that’s living! 

Well unfortunately, for most of us, that’s simply credit.  We all know what credit is, right?  Remember the old saying, “paying your bills on time keeps your credit in line?”  I wish it was that easy for consumers.  Our society has become so focused on status, they will do anything to obtain it!   Most simply don’t care what it cost, but how much is it a month. And creditors are in the business of accommodating those requests.  From long term vehicle leases, to interest only mortgages, to minimum credit card payments, living large is made easy; for a while. 

I recently had the opportunity of sitting down with a gentleman that was referred to me from a previous client.  Although I knew the reason for his call beforehand, I had no idea what was in store for me!  From the moment he entered my office, he began to explain his financial situation to me.  He was sixty two, $50,000 in credit card debt, $300,000 in mortgage debt, and had personal loans that totaled an additional $32,000.  And he needed help.  Needless to say, there was nothing I could do.  But I was curious.  I ask him, “how did this happen?”  He explained to me how he and his wife always had to portray that certain lifestyle because of the “circles” they ran in. 

Contrary to what you may have been taught in the past, this is not living! Nor is this how it is supposed to be.  Although you may feel this is an isolated incident, it’s not.  In fact, it is very common in today’s society.  I hope you are not in the same situation as the above mentioned.  Here are a few tips to avoid falling into this financial TRAP: 

*Avoid credit card debt-Although a major credit card may be beneficial for emergencies, random purchases should be avoided.

*Too much house will be too much headache –When searching for a home, BE REASONABLE.  Take the time to sit down and assess your income vs. debt load.  Keep in mind, things do break, and there are additional costs in owning a home.  Being “house poor” is not fun! *Stay with a fixed rate mortgage-niche products such as interest only mortgages keep your payment down only for a short period of time.  Fixed rates are too low not to take advantage!

*In need of a new vehicle?  Do your homework!  A two to three year vehicle may fit your budget better then a new one.  Most banks or credit unions will still finance 100% of a three year car or truck.

*Contribute to your company’s 401K Plan-taking advantage of your company’s plan will allow you a little more financial freedom later in life.  If your company doesn’t have this benefit, consult with a local financial planner to implement a plan.

There is nothing more burdensome than financial issues.  By living within your means, you will not only avoid unnecessary stress, but have the ability to plan for the future!

Steve Adams is a Senior Loan Officer with 1^st Independence Mortgage.  He can be reached at 502-897-5880 x249 or at sadams@1stindependence.com