November 21st, 2013
It’s been an interesting week with interest rates slowly creeping up, refinancing numbers continuing down, and JP Morgan settling with the Department of Justice.
Has refinancing bottomed out? Bloomberg is reporting that mortgage applications have decreased to a two month low.
The Mortgage Bankers Association’s index fell 2.3 percent in the period ending Nov. 15 after a 1.8 percent loss compared to the week prior. The group’s purchases measure increased 5.8% to the highest since September. However, the refinancing gauge dropped 6.5% to the lowest since mid-September.
Reuters is reporting that the Fed has announced it would begin to slow its policy of buying $85 billion per month in Treasuries and mortgage-backed securities when economic growth meets its targets. Strong data recently has reinforced concerns that the tapering could come soon. Previously, it was expected that those accommodating monetary policies would last into 2014.
The JP Morgan mortgage settlement was announced this week with a whopping $13 billion made up of $7 billion in civil securities settlements, $2 billion for “a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA),” and $4 billion is “in the form of relief to aid consumers harmed by the unlawful conduct of JPMorgan, Bear Stearns and Washington Mutual.”
This is the largest settlement in U.S. history. JP Morgan, the nation’s largest bank, admitted to knowingly peddling the toxic securities that helped lead to the housing bubble and the worst financial meltdown since the Great Depression.
It was unclear yet how the $4-billion relief program would be apportioned to struggling homeowners, but that it would distributed over the next four years. Government officials said California would receive a large share as the state was hit hard by 1 million foreclosures.
Half of the program is intended to go toward writing down the balance of mortgages and waiving certain payments on home loans. Most of that would be achieved through outright forgiveness of first-mortgage debt.
The remaining $2 billion is to be allocated for various other uses, including aid to help low-income people buy homes, reduction of the interest rate on mortgages and efforts to reduce blight in neighborhoods most affected by foreclosures.
California’s public pension plans will also get some cash. The California Public Employees’ Retirement System will receive $221.6 million, while the California State Teachers’ Retirement System will receive $19.5 million. Smaller state-run pension plans will receive lesser amounts.
Yahoo! Finance posted a blog pondering if the punishment was a good idea or if it would make the economy worse:
Specifically, Whalen says the combination of the Fed’s ultra-low interest rates and a much more stringent regulatory environment are going to have a “chilling effect on credit creation.” (While the Fed’s zero-interest rate policy was initially good for banks, it is hurting all ‘savers,’ including banks, who are being forced to sit on higher levels of capital, he notes. “The cheap funding actually enhanced net interest margin, but the point where the ‘net’ benefit for banks went negative has long since passed.”)
That, in turn, will hurt economic growth and limit job creation, he says, creating a cruel circle of irony.
If you have any questions on mortgage interest rates, applications or refinancing, please contact a reputable loan officer who diligently studies the market trends to find the best answers for you and your situation.