Market Comment
The brief holiday week curtailed trading. Mortgage bonds rallied with the Fed’s announcement of the new $800 billion plan to help the ailing credit markets (details in article below). This triggered an exciting drop in mortgage interest rates.

For the week, interest rates on government and conventional loans fell by about 1.625 discount points.

The employment report Friday will be the most important data this week. Look for any additional moves by the Fed, the US Treasury, and legislative developments to also result in mortgage interest rate movements.

The New Plan
The US Government announced a new $800 billion spending plan to stabilize home prices and help lower mortgage interest rates. While Treasury bond rates neared historic lows over the past few weeks, mortgage bond rates fell behind. Fortunately, the Federal Reserve announced it would purchase $500 billion of mortgage-backed securities and another $100 billion of debt from Ginnie Mae, Fannie Mae, and Freddie Mac. This spending is an effort to improve credit markets and enable businesses and consumers to get loans. Treasury Secretary Henry Paulson said, “This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy.” The Fed will also make $200 billion available to help with the consumer debt market. The positive activity has stimulated buyer confidence, thereby helping the financial housing market.

Welcome to the PERL Mortgage Podcast!

Each week, we’ll produce a wrap-up of the nation’s financial markets with an in-house conversation about a mortgage-related topic.

Special guest Dean Vlamis discusses Fannie Mae and Freddie Mac — who they are, what they do, and what the future has in store.

Click the play button to listen!

Mortgage bond prices rose again last week, pushing mortgage interest rates lower. The demand for mortgage bonds increased after Federal regulators took control of Fannie Mae and Freddie Mac. Trading in the financial markets remained extremely volatile. Oil prices remained low in the beginning of the week, but later increased as Hurricane Ike threatened the Gulf coast. For the week, interest rates on government and conventional loans fell by nearly 1%.

Tuesday’s Fed meeting will be the most important event of the upcoming week. The consumer price index may lead to mortgage interest rate volatility, and leading economic indicators will likely set the tone for the latter portion of the week.

Underwriting guideline changes have had a major affect on new developments in Cook County. When there aren’t enough pre-sales in a particular project, some lenders require that the buyer puts down an additional 5%. This is because Fannie Mae considers some areas of Cook County “declining markets”.

Essentially, homes values have been reduced through foreclosures or drastic underbidding from list price and are expected to decrease further in the future. For this reason, lenders are not willing to take on the same risk and lower their loan-to-value ratio. For instance, if the maximum allowable financing was 100% for a certain product, it would be reduced to 95%.

While PERL Mortgage continues to have options to overcome these issues, the lending market is in constant flux. Guidelines change every day and without a crystal ball, it’s hard to know what to expect.

What can you do to ensure your success as a buyer?

Maximize your investment. When you buy a home, considers the needs of future buyers as well as your own. Don’t just shop by price, shop for potential.

Size: In this market, it’s better to get a smaller home in a nicer area than a larger home in a challenged location. While you can find a great deal on larger homes near loud trains or congested intersections, they will not have the same potential for growth in value and will be tougher to sell in the future.

School system: When you’re buying a home with multiple bedrooms, there’s a good chance you or your future buyer is planning for a family. Research the public school system and find the most desirable school districts.

Improvement: Buy a home with room for improvement. You will save money by making upgrades yourself and also increase your home’s value immediately. Choose finishes that are modern but timeless. You can also use the opportunity to explore green options; some even qualify for income tax deductions.

Transportation: Find a home that is close to public transportation or near key expressways, depending on where you live. This will widen your pool of buyers when it comes time to sell.

Noise: While living near bars and restaurants is convenient, living too close can be disruptive especially during warm weather. Choose a location that is in close proximity to nightlife but not within earshot.

Amenities: Buyers aren’t just looking for a home. They are looking for an lifestyle. Select a neighborhood with a nearby grocery store, dry cleaners, coffee shop and other everyday amenities. Parks are also a great plus for buyers with kids and/or dogs.

© 2008 PERL Mortgage Inc.