Tag Archives: finance

Mixed Signals

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To forecast Fed policy, one needs to weigh the key forces pulling in opposite directions:

Inflation concerns

  • Inflation — especially core inflation — remains elevated and sticky, in part due to tariff effects, supply chains, and broad-based price pressures. Some Fed officials are sounding alarms about giving too much leeway too soon. Reuters+1
  • The Fed has emphasized that it wants to see stronger evidence that inflation is slowing sustainably before cutting aggressively.

Labor market & economic softness

  • On the flip side, labor market indicators are showing signs of weakening. Unemployment has drifted upward from the recent lows, and hiring is less robust.
  • Consumer sentiment is under pressure, and business outlooks are cautious.
  • Some Fed minutes and statements show that many members are already concerned about downside risks to growth and employment. AP News+1

Internal Fed division & communication (forward guidance)

  • Fed officials are split: some lean more hawkish (resisting cuts) and others more dovish (pushing for easing).
  • How the Fed frames its “dot plot” projections, its economic outlook, and its forward guidance will matter a lot. If they signal “data dependence” or caution, markets may interpret it as a slower path of easing.
  • The communication risk is high: any signals that cuts are coming too fast could spook markets if inflation reverses.

What I expect for the next Fed meeting

Given the current evidence, my projection is:

  • Probability of a 25 basis point (bps) cut is quite high — it seems largely “priced in” by markets.
  • A 50 bps cut is unlikely, unless there is a dramatic worsening in data (e.g. a shock drop in jobs, major growth contraction).
  • The Fed will likely adjust its projections downward for growth and upward for unemployment (or “less favorable” labor market assumptions).
  • The Fed’s forward guidance will matter: I expect them to emphasize that further cuts will be “data dependent” or “gradual,” possibly tempering market expectations for aggressive easing.
  • The “dot plot” may show a modest number of cuts for the rest of the year, but perhaps fewer than current market expectations.

If I had to put a single outcome: a 25 bps cut, along with a somewhat cautious tone about further cuts, is the most probable result.

Risks / alternative scenarios

  • Downside surprise (dovish surprise): If the economic data before the meeting worsen sharply (jobs collapse, consumer spending tanks, inflation softens more than expected), the Fed might signal more aggressive cuts ahead or even surprise with a 50 bps move.
  • Upside surprise (hawkish surprise): If inflation rebounds strongly or supply shocks emerge, the Fed might pull back, delay cuts, or even consider pausing easing, surprising markets on the hawkish side.
  • Stalemate / hold: Though less likely under current conditions, there is a risk the Fed holds rates steady if the data are mixed and if they prefer more clarity before acting.

What this implies for markets

  • If the Fed delivers a 25 bps cut and leans dovish, rate-sensitive sectors (housing, credit) may rally, fixed-income yields could decline, and equities might get a boost.
  • Conversely, if the Fed turns more cautious or hawkish, that could generate volatility (especially in bond markets) and dampen equity gains.
  • Forward expectations could shift: markets may revise their pricing of how many cuts remain this year.

Meanwhile

  • Home loan rates are low. With decent credit virtually any down payment will get you a mortgage rate in the 5%’s.
  • Home loan rates have been wiggling in a very tight range. Mixed economic signals will maintain the current range until a (interpreted) new direction reveals itself sending home loan rates suddenly up or slowly down

Are you in the market for a new home? Great! Negotiate a favorable transaction, lock in your pre-approved loan and march to closing, If rates drop later, take advantage, it’s a free market in the USA!

Mortgage Rate Predictions

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I get feedback from clients, Realtors and just about anyone when I tell them I am in lending.

Factors Influencing Mortgage Rates:

The Federal Reserve’s decisions on interest rates significantly impact mortgage rates. Expectations of future rate cuts by the Fed can lead to lower mortgage rates, while expectations of rate hikes can push rates higher. I hear no chatter about a rate cut at the meeting month end. Forget data analysis and analyzing forecasts. I believe the best indicator is “no press conference following.”

Economic Growth and Inflation:

.Strong economic growth and rising inflation can put upward pressure on mortgage rates, while slower growth and lower inflation can lead to lower rates. At this point, the economy is growing.

Housing Market Dynamics:

.Housing market conditions, such as inventory levels and affordability, can also influence mortgage rates. For example, high demand and low inventory can push prices and rates higher. 

Forecasts and Predictions:

Fannie Mae projects that the average 30-year mortgage rate will be around 6.5% by the end of 2025 and 6.1% by the end of 2026, according to CNET and Forbes. 

Freddie Mac’s data indicates that the average 30-year fixed-rate mortgage rate was 6.72% as of July 10, 2025. 

Other Experts:

Several other housing authorities and financial institutions also predict rates to remain above 6% throughout 2025, with some expecting a gradual decrease into 2026. 

  • National Association of Home Builders (NAHB):

The NAHB expects rates to average 6.75% throughout 2025 and 6.27% in 2026, with a potential drop below 6% in 2026. 

Advice for Homebuyers:

  • Stay Informed:

Keep a close watch on mortgage rates and economic data, and consider consulting with a mortgage professional for personalized advice. 

  • Shop Around:

Compare rates from multiple lenders to find the best deal for your situation. 

  • Consider Refinancing:

If rates drop significantly in the future, you may have the option to refinance your mortgage.

In conclusion, mortgage rates are likely to fluctuate within a range of 6% to 7% throughout 2025, with some experts predicting a gradual decrease in the coming years. Factors such as Federal Reserve policy, economic conditions, and market sentiment will continue to influence these rates. 

Bottom line? Rates will continue to fluctuate in a tight range, currently on the upside. If a transaction makes sense at current rates, execute.

Crystal Ball – Looking all the way back to the 70’s, housing appreciation, on an annual basis,is practically a lock. Looking forward, there is nothing on the horizon to indicate otherwise. Buy now or pay more later.

Is There a VA Loan In Your Future?

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In todays real estate and mortgage market, assuming an existing VA loan, when available, may be your best financing option

Assuming a VA loan means taking over the current mortgage of a home that has a VA (Department of Veterans Affairs) loan on it—often at a lower interest rate than current market rates. Here’s how to assume a VA loan and what to watch out for:

✅ Steps to Assume a VA Loan

  1. Verify Assumability
    • VA loans closed before March 1, 1988 are generally freely assumable (no lender approval needed).
    • VA loans closed on or after March 1, 1988 require lender and VA approval.
  2. Meet Eligibility Criteria
    • You do not have to be a veteran to assume a VA loan.
    • You must qualify financially: creditworthiness, income verification, and debt-to-income ratio will be reviewed.
  3. Contact the Loan Servicer
    • Reach out to the current servicer of the VA loan to begin the assumption process.
    • Request an assumption package or application.
  4. Submit Application & Pay Fees
    • Complete the lender’s assumption application.
    • Fees typically include:
      • Assumption fee (usually $300–$500)
      • VA funding fee (0.5% of the loan balance)
      • Closing costs and title transfer expenses
  5. Receive Approval
    • If approved, you’ll sign an Assumption Agreement and related legal documents.
    • The lender will formally transfer the loan into your name.
  6. Close the Transaction
    • Finalize the property transfer via a real estate closing, with title work and possibly an escrow account setup.

⚠️ Important Considerations

  • VA Entitlement Tied Up: If the seller allows you to assume their loan and you’re not a veteran using your own entitlement, the seller’s VA entitlement stays tied to the loan until it’s paid off or refinanced.
  • Release of Liability: The seller should ensure the lender issues a Release of Liability, so they are not held responsible if you default.
  • No Cash-Out: If the home’s market value is higher than the loan balance, you’ll need to pay the difference in cash or arrange secondary financing.

🔍 When Is It a Good Idea?

  • When interest rates today are much higher than the VA loan being assumed.
  • When you want to avoid a full new loan underwriting process.
  • When the home seller is offering favorable terms or low equity buy-in.

Any real estate transaction has  several steps and several moving parts which must be effectively managed to assure a clean transfer of title and proper assumption of the VA loan. No one (buyers, sellers, agents) wants problems after money and title changes hands.

Always engage an experienced real estate agent and their recommended professionals for guidance, start to finish.

Can I help? Absolutely. Call me at 253-219-2162.

Bare Naked versus Shielded Risk

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What would happen if FNMA/FHLMC were privatized without guarantee fee intact?

Privatizing Fannie Mae (FNMA) and Freddie Mac (FHLMC) without the guarantee fee intact would have significant and complex implications for the U.S. housing market. Here’s a breakdown of the potential consequences:

Key Implications:

  • Increased Mortgage Rates:
    • Without the implicit or explicit government guarantee, investors would perceive a higher risk in mortgage-backed securities (MBS) issued by these entities.
    • To compensate for this increased risk, investors would demand higher yields, leading to higher mortgage interest rates for borrowers.
    • This could significantly impact housing affordability, making it more expensive for individuals to purchase homes.
  • Reduced Liquidity in the Mortgage Market:
    • The guarantee provided by Fannie and Freddie ensures a high level of liquidity in the mortgage market.
    • Without this guarantee, the market for MBS could become less liquid, making it more difficult for lenders to sell mortgages.
    • This could lead to a contraction in mortgage lending, limiting the availability of credit for homebuyers.
  • Increased Credit Risk:
    • Without government backing, Fannie and Freddie would be exposed to greater credit risk.
    • They would need to build up substantial capital reserves to absorb potential losses from mortgage defaults.
    • This could lead to stricter lending standards, making it more difficult for borrowers with lower credit scores to obtain mortgages.
  • Changes in Market Participants:
    • The role of various market participants, such as banks and institutional investors, would likely shift.
    • Banks might play a larger role in the mortgage market, but their focus could be on higher-quality loans.
    • The Federal Reserve’s ability to hold non-guaranteed MBS on its balance sheet would also be a question.
  • Impact on Housing Affordability:
    • The combination of higher mortgage rates and tighter lending standards would negatively impact housing affordability.
    • This could have broader economic consequences, as the housing market plays a significant role in the U.S. economy.
  • Increased volatility:
    • Without the stabilizing effect of the government backing, the mortgage markets would likely become far more volatile, especially during times of economic stress.

In summary:

  • Privatization without a guarantee fee would introduce significant uncertainty and risk into the mortgage market.
  • It would likely lead to higher mortgage rates, reduced liquidity, and tighter lending standards, with a notable negative impact on housing affordability.
  • Liquidity in the Mortgage Backed Securities marketplace adds backing by the full faith and credit of the United States government. Any investor would prefer a pool of mortgages with a guarantee.

It’s important to note the exact outcomes would depend on various factors, including the specific details of the privatization plan and the overall economic environment.

Privatize Fannie & Freddie?

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The privatization of Fannie Mae (FNMA) and Freddie Mac (FHLMC) with the guarantee fee (g-fee) structure intact would have significant implications for the U.S. housing finance market. Here’s a breakdown of potential effects:

Key Concepts:

  • Guarantee Fees (G-Fees):
    • These are fees charged by Fannie Mae and Freddie Mac to guarantee the payment of principal and interest on mortgage-backed securities (MBS).
    • They cover the risk of borrower defaults, administrative costs, and a return on capital.
  • Privatization:
    • This would mean removing Fannie Mae and Freddie Mac from government conservatorship, allowing them to operate as fully private entities.

Potential Impacts:

  • Market Dynamics:
    • Risk Pricing:
      • In a privatized environment, these companies would likely have more flexibility in setting g-fees based on perceived risk. This could lead to more dynamic pricing, with higher fees for riskier loans.
      • The market would be more susceptible to the private markets risk assesments.
    • Competition:
      • Privatization could foster greater competition among mortgage guarantors, potentially leading to innovation and efficiency. However, it could also lead to concentration if one or two entities dominate.
    • Capital Requirements:
      • Private Fannie and Freddie would need to maintain sufficient capital reserves to absorb potential losses. The adequacy of these reserves would be crucial for market stability.
  • Impact on Borrowers:
    • Mortgage Rates:
      • Changes in g-fees would directly affect mortgage rates. Increased g-fees could lead to higher borrowing costs for homeowners.
      • The stability of mortgage rates could be less stable, and more reactive to economic swings.
    • Access to Credit:
      • Depending on how risk is priced, some borrowers, particularly those with lower credit scores, might find it more difficult to obtain mortgages.
  • Financial Stability:
    • Systemic Risk:
      • The role of Fannie and Freddie in the housing market means that their financial health is crucial for overall financial stability.
      • Private entities would have to be very well regulated, to avoid the systemic risk that they have posed in the past.
    • Regulatory Oversight:
      • Strong regulatory oversight would be essential to prevent excessive risk-taking and ensure the safety and soundness of these entities.

Important Considerations:

  • The specific effects of privatization would depend heavily on the regulatory framework put in place.
  • Maintaining the g-fee structure provides a degree of continuity, but the level and variability of those fees would be key factors.

In summary, privatizing Fannie Mae and Freddie Mac with g-fees intact would introduce market-driven pricing and potential competition, but it would also require careful regulation to mitigate risks and ensure stability.

Privatizing without g-fee’s is another story. Stay tuned.

Seven Myths About Reverse Mortgages

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Reverse mortgages are often misunderstood, leading to a number of myths and misconceptions. Here are seven common myths about reverse mortgages, along with clarifications:

1. Myth: The Lender Takes Ownership of Your Home – Reality: With a reverse mortgage, the borrower retains ownership of the home. The lender only places a lien on the property, which is used as collateral for the loan. The borrower must continue to pay property taxes, homeowners insurance, and maintain the home.

2. Myth: You Can Be Forced Out of Your Home – Reality: As long as the borrower meets the loan obligations (such as paying taxes and insurance, and maintaining the home), they can stay in the home for as long as they lives in their home. The loan is only due when the borrower sells the home, moves out permanently, or passes away.

3. Myth: Reverse Mortgages Are a Last Resort – Reality: While reverse mortgages are often marketed to those with limited income, they can also be a strategic financial tool for retirees. Some use them to supplement income, delay drawing down on other retirement assets, or as a line of credit that grows over time. You can use proceeds from a Reverse Mortgage to buy a second home. It’s your money!

4. Myth: Reverse Mortgages Have High Fees and Interest Rates – Reality: Fees and interest rates for reverse mortgages are comparable to those for traditional mortgages. However, it’s essential to shop around and understand the full cost structure, including any mortgage insurance, closing costs, and origination fees. Ask for an itemization of all fees and closing costs up front. We’re happy to provide this.

5. Myth: Your Heirs Will Be Saddled with Debt – Reality: Reverse mortgages are non-recourse loans, meaning the borrower or their heirs will never owe more than the home’s value at the time the loan is repaid. If the home is sold for less than the loan balance, the Federal Housing Administration (FHA) insurance covers the difference.

6. Myth: You Can’t Get a Reverse Mortgage If You Have an Existing Mortgage – Reality: You can get a reverse mortgage even if you still have a mortgage, but the reverse mortgage proceeds must first be used to pay off the existing mortgage. A reverse mortgage will eliminate monthly mortgage payments, freeing up cash flow.

7. Myth: Reverse Mortgages Are Only for the Poor – Reality: Reverse mortgages can be useful for a wide range of retirees, regardless of income level. They are often used by those with significant home equity who wish to improve their retirement cash flow or preserve other assets. Many use reverse mortgage proceeds as a financial planning tool. Remember, it’s your money!

Would you like more information on any of these points? Call, text or email. My contact information is on the left.