$8,000.00 Tax Credit

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

Why aren't Mortgage Rates dropping?

We’ve had a lot of questions lately regarding mortgage rates. It seems there is a lot of misinformation out there that we need to clear up. So here’s a basic economics lesson on mortgage rates!

First let’s get one thing straight. What does the Fed cutting the Federal Funds Rate have to do with Mortgage Rates? ALMOST NOTHING! And just what is this “Fed Fund Rate?” According to Wikipedia: In the United States, the federal fund rate is the interest rate at which private depository institutions (mostly banks) lend balances at the Federal reserve to other depository institutions, usually overnight.”

What does affect the interest rates? It is affected somewhat by indicators in the economy such as employment, manufacturing output and consumer confidence, but these are only a few symptoms of the true cause…..the confidence of investors who are buying mortgages. You see, banks loan money, package it and resell it to investors. This is the secondary mortgage market. Two things are affecting it right now; Foreclosures and a drop in housing values.

As of late these investors have lost their zest for mortgages. Banks are forced to sell them off “on sale” or at a “discount”. If you sell something at a discount to an investor, you have to charge the borrower more by way of interest rates in order to maintain profits. The long and short of it is this….investors don’t feel good about buying mortgage backed securities and insist on paying less for them, because they are riskier, I don’t care how many times the Fed cuts the rate. I don’t care how much money the Fed pumps into the system. Mortgage rates will not drop until investors start buying again.

gotilk@yahoo.com