Mortgage Rate News

There are a couple of interesting points of financial news today:

1. Timothy Geithner has been confirmed as Treasury Secretary by the Senate.
2. The FDIC is going to tighten its interest rate requirements.

These developments could have an impact on your personal finances, as well as on the economy.

Timothy Geithner as Treasury Secretary

During his confirmation hearings, and on other occasions, Geithner has expressed a desire to hurry along plans for economic stimulus. He has also insisted that aggressive measures be taken to shore up the banking system and stabilize banks.

Geithner agrees with the tax cuts proposed by President Barack Obama, and that means you could be seeing more money in your paycheck. However, other than this — and some attempts to help those in foreclosure trouble — most of the economic stimulus is likely to continue the focus on big banks. And it remains to be seen whether this “trickle down” approach will actually work. It hasn’t so far.

FDIC caps interest rates on deposits

Some banks, in the hopes of luring depositors, have offered accounts at high yields (comparitively speaking). This has the FDIC concerned since poorly capitalized banks with a bunch of depositors mean bigger payouts if they fail. The FDIC had this to say in a press release:

Prompt Corrective Action requires the FDIC to prevent banks that are less than Well Capitalized from soliciting deposits at interest rates that significantly exceed prevailing rates. The FDIC’s current regulation ties permissible interest rates paid by these banks on deposits solicited nationally to the comparable maturity Treasury yield, and ties permissible interest rates on deposits solicited locally to undefined prevailing local interest rates.

This new rule is likely to further tighten things up in terms of what banks are willing to do for customers seeking loans. Banks will want to hold on to as much capital as possible as they fight to remain solvent.

One of the main economic indicators – especially now that the housing market is such a big focus of the economy — is the U.S. existing home sales data. This is data that takes into account how many homes (already built) were sold in a month. The news just came out for the December existing home sales, and they actually increased 6.5%. Here is what Counting Pips reports about additional housing market data:

Economic forecasts were predicting sales to decline by 2.0 percent for the month following a 9.4 percent revised decrease in November. December’s existing-homes sales, despite the increase for the month, are still 3.5 percent below December 2007’s sales level. The median sales price for existing homes in December registered at $175,400, down 15.3 percent from the December 2007 level which saw a median price of $207,000. Total housing inventory showed a decrease in December by 11.7 percent to a total of 3.68 million homes.

Indeed, home sales in December increased — probably helped along by lower mortgage rates, as well as motivated sellers trying to avoid foreclosure. Actually foreclosures also probably helped, since many homebuyers are looking for the deals that they can get by buying a home that has been foreclosed on. Other indicators of the economy also increased unexpectedly in December (prompting a stock market rally earlier today — one flagged but ultimately kept Wall Street in the black).

Toll Brothers deal may help existing home sales

Existing home sales next month may get help from the homebuilder Toll Brothers. The luxury homes company is offering a deal in which it is possible to get 3.99% financing on a 30 year fixed loan with no points. The idea is to help some of the already built homes that don’t have any buyers yet. Of course, even with such generous terms, how many of us can afford a luxury home in this economy?

Things just keep getting messier for Bank of America. Early last year, Bank of America was seen as a solid, financially sound, company that could swoop in and save failing financial institutions. Indeed, that is just what everyone thought had happened when Bank of America bought Countrywide last year. However, in hindsight, that looks like a poor decision.

Bank of America, it turns out, wasn’t as fundamentally sound as everyone thought. Subprime Blogger shares some of the woe that has befallen Bank of America since then:

Why would Bank of America purchase Countrywide Financial for $4.1 billion?  On January 11th, 2008, the plan to purchase Countrywide was announced and the deal was finalized on July 1st, 2008.  On January 11th, 2008 Bank of America was trading at $39.85 on the New York Stock Exchange.  Since then, the stock has plummeted 85% to under $6!

The problems Bank of America faced after Countrywide have been further compounded by the acquisition of Merrill Lynch. Merrill has been seeing serious losses, and even after a nice, fat bailout, Bank of America is asking taxpayers for another $20 billion to aid in the merger. The Merrill Lynch saga is getting even more information after the resignation of Merrill chief John Thain. (A month ago, Thain asked for a $10 million bonus, and gave many of his employees a bonus just prior to the Bank of America closing.)

It is clear that nearly every financial services company in the U.S. has been touched by the financial crisis. The fact they brought it on themselves adds further to the bitter taste in the mouths of American taxpayers who are smarting as trillions are set aside to “rescue” the financial industry. Mortgage lenders and other money types are getting a very generous piece of the bailout pie (the lion’s share — the paltry amount set aside for the auto industry seems ludricrous to be upset about). However, the best that average Americans can hope for is a $500 (or maybe $1,000) tax break.