The Federal Reserve Cuts Rate Today

Dec. 11 (Bloomberg) -- The Federal Reserve cut its benchmark interest rate by a quarter-point to 4.25 percent to prevent the housing slump and credit squeeze from undoing the six-year expansion.

The change ``should help promote moderate growth over time,'' the Federal Open Market Committee said in a statement after meeting today in Washington. ``Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation.''

The economy is faltering after a third-quarter surge as house prices drop, consumer spending slows and banks tighten lending standards for even their best customers. Chairman Ben S. Bernanke has struggled to insulate the economy from financial- market instability since the central bank began reducing borrowing costs in August.

``Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending,'' the FOMC said. ``The committee will continue to assess the effects of financial and other developments in economic prospects and will act as needed to foster price stability and sustainable economic growth.''

The Fed's Board of Governors also voted to cut the discount rate, the cost of direct loans from the central bank, by a quarter point to 4.75 percent. The gap with the federal funds rate remains half a point. Some economists had predicted the Fed would reduce the spread between the two.

Today's decision wasn't unanimous. Boston Fed President Eric Rosengren voted in favor of a half point cut.

The benchmark rate is now at the lowest level since January 2006. Bernanke, 53, who succeeded Alan Greenspan as chairman the following month, continued a series of increases that lifted the federal funds rate to 5.25 percent by June last year.

Bernanke's Year

Policy makers held their ground until August this year, when the collapse in assets backed by subprime mortgages roiled markets around the world and forced central banks to pump billions of dollars into the banking system. It also spurred the Fed to start cutting the federal funds rate in September. The Fed was joined last week by the Bank of Canada and Bank of England.

Investors became confident of further reductions after Bernanke and Vice Chairman Donald Kohn said in separate speeches last month that ``turbulent'' markets could alter their outlook for growth. Fed officials estimated in October the economy would grow 1.8 percent to 2.5 percent in 2008. Rosengren said Dec. 3 that the expansion will be ``well below'' its long-term pace for the next two quarters.

Feldstein Pessimistic

``Whether it be consumer confidence, or real incomes, or business plans, we're seeing an economy that is continually slipping and therefore an increasing probability of a recession next year,'' Harvard University economist Martin Feldstein said in an interview last week. ``The Fed has to be prepared to continue cutting rates as we go into 2008.''

Since Fed officials made their forecasts, government reports show orders for U.S.-made durable goods fell in October, capacity-use rates in the nation's factories slipped and retail sales slowed. Payrolls increased by 94,000 jobs last month, after a 170,000 increase in October.

The economy will expand at an annual pace of 1 percent in the fourth quarter, down from 4.9 percent in the previous three months, according to the median estimate in a Bloomberg News survey of 63 economists.

The number of Americans who fell behind on their mortgage payments rose to a seasonally adjusted 5.6 percent in the third quarter, the highest in two decades, the Mortgage Bankers Association said last week. New foreclosures hit a record.

House Prices

As creditors took possession of properties, the supply of unsold homes grew to a 10.8-month supply in October. Prices of previously owned homes fell 5.1 percent from a year ago, the most on record, according to the National Association of Realtors.

The Fed ``has worries of many dimensions,'' Mickey Levy, chief economist at Bank of America Corp. in New York, said in an interview. ``While easing helps the economy in the short run, it won't kick in until the second half of next year.''

The credit deterioration has spread to Wall Street and commercial banks around the world that hold bonds and derivative contracts created from pools of home loans. Banks including Credit Suisse Group in Zurich and London-based Barclays Plc are among lenders that have marked down more than $50 billion on losses linked to U.S. home loans.

Lending Restrictions

Because banks are protecting capital, lending has been cut and concerns about counter-party risk are higher. About 40 percent of lenders have increased their standards for the most creditworthy borrowers to qualify for a so-called prime loan, according to a Fed study in October.

Interest rates for jumbo 30-year fixed-rate mortgages are about 6.68 percent, a spread of 92 basis points over non-jumbo loans of $417,000 or less. A year earlier, the spread was 36 basis points, and last month it was 57. A basis point is 0.01 percentage point.

Throughout the rate cutting-cycle, Fed officials have highlighted longer-term inflation risks in their statements and their public remarks. Oil prices hit a record $99.29 a barrel in New York on Nov. 21, and traded at $89.21 this morning.

The Fed's preferred gauge, the personal consumption expenditures price index excluding food and energy, rose 1.9 percent in October from a year ago. The index has remained below 2 percent since June.

For more information call
Mark Gracy
(978) 861-4016
mark@gracyteam.com
www.GracyTeam.com

Real Estate Tax Breaks

Tax Breaks
Most homeowners are keenly aware of the interest tax deduction on their home loan, but there are many other tax breaks which are often overlooked at income tax time. Pro-rated property taxes and mortgage interest in the year of sale are deductible. You will find these amounts listed on your closing settlement statement. If you paid off your mortgage and had to pay a pre-payment penalty, it qualifies as tax deductible interest. If you paid an "acquisition mortgage loan fee" on a home loan, this fee can be deducted as itemized interest. Home improvement loan fees are also deductible. Any remaining loan fees from re-financed or paid-off mortgages are fully deductible at the time of the mortgage payoff.
Certain items don't qualify as deductions, but can be added to the cost basis of your home, such as transfer taxes, recording and title fees, and special local property tax assessments for new sidewalks, streets, or sewers.
Don't be intimidated by the tax code! A little research or consultation with an expert can help you maximize your real estate tax advantages.

Read this online and get more information: Tax Breaks

Mark Gracy Mark@GracyTeam.com
The Gracy Team www.GracyTeam.com
Keller Williams Realty
(978) 861-4016 Direct
(978) 984-3107 Main

Economic Update

Last Week in the News
November's unemployment rate held firm at 4.7% as employers added a better-than-expected 94,000 jobs to their payrolls, the Labor Department reported December 7. Hiring was brisk in education, health services, retail and professional services, helping offset job losses in construction, manufacturing and financial services. Average hourly earnings rose to $17.63 in November, a 0.5% increase from October, the largest monthly gain since June. Economists expected just a 0.3% rise.

Employees showed they were earning their pay because U.S. worker productivity shot up by a 6.3% annualized pace in the third quarter, the largest increase in productivity since the third quarter of 2003, the Labor Department said December 7. Meanwhile, unit labor costs -- a gauge of inflation and profit pressures scrutinized by the Federal Reserve -- was revised to show a 2% drop in the third quarter for the largest decline in four years.

In another surprise, orders to U.S. factories also unexpectedly rose by 0.5% in October, far better than the flat reading analysts had anticipated, the Commerce Department said December 5. The overall rise in factory orders was the best performance since a 3.4% increase in July.

The pace of growth in the U.S. service sector slowed, according to the Institute for Supply Management, whose index of non-manufacturing industries slipped from a reading of 55.8 in October to 54.1 in November, below analysts' expectations. Any reading above 50 indicates expansion. Rates on 30-year and 15-year fixed-rate continued to fall, reaching two-year lows, Freddie Mac reported December 6.

This week look for updates on the Producer Price Index on December 13 and the Consumer Price Index on December 14.

Economic data compiled from reports published by msnbc.com, cnn.money.com and Yahoo economic calendar.

Brian Makris

Private Mortgage Banker
IndyMac Bank
Retail Lending Group
273 South River Rd.
Bedford, NH 3110
Office: 603-232-9696

Fax: 603-386-6555
bmakris@nymc.com

FICO Scores: Why They’re Important, How They’re Calculated, and What You Can Do to Improve Them

FICO Scores: Why They’re Important, How They’re Calculated, and What You Can Do to Improve Them

By: John J. Gregorio, CFP®

Whether you’re applying for a credit card, a personal loan, or a mortgage, the lender you choose looks at many things when deciding what type of offer to make to you, including your income, how long you have worked at your present job, and the kind of credit you are requesting. To help them gain a better understanding of your credit risk level, lenders often start by looking at your FICO scores.

You have three FICO scores, one from each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. In the simplest terms, good FICO scores generally result in your receiving the best interest rates on all types of loans. Bad FICO scores, on the other hand, can cost you thousands of dollars over the life of a loan.

How Your Score is Calculated

FICO stands for the Fair Isaac Corporation, which is a leading monitor of consumer credit. Fair Isaac develops FICO scores based solely on information in consumer credit reports maintained at the three major credit reporting agencies.

An individual’s FICO score can range from 350 to 850—850 being the best. In determining your FICO score, the corporation evaluates information in five categories:

• Payment history (35%): This includes information on specific types of accounts, such as credit cards, retail accounts, student loans, installment loans, finance company accounts, and mortgages. It also captures any presence of adverse public records, such as bankruptcy, judgments, suits, liens, wage attachments, collection items, and any delinquent or past-due items.
• Amounts owed (30%): This category assesses the number of accounts you have and the amount you owe on each. Additionally, the proportion of balances to total credit limits on certain types of revolving accounts is considered.
• Length of credit history (15%): This information examines the time that has elapsed since a specific type of account has been opened.
• Types of credit used (10%): This data relies upon recent information about the number of credit cards, retail accounts, installment loans, mortgages, and consumer finance accounts you have.
• New credit (10%): This category includes the number of accounts you have recently opened.

Keep in mind, your FICO score considers all of the above categories of information. No one piece of information or factor alone will determine your FICO score. For some people, one factor may be more important than it is for others with a different credit history. As the information in your credit report changes, so does the importance of any factor in determining your FICO score. What matters is the mix of information, which varies from person to person.

Good and Bad Breaks

If your FICO score is 720 or higher, you are likely in good shape. If it’s lower than 720, you may need to brace yourself for some frustration. Most mortgage lenders have firm breakpoints. For example, if your FICO score is 699 and the lender’s breakpoint is 700, that minute difference could mean an extra half-point on a mortgage loan.

How Can You Improve Your Score?

Your FICO score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your FICO score.

You can also do the following to help increase your score:

• Pay down your credit card debt to zero and your score can go up by as much as 20 points in 60 days.
• Get a copy of your credit report and look for errors. This may include payments that appear as late but you can prove were paid on time, accounts that aren’t yours, and old debts that shouldn’t be on your report anymore (i.e., negative debts that should be taken off your report after seven years and bankruptcies that should be removed after ten years).
• Maintaining multiple credit cards may help you in some circumstances. It is better to have four cards at 20-percent to 30-percent capacity than to have one card that’s maxed out.

Rapid Rescoring

If you’re applying for a mortgage, ask whether your lender uses a rapid rescoring service. If so, you can have your credit score rescored in 72 hours; if you’ve recently improved your score, rescoring may save you money. Rescoring generally costs about $50 per credit account.

Even if you’re not in the market for a mortgage or another loan, it is always wise to have a good handle on your FICO scores. It is easier to correct mistakes and improve your score when you don’t have an immediate deadline to meet. For more information or to obtain your FICO scores, visit www.myfico.com.