Adjustable Rate

New York -- Looking for an alternative to a money-market mutual fund? Many investors are jumping to the new funds invested primarily in adjustable-rate mortgages. The first of these funds broke ground four years ago. Now there are 19, with more than $5.3 billion in assets, according to Lipper Analytical Services.Current yields on ARM funds run between 7 percent and 8 percent, compared with a 30-day compound average of 4.4 percent on money-market funds. Some ARM funds offer check-writing privileges, just as the money funds do. ARMs are guaranteed against default by the U.S. government or a government-backed agency.

Well, here we go again. If you happened to miss the refinance opportunities of 1993, 1998 and 2001, the mortgage markets are giving you -- as well as borrowers looking to purchase a home -- another opportunity. Mortgage rates are bottoming out once again. But not only is the old war horse -- the 30-year, fixed-rate mortgage -- hovering around and even dipping below 6.5 percent, but those adjustable rate mortgages are becoming so tantalizingly low that people in fixed rates might just want to take a look to see whether they can better their financial circumstances.

Holiday bills have you worried? Bracing for your mortgage payment to reset higher? Have a certificate of deposit coming due? In all three situations, the Federal Reserve plays an underlying role. And since September, that role has been to help push the interest rates on your credit card, mortgage and savings accounts lower. On Tuesday, the Fed lowered its benchmark rate to 4.25 percent from 4.5 percent, its third cut this year. In a falling-rate environment, here is what to expect, and what you may want to do to make the best of it: Monitor mortgage rates.

Gov. Martin O'Malley announced an initiative yesterday aimed at preventing home foreclosures through credit counseling, enforcement of lending practice standards and refinancing assistance to stop what he said is a rising threat to the state's middle class. The state has received commitments for $100 million in private capital to allow about 500 households to refinance from adjustable rate loans into fixed mortgages. It will use $10 million in surplus funds from the state's mortgage insurance program to leverage another $200 million in private sector capital and will spend $1 million for foreclosure prevention activities, such as counseling for homebuyers.

Homeowners using "jumbo" mortgages to finance their luxury homes end up paying more than a quarter-percentage point higher than those who qualify within conforming-loan guidelines.A Freddie Mac mortgage market survey found that when mortgage rates peaked in August, jumbo mortgages -- those that exceed Freddie Mac's conforming loan limit of $240,000 -- rose to 8.46 percent, while interest rates for conforming loans -- those at $240,00 or below -- were at 8.15 percent."This translates into a $12 billion per year savings for families with conforming fixed-rate loans," said Frank Nothaft, deputy chief economist for Freddie Mac.According to Freddie Mac, the average homebuyer with a $330,000 jumbo mortgage paid an additional $865 per year in interest.

It's not unusual for a homebuyer to rely on help in getting a mortgage by having someone co-sign for the loan. Parents do it for their children all the time. But the president of the United States having a friend guarantee his mortgage?That's unusual, said Keith Gumbinger, vice president of HSH Associates, a New Jersey-based firm that tracks mortgages nationwide."But in reality, the way that they went about getting this mortgage structured was about the easiest way to do it," Gumbinger added.

Borrowers who choose to refinance existing 30-year fixed-rate mortgages are likely to stay with a 30-year loan, according to third-quarter statistics released by Freddie Mac.The study showed that 24 percent of borrowers who originally held a 30-year mortgage decided to switch to a 15-year fixed-rate mortgage. That figure is down from 30 percent in the second quarter. The majority of homeowners -- 65 percent -- refinanced into a 30-year product.Of borrowers refinancing 15-year fixed-rate mortgages, 25 percent decided to switch to a 30-year loan, while 70 percent refinanced into a 15-year loan.

When it comes to refinancing, that 30-year fixed-rate mortgage is looking as good as ever.According to a study released last week by Freddie Mac, when homeowners went to refinance in 1996, they picked the traditional mortgage 61 percent of the time if they were previously in a 30-year mortgage. Another 29 percent decided to go into a 15-year product.Freddie Mac senior economist Vassilis Lekkas said the 29 percent was the highest amount since 1993.The monthly average for a 30-year fixed-mortgage was at its lowest in January 1996 at 7.03 percent, climbed to 8.32 in June, but settled down to 7.60 at year's end.In general, when the cost of fixed-rate loans are low, borrowers refinancing do not choose adjustable-rate mortgages, Lekkas said, noting that last year just 11 percent of borrowers with adjustable-rate loans selected a new ARM when refinancing.

Neil Sweren's office was misidentified in an article last week. He is the owner of American Home Loan Inc. in Pikesville.The Sun regrets the error.Neal Sweren began to notice it several weeks ago."People like to hear the number seven in interest rates. Mid-sevens is where people really start gearing up for refinances," said Sweren, of American Home Mortgage and past president of the Maryland Association of Mortgage Brokers.Although it may not be like the refinancing boom that swept through in 1993, when 30-year fixed mortgage rates dipped briefly below 6 percent, the steadily and slowly declining interest rates this summer have begun to fuel another round of refinancing.

One-year adjustable-rate mortgages may be the most popular, but according to a Freddie Mac survey, other hybrid ARMs are being offered by more lenders than ever before.Adjustable-rate mortgages that delay the first adjustment for seven years or more have become more popular with lenders during the past year, according to the 14th annual adjustable-rate survey conducted by Freddie Mac.According to the survey, 64 percent of the respondents are now offering a 7/1 ARM, which locks in an initial interest rate for seven years and adjusts annually thereafter.

The economic turmoil of 2008 has left few bright spots, but here's one: Mortgage rates have plummeted. Rates on 30-year, fixed loans are hovering around 5 percent - the lowest level since Freddie Mac began tracking rates in 1971. Some economists predict a further slide in rates once Barack Obama becomes president and rolls out an economic rescue plan. And that could mean thousands of dollars in savings for Maryland homeowners. "The people who have done everything right are now going to benefit, and will be very well rewarded," said Mari Adam, a financial planner and owner of Adam Financial Associates Inc. in Boca Raton, Fla. "We are saying to our clients, anyone who can refinance should refinance.

While the nation's attention fixes on the two major parties' presidential nominating conventions, an increasing number of people in Howard County are facing foreclosure - a situation driving much of the economic downturn that candidates are pledging to solve. At Wilde Lake Interfaith Center in Columbia, a civic action group called People Acting Together in Howard (PATH) staged a foreclosure options workshop that illustrated some of the problems. The courts approved 411 home foreclosures in Howard in 2006, compared with 674 in 2007 and 425 through July of this year, said Circuit Court Clerk Margaret Rappaport.

Tough financial times can have lasting, and sometimes unexpected, impacts on the way people view their budgets, their community and the environment. "You should see my used car lot," said Tom Powell, sales manager at Jerry's Toyota on Belair Road northeast of Baltimore City. "People are trading in full-sized sedans, vans and SUVs and leaving in compacts and hybrids." He said $3 gas is behind the run. But not only will drivers save at the pump, everyone gets to breathe cleaner air, he said.

The economy is going through a rough patch, and the stock market is well below its all-time high. Mortgage rates have been dropping since the end of last year. For homeowners, that can only mean one thing: It's time to think about refinancing your mortgage. "If you can save on the interest you're paying, then it's time to do a mortgage refinance," says Fred Glick, managing member of US Loans Mortgage LLC, a mortgage broker in Philadelphia. For some homeowners whose adjustable-rate mortgage (ARM)

Critics of American politics - generally from the left - often say there's no difference between Democrats and Republicans. Ralph Nader argued in 2000 that Al Gore and George W. Bush were virtually the same. Europeans like to say that all American politicians are conservative and that Barack Obama and Hillary Clinton would be mossbacks in Sweden or France. Of course the monochrome view is wrong. For a forward-looking example, see what the candidates say about the mortgage and housing crisis, today's biggest economic issue.

Holiday bills have you worried? Bracing for your mortgage payment to reset higher? Have a certificate of deposit coming due? In all three situations, the Federal Reserve plays an underlying role. And since September, that role has been to help push the interest rates on your credit card, mortgage and savings accounts lower. On Tuesday, the Fed lowered its benchmark rate to 4.25 percent from 4.5 percent, its third cut this year. In a falling-rate environment, here is what to expect, and what you may want to do to make the best of it: Monitor mortgage rates.

The plan unveiled yesterday by the Bush administration to stave off foreclosures by freezing mortgage rates is aimed at Americans in the greatest danger of losing their homes when payments on their adjustable loans jump, but it offers little hope for people already in trouble. The rate freeze, generally for five years, would be limited to certain subprime borrowers with hardly any equity in their houses who can't refinance but who can afford their current payments. President Bush, who billed it as the industry's plan, said the major lenders that have signed on to the voluntary initiative also expect to help refinance subprime borrowers who are in better financial shape, either with FHA loans or other mortgages.

The number of Maryland properties about to be put on the foreclosure auction block more than tripled last month from a year earlier, as homeowners struggle with the one-two punch of mortgages they can't afford and homes they can't quickly sell. About 1,730 notices of impending auction were issued last month, up from about 550 in September 2006, Irvine, Calif.-based RealtyTrac Inc. said yesterday. The number of properties taken back by lenders last month after no one bought them at auction increased 10-fold from September 2006, to about 220. Though some might be commercial properties, the great majority are homes, the company said.

Many people who thought they were buying the American dream of homeownership now realize they bought a heap of money stress. That's especially true if they're among the Americans facing mortgage foreclosure after seeing their adjustable-rate loans spike. A record number of homes entered the foreclosure process in the second quarter, the third consecutive record-breaking quarter, according to the most recent figures from the Mortgage Bankers Association. If you have a mortgage you cannot afford, your objective should be to forestall foreclosure so you can get current on payments, refinance or sell the house before foreclosure.

The fallout continues. The housing market is contracting. Pending sales dropped 12 percent last month to the lowest levels in six years. Although home selling normally slows at the end of the summer, before kicking back into gear for the fall market, the turn of events is substantial. Homeowners everywhere are feeling the pain. According to the latest numbers from the Mortgage Bankers Association of America, the number of homeowners starting the foreclosure process hit a record high this spring, with 0.65 percent of all homeowners receiving a foreclosure notice - the third consecutive record-breaking quarter.