Overdraft Protection and Your Credit Score

November 18, 2009 by Leave a Comment

I have to admit, a lot of my content for the articles I write come from my clients or other home owners who have really good questions.  When I can't find an answer ready to refer them to here at Mortgage Porter, it's time to write a post!   Here's a great example of a question I recently received from one of my refi clients:

"I have a question about a possible impact on our credit score, which you may have some insight into.  We have been meaning for some time to get overdraft coverage on our checking account for "just in case" and today, we got that lined up.   However, I'm reading over the documents from our bank this evening and it looks like they just issued us a credit card.  Is this something that would play poorly on our FICO score?"

Overdraft protection is often a new credit card issued from your bank that is attached to your bank account.  Because this is "new credit" it will impact credit scores.

According to Linda Ferrari's book "The Big Score – Getting It and Keeping It"

"New accounts will lower your overall account age and diminish your length of credit history for a period of 3-6 months, so be sure to have cushion in your score.  Even if you've used credit for a very long time, opening a new account can lower your credit scores."

How much your score is impacted is hard to say–it depends on your overall credit picture.  If you're someone with perfect credit and 800 scores, your credit score may be barely impacted.  However, if you are someone with pretty good credit (around 720) BEFORE the new debt (over-draft protection) and you're considering a refinance or using a mortgage to purchase a home, you might have just dipped your credit low enough to have been impacted by higher mortgage loan rates.

Overdraft fees can add up quick and due to recently regulations by the Fed preventing banks from charging overdraft fees on certain transactions (ATM/debt cards) which will go into effect July 1, 2010, banks are sure to offer overdraft protection to help make up for lost revenue.

The Federal Reserve Board on Thursday [November 12, 2009] announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

If you are considering adding overdraft protection to your bank account, do find out what type of account it is: a line of credit (or credit card) or maybe it's attached to your savings account.   If you are considering a mortgage (or other type of financing where credit scores are considered) you may want to delay obtaining overdraft protection until after your transaction has closed to avoid having your credit score dinged.

Filed Under: Credit Scores and Reporting, The Fed - FOMC

FOMC leaves the Fed Funds Rate Unchanged

November 4, 2009 by Leave a Comment

I'm just reading through the Fed's press release which announces that they are leaving the Fed Funds rate unchanged at 0-0.25%.  Good news for those of you with variable rates on your home equity loans–your rate is not going up…yet.

From today's FOMC Statement:

Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

The Fed's statement is fairly positive and good news for the economy means that investors will trade the safety of bonds (such as mortgage backed securities) for stocks; causing mortgage rates to trend higher.  In addition, the Fed reiterated they will be phasing keeping mortgage rates at artificial low rates by March 2010.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010.

The next big market mover that tends to dramatically impact mortgage rates is the Jobs Report.  Watch for it this Friday morning.

Filed Under: The Fed - FOMC

Fed Funds are Unchanged

August 12, 2009 by Leave a Comment

To the average American home owner with a home equity line of credit, the Fed leaving the Funds Rate at a target range of 0-0.25% means that they can enjoy their low rate on their HELOC for the time being.  Once they begin to adjust the Funds Rate upward, HELOCs which are most often attached to the Prime Rate, will rise as well.

Today's Press Release from the FOMC states:

"Conditions in financial markets improved further in recent weeks.  Household spending has continued to show signs of stabilization but remains constrained  by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit…."

The Fed reiterated their commitment to "employ all available tools to promote economic recovery" and to the purchase of mortgage backed securities and treasury securities:

"…to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October…."

I take this last line to mean that we are not going to see the 4.5% conforming rates that were manipulated earlier this year to the artificial lows.  It would take other forces outside the Fed to see rates dip that low again.  Only time will tell.

Filed Under: The Fed - FOMC

Santa Ben and the FOMC Deliver Lower Rates

December 16, 2008 by Leave a Comment

Just in time for the holidays, the FOMC surprised everyone by cutting the Fed Funds Santaben rate to a range of zero to 0.25%.  This 0.75-1.00 reduction is more than the widely anticipated 0.50% rate cut.  The Fed also reduced the Discount Rate by 0.75% to 0.50%.

Bernanke and the FOMC didn’t stop with the giving there…they reiterated their commitment to buying mortgage backed securities which keeps mortgage interest rates low.

[Read more…]

Filed Under: Interest Rates, The Fed - FOMC Tagged With: , ,

The Fed Cuts Funds Rate by 0.5% to 1.5%

October 8, 2008 by Leave a Comment

The FOMC slashed the Funds Rate by 0.5% to 1.5%.  This is an "emergency" cut and coordinated globally.

If you’re a long time Mortgage Porter subscriber, then you all ready know that the Funds Rate does not directly change mortgage interest rates.  However Fed rate cuts do influence mortgage interest rates, depending on how traders react to the cut.  Remember, mortgage interest rates are based on mortgage backed securities (bonds) and bonds tend to react negatively to inflation.  Often times, mortgage interest rates will increase after the Fed cuts rates as it’s viewed as a move against inflation.

This rate cut is different in that it was done global effort which should hopefully keep our currencies, oil and inflation in check.  The markets remain very volatile.  It’s not even 8:30 am and we’ve all ready seen the DOW open down then pop up 150 and back down to a loss of 150.

The FOMC’s next scheduled meeting (where another rate adjustment is possible) is October 29, 2008.

If you’re interested in seeing the rates I’m quoting live, click here.  Presently, mortgage rates are pretty much unchanged by these events.

If you’re waiting to refinance your property in Washington State, I invite you to complete my on-line loan application so that we can be ready to lock should rates dip to point where it make sense.  Rates move quite quickly in this market!

Filed Under: The Fed - FOMC

Fed’s 0.25% Cut All Ready Baked in the Cake

April 30, 2008 by Leave a Comment

BakedcakeToday the FOMC cut the Fed Funds Rate by 0.25% to 2.00% and the Discount Rate by  0.25% to 2.25%.  These rate cuts do not directly  impact mortgage interest rates.

Mortgage interest rates are based on mortgage backed securities (bonds).  How bond traders react to the Fed Rate cuts and the Fed Statements that correspond to this cut, will impact mortgage interest rates.  To read today’s FOMC statement, click here:

[Read more…]

Filed Under: Interest Rates, The Fed - FOMC

Fed Cuts the Funds Rate Another 0.5%

January 30, 2008 by Leave a Comment

The Fed just dropped the Fed Funds Rate to 3.00%.  Great news if you have a HELOC.  Prime will now be reduced to 6.00% and home equity lines of credit are based on the Prime Rate.  The Prime Rate = Fed Funds Rate plus 3 points.   The Fed also reduced the Discount Rate to 3.5%.

The market is currently rallying…I’ll let you know if mortgage rates adjust with the rallying market with an update to this post.  I hope you locked in your rate!

The Fed is leaving the door open for future rate cuts:

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households.  Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity.  However, downside risks to growth remain.  The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

We still have big time economic indicators that historically impact mortgage rates scheduled for the rest of the week:  Thursday’s PCE and Friday’s Job Report.

As always, I advise locking your interest rate if you’re closing within the next 30 days.

Filed Under: Interest Rates, The Fed - FOMC

Don’t Wait for the FED on Jan 30th to Refi–It May Cost You

January 28, 2008 by 1 Comment

Since I’ve been saying this over and over again this past week…I thought I might as well blog it too.   PLEASE DON’T WAIT UNTIL WEDNESDAY TO REFI OR LOCK YOUR RATE.   When the FOMC moves the Fed Funds Rate, it does not directly change mortgage rates.  If you have a HELOC (home equity line of credit), when the Fed Funds rate is adjusted your heloc is impacted because the Prime Rate is based on the Fed Funds Rate (Prime Rate = 3 percent plus the Fed Funds Rate).

Mortgage rates may react to the adjustments made to the Fed Funds Rate.  Mortgage rates are not controlled by the Fed.  Mortgage interest rates are based on mortgage backed securities (bonds).  Mortgage interest rates may change often…sometimes several times a day based on trading. 

Often times, if the stock market is doing great, bonds will suffer because investors are pulling funds out of bonds to gain a better return in the stock market.  Therefore, mortgage rates go up in order to attract investors back with a better return.  The reverse is also true.  If the stock market is tanking, investors may seek the safety of bonds, like mortgage backed securities. The result is that mortgage rates will improve as more traders seek their shelter.

Much of trading is based on speculation.  Currently (at least the last report I heard today) traders are anticipating anywhere from a 0.25% – 0.50% cut to the Fed Funds rate on Wednesday.  Again, good news for those of you have a HELOC…not so, perhaps, for those who have not locked in your interest rate and are hoping to close in the next 30-40 days.   When things happen in the market that are not expected (like when the FOMC made the surprise 0.75% cut to the Fed Funds Rate), the market (traders) reacts dramatically for better or worse.   A cut to the Fed Funds rate is all ready priced into the market.  Traders expect it.  If the Fed does not cut 0.25 – 0.50% we will see more volatility with mortgage rates.  (We may have swings in trading whether the FED cuts 0.25% or 0.50% because different "trader camps" are expecting one or the other).      

Wednesday of last week, rates were at a low we haven’t seen in years and by the next day, we had popped up 0.5% to rate!  Lenders were inundated with people wanting to refi and many were not able to do so.  I heard from several home owners that they think rates will go down further or that a well-meaning friend thinks this or that with rates.   Please learn as much as you can about how mortgage backed securities work and/or rely on a Mortgage Professional to help guide you through these historic times in the mortgage industry.

This week is heavy duty for data that impacts mortgage interest rates.  Ask your mortgage advisor (who ever you’re getting mortgage advice from: a Loan Originator, CPA, friend, family or co-worker) what major events are scheduled to take place this week that may impact mortgage rates?  If they can’t answer, should you rely on them for mortgage advice?   

Here’s a clue to the answer.

Graph courtesy of Loan Tool Box.   

Filed Under: Current Affairs, Interest Rates, The Fed - FOMC
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