Central Banks Are Taking Co-Ordinated Action To Shore-Up Mortgage Markets.

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The Bank of England, US Federal Reserve, European Central Bank and Swiss National Bank will be involved.

The Bank of England will be lending an extra $30bn (£16bn) for a one week period, $10bn overnight and $40bn in three-month loans.

The Bank of England had been holding auctions of three-month loans once a month but will be holding them once a week for at least the next three weeks.

The central banks said that the extra cash was intended to help banks as they approach the end of the financial third quarter next week.

Banks have been turning to their central banks for funding because they have been struggling to borrow from each other as they would usually do.

One of the reasons they have been reluctant to lend to each other has been the fear of further bank failures and the news that Washington Mutual has become the biggest US bank to fail will do nothing to help that situation.

Banks will be able to use their mortgage books as security on the loans.

Separately, the Bank of Japan injected cash into the Tokyo money markets on Friday for the eighth trading day in a row.

It injected 1.5 trillion yen ($14bn; £8bn) into the market, although it later removed 300bn yen of that.

Popularity: 28% [?]

President Bush Tries To Secure Deal To Shore-Up Banking Sector

President George W Bush has said that legislators will “rise to the occasion” and pass the Wall Street rescue plan.

In a statement he said there were still disagreements because “the proposal is big and the reason it’s big is because it’s a big problem”.

President Bush is expected to resume talks with Congressional leaders later on Friday to try to reach an agreement.

He wants to pass a $700bn (£380bn) rescue package to buy mortgage-backed assets from US banks.

Harmful

“There is no disagreement that something substantial must be done,” he added.

Senate Majority Leader Harry Reid, a Democrat, agreed, saying on Friday: “We’re going to get this done and stay in session as long as it takes to get it done.”

He also said that “the insertion of presidential politics has not been helpful, it’s been harmful” adding that Republican presidential candidate John McCain had not made his position on the financial rescue package clear.

Mr McCain, who had announced that he not take part in a presidential debate with rival Barack Obama until a bail-out plan was agreed, said on Friday that he would fly to Mississippi for the debate later.

Resistance

Republican critics of the bail-out plan are worried about both its cost and how it would involve the government in the financial sector.

The BBC’s Adam Brookes in Washington predicted a tough day of negotiations ahead.

“Republicans in the House are going to continue, they say, to try to resist this plan,” he said.

“They are also trying to convince Senator John McCain, the presidential contender, to jump in their direction.”

Instead, the rebels want a government-backed insurance policy to cover the huge amounts of bad debt built up by US banks. Democrats meanwhile want to secure limits to payments for executives of failed banks and ensure there is adequate help for struggling US homeowners.

Popularity: 44% [?]

First-Time Home Buyer Tax Credit Information

Who is Eligible

• The $7,500 tax credit is available for first-time home buyers only.

• The law defines a first-time home buyer as a buyer who has not owned a home during the past three years.

• All U.S. citizens who file taxes are eligible to participate in the program.

Types of Homes that Qualify for the Tax Credit

• All homes, whether single-family, townhomes or condominiums will qualify.

• However, there are several conditions:

o The home must be used as a principal residence, and

o The buyer has not owned a home in the prior three years.

• The Tax Credit includes newly-constructed homes.

Income Limits

• Home buyers who file as single or head-of-household taxpayers can claim the full $7,500 credit if their adjusted gross income (AGI) is less than $75,000.

• For married couples filing a joint return, the income limit doubles to $150,000.

• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.

• Married couples filing jointly who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.

• The credit is not available for single taxpayers whose AGI is greater than $95,000 and married couples filing jointly with an AGI that exceeds $170,000.

Effective Dates for the Tax Credit

• First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009. To qualify, you must actually close on the sale of the home during this period.

Tax Credit is Refundable

• A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will write you a check for the difference.

o For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $2,500 payment from the government.

o If you are due to receive a $1,000 tax refund from the government, your refund would grow to $8,500 ($1,000 plus $7,500 from the home buyer tax credit).

• If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.

Payback Provisions

• The tax credit is an interest-free loan that must be repaid over 15 years.

• The minimum repayment amount must be 15 equal annual installments. For example, if the credit amount is $7,500, then the home buyer must repay a minimum of $500 each year for 15 years.

• A home buyer must begin repaying the credit two tax years after claiming the credit. For example, if the credit is claimed on the 2008 tax return, repayment of $500 (or less, if the credit amount is less than $7,500) per year begins with the 2010 return.

• If the home owner sells the home for a profit and there is a remaining credit, then the home owner is required to repay the remaining credit during the tax year of the home sale. The amount of the repayment will depend upon the amount of profit from the home sale:

o If the profit on the sale is more than the remaining credit, then the home owner must repay the entire remaining credit.

o If the profit on the sale is less than the remaining credit, then the home owner must repay an amount equal to the profit on the home sale. The remaining credit payback will be forgiven.

• If the home owner sells the home but did not make any profit on the home sale, then the remaining credit payback would be forgiven.

Further information regarding the tax credit may be found at www.federalhousingtaxcredit.com or www.irs.gov.

This information is provided for general awareness only, and is not intended for the purpose of providing legal, accounting, tax advice or consulting of any kind. Please consult with your tax professional for complete details.

Popularity: 28% [?]

Federal Reserve Keeps Rates Unchanged

Financial analysts who were hoping for some downward movement on interest rates by the Federal Reserve were disappointed as Ben Bernanke and his merry band unanimously voted to do nothing.

Following what is now a familiar and conservative wait-and-see strategy towards the nation’s economy, and reactionary as usual, Bernanke and the Federal Open Market Committee left their short-term federal funds rate at 2 percent.

Later in the day the Fed made what had to be a highly anticipated move by the nation’s financial gurus, deciding to bailout AIG at the 11th hour before the world’s largest insurance company went bankrupt.

As for its decision on interest rates, in its official statement the FOMC justified its position, stating, “Strains in financial markets have increased significantly and labor markets have weakened further. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters.”

The New York Times commented that the decision to keep the key rate where it is clearly demonstrates the Fed’s limited ability to solve a problem involving the nation’s housing and mortgage markets.

However, with concerns of inflation mounting, Stuart Hoffman, chief economist at PNC Financial Services Group told Investor Business Daily Tuesday that rate cuts are back on the table, especially if economic growth continues to slow down in the fourth quarter of the year.

Remarking on the Fed’s rescue of AIG, the Los Angeles Times commented that it seems to be an “abrupt about-face” in position considering that the Fed did not bail out Lehman Brothers as it filed for bankruptcy protection (after having bailed out Bear Stearns earlier this year).

All of this rocking the boat may be making the nation’s financial markets a little queasy as the Fed decides which side its bread is buttered on. But it can’t be very settling for the nation’s homeowners either, as many more continue to face foreclosure in the coming months until a bottom of the market is clearly defined.

In the meantime, thanks to the waffling by the Fed, foreclosure is going to continue to be a dominant factor in the marketplace for the foreseeable future. Good news for wannabe homeowners looking for discounted properties, and a great time to be a real estate investor in most parts of the country.

Popularity: 33% [?]

US Mortgage Rates Decline Dramatically

Mortgage rates have fallen as a result of the US federal government’s intervention of mortgage group Freddie Mac and Fannie Mae.

The benchmark 30-year fixed-rate mortgage fell 40 basis points, to 6.15 percent, according to the Bankrate.com national survey of large lenders. The mortgages in this week’s survey had an average total of 0.43 discount and origination points. One year ago, the mortgage index was 6.28 percent; four weeks ago, it was 6.74 percent.

The benchmark 15-year fixed-rate mortgage fell 28 basis points, to 5.81 percent, and the 30-year jumbo, for large loans, fell 11 basis points, to 7.41 percent. The benchmark 5/1 adjustable-rate mortgage fell 21 basis points, to 6.08 percent.

While rates fell abruptly, it wasn’t even the biggest one-week drop this year. Nor is this the lowest level for mortgage rates this year. In mid-March, the 30-year fixed fell 41 basis points in one week, to 5.98 percent.

The road to possibly higher rates is rather long and winding according to economist sanders.

“My concern is that the feds are taking over and, for better or for worse, the profit motive has been dissipated,”

On top of that, the government’s takeover plan calls for Fannie and Freddie to sell the mortgage-backed securities that they own. That sell-off is scheduled to start in 2010 and to last for years.

Think of the implications of that sell-off. Rates fell this week because Treasury announced that the government-controlled Fannie and Freddie will buy mortgage-backed securities. So what’s the natural consequence when Fannie and Freddie are required to sell mortgage-backed securities? If buying them causes rates to go down, then it seems natural that selling them would cause mortgage rates to rise.

That outcome is a few years down the road, and it’s not a sure thing. “I don’t expect much to happen until the next president and Congress take office,” says Dean Baker, economist and co-director of the Center for Economic and Policy Research, a Washington, D.C., think tank.

He says Republicans might want to break up and privatize Fannie and Freddie. Some Democrats might want to keep them under government control and focus them on meeting affordable-housing goals. Some politicians might want to restore Fannie and Freddie to what they were before — government-sponsored enterprises — but regulated more heavily.

Popularity: 47% [?]