Interest rates may stay low for some time, according to the Federal Reserve, even though their Quantitative Easing program is ending, and they have already stopped buying both government and mortgage bonds. The QE program has been running since 2008.
The Federal Open Market Committee voted 9-to-1 to end QE, and based that decision on “substantial improvement” in job growth, even though participation rate is still low (62.7%) due to the number of people who have given up looking for work.
Jeffrey Lacker, Federal Reserve Bank of Richmond President, said in a Bloomberg radio interview, that he isn’t worried about inflation, expecting it to be around 2%.
Other observers expect rates to rise, even if not immediately, including the Open Market Committee’s Minneapolis Fed member, Narayana Kocherlakota. He was the sole dissenting vote, because he says inflation is “well short” of the 2% target. He said, “The medium-term outlook for inflation has shown no overall improvement since last December and, indeed, is arguably worse. Failing to act in response to this subdued inflation outlook increases the downside risk to the credibility of our 2% inflation target.”
Consumer rates may rise sooner, even if official rates take longer to rise. The Mortgage Bankers Association sees rates heading up over the next 18 months.
The thing that most economists are still uncertain about is how QE impacts mortgage rates, because the Fed has been buying mortgages, but now they have to decide whether to hold or sell them, and that is what has observers worried.
Consumers have no control over interest rates other than by controlling their own credit rating and by shopping around. Over the past few years, it seems many people have given little thought to their credit scores, either because they didn’t need loans or because rates were low enough that it didn’t seem worthwhile.
As rates begin to tick up again, it will become more important for consumers to think about their credit standing. A poor credit rating ultimately means higher interest rates, additional costs, a heavier burden and often, not being able to make desired purchases, especially for major items.
Lenders want consumers who have the ability to borrow more or repay their loans without problems, and there is competition in the market for those borrowers wanting major purchases such as cars or homes.
As the Texas Attorney General’s website says, “no one can legally remove accurate and timely negative information from a credit report,” other than with the passage of time and good management, but there are ways to make improvements.
Consumers can work on repairing their own credit, and there are books and products that can help, but not everyone has the skill, time or patience to do it on their own. One credit repair company, Princeton Law Firm, just reported it has satisfied 65,000 clients.
Many people hope to add a few points to their score, pushing them up into the next tier, but large increases are possible, as shown in a recent note, “Princeton Law Firm hits a record high of a 137 point credit score increase in less than 45 days.”
According to the company, more than 80 million people are victims of the “unorganized credit system,” and more than 5,000,000 negative items were removed from consumer credit reports in 2013 by utilizing the same legal disputing methods that Princeton Law Firm provides.
Princeton CEO Will Vigil says, “We have helped thousands sleep better by knowing they have a healthy credit profile.”
Vigil says they maximize optimal results within as little as 90 days. “Using our legal credit builder and credit score increase strategies, our clients have seen a credit score increase of between 32-137 points depending on their particular credit situation.” Those results can take up to 180 days to see, and clearly, it depends on the consumer and their circumstances.
The Federal Housing Administration announced yesterday, that new borrowers with a minimum FICO score of 580 can now qualify for FHA’s 3.5% down payment program, lowering the hurdle by 60 points from the one set in 2010. Also, new borrowers with less than a 580 FICO score may still qualify for a loan, if they can deposit at least 10%.
This means that prospective borrowers with credit scores in the low 500s now have a much better chance of obtaining an FHA-insured loan, especially if they can raise their score a little, saving them money on the loan, insurance and other fees.
Banks, including big lenders such as Wells Fargo, had already started lending to people with lower scores back in April, trailing the smaller institutions after the FHA minimum was lowered from 660 to 620. Now that FHA has lowered the criteria once more, only time will tell if they elect to move into this market too, but given their past reticence, it may take some time. Bloomberg reported that the reason lenders relaxed requirements at that time, was a response to the drop in mortgage demand.
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