My New Blog

Higher rates are still months away, Chairman Ben Bernanke and other Fed officials have signaled in appearances on Capitol Hill and in speeches. They've indicated that low rates are still required to foster the economic rebound.

Yet once the recovery is firmly entrenched, Fed policymakers will need to raise rates to keep inflation in check. Before they do, they first will want to signal that credit will soon be tightened. The trick is doing so without jolting investors and borrowers, who would face higher rates on certain credit cards, some mortgages and other loans.

How best to telegraph the approach of higher rates is likely to dominate discussions when Bernanke and his colleagues meet Tuesday. In particular, the Fed will decide whether to keep, or water down, its year-long pledge to keep rates at "exceptionally low" levels for an "extended period." Economists generally think "extended period" means at least six more months.

The Fed could drop that commitment altogether. Or it could pledge to keep rates low for "some time," which is viewed as briefer than an extended period. Or it could change its language in some other way to stress that credit will be tightened when the time is right. Any such step would send a signal that the days of easy money are fading.

The push for change is already under way inside the Fed. At its last meeting in late January, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, favored changing the language to say rates would stay low for "some time," according to the meeting's minutes.

Hoenig said he thought such a change would give the Fed more flexibility to start raising rates, the minutes said. And he said a move toward "modestly higher" rates should happen soon.

Hoenig and other "hawks" on the Fed worry more about inflation heating up because of record-low rates than about keeping rates low to try to reduce the unemployment rate, now at 9.7 percent.

The fact that the jobless rate, though high, hasn't budged for two months and fewer jobs are being lost than a year ago suggests the recovery is on track. Factory and service-sector activity is picking up. Consumers and businesses are spending enough to keep the economy growing moderately.

Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi, doesn't rule out a change in the "extended period" language at Tuesday's meeting. Others think a wording change is more likely at the Fed's next scheduled meeting, April 27-28. By then, the Fed would have another reading on the employment climate.

"Markets are not ready for a change yet," said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco.

Though the economy is healing from the worst recession since the 1930s, "the economic recovery is still very fragile," William Dudley, president of the Federal Reserve Bank of New York, said in a March 11 speech.

Investors also will be looking to see if the Fed makes any changes to an economic-support program that's lowered mortgage rates and bolstered the housing market. Under that program, the Fed is scheduled to end its mortgage-securities purchases from Fannie Mae and Freddie Mac at the end of this month.

Some analysts fear that once the program ends, mortgage rates could rise. That could weaken the recovery in housing and the overall economy. The Fed has left the door open to extending the program if the economy weakens.

The average rate on 30-year fixed mortgages dipped to 4.95 percent in the week that ended March 11, from 4.97 percent a week earlier, according to mortgage finance company Freddie Mac. Rates have been hovering around 5 percent.

It is all but certain that the Fed will keep its key interest rate at a record low Tuesday. It's held its target range for its bank lending rate at zero to 0.25 percent since December 2008. In response, commercial banks' prime lending rate, used to peg rates on certain credit cards and consumer loans, has remained about 3.25 percent — its lowest in decades.

Super-low rates benefit borrowers who qualify for loans and are willing to take on more debt. But they hurt savers. Low rates are especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.

When will the Fed boost rates? No earlier than June — and more likely sometime this fall, Rupkey and others said. Some investors don't think it will be until about November, said T.J. Marta, a market strategist.

The timing is a tough challenge for Bernanke. If he and other Fed policymakers raise rates too soon, they risk derailing the recovery. But if they wait too long, they could unleash inflation or fuel speculative bubbles in assets such as stocks.

Every year USDA runs out of money for their fundings and normally you are not affected by this however, this year is very different. The USDA Section 502 guaranteed Rural Housing Program will have exhausted there 2010 fiscal funds by the end of April. The USDA would need to receive about 150 million in funding to be able to continue funding loans for the rest of fiscal year 2010.

In past years USDA has appropriated funds from other areas to make up for the shortfall in funding dollars giving lenders the oppurtunity to continue to fund USDA loans.

Why is this year any different then past years? USDA is removing the “subject to receipt of appropriated funds” from their conditional commitments meaning there is no guarantee that lenders will be able to guarantee the loan and fund it.

Why are they doing this? The money usually runs out around the end of the government’s fiscal year which is September 30th and USDA basically tells everyone we’ll get you’re funding commitments either this year or next. Since the money is running out so early in the fiscal year USDA is not sure where the money will come from therefore will not put “subject to receipt of appropriated funds” on their conditional commitments. Last year the money ran out in March but the stimulus provided the gap funding to carry the program thru to the end of the year but this year there is no stimulus money.

What can I do as a Realtor, Builder, Developer or loan officer? You need to contact your US Congressman, US Senator, professional lobby and employer to get them working on a solution because if this happens many homeowners will be left out on their loan closing because it simply won’t happen.

The USDA loan program is a wonderful program for Rural America. The program is ran very efficiently and the default rate on USDA loans are much lower than FHA or other financing programs.

Please take action today.