Mortgage Rates Tumble on Government Mortgage Backing Announcement

Yesterday was a good day for the home mortgage market. Rates tumbled by one-half percent for a couple of very good reasons. First, the government announced that it will now guarantee Fannie and Freddie debt, which are the bonds that they offer to finance the mortgages they purchase. Secondly, the government also announced that it would purchase up to $500 billion of Fannie, Freddie, and Ginnie securities. These announcements, in conjunction with a 10-year Treasury yield drop of almost one-quarter percent caused the perfect storm for a nice drop in mortgage rates.

With these broad government moves, the mortgage industry has become much more stable overnight. Expect the mortgage spread premium to finally decline from its high crazy level of 3.15%. This may be the big stimulus we were hoping for to entice home buyers off the fence and allow homeowners to refinance into significant benefits.

30 year fixed rates are now being offered at under 6 percent for a par rate, a huge move to the downside in a short period of time. We have even seen flashes of 5.5 percent rates for conforming loans at 80 LTV and great credit.

While rates are now back at bargain basement prices, home prices are too. The National Association of Realtors said Monday that sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million units in October, from a downwardly revised pace of 5.14 million in September. The median sales price plunged 11.3 percent from a year ago to $183,000. That was the largest year-over-year drop on records going back to 1968, and the lowest median sales price since March 2004. The S&P Case-Shiller Home Price national index recorded a 16.6% decline in the third quarter compared with the same period a year ago. Prices in Case-Shiller's separate index of 10 major cities fell a record 18.6%, while its 20-city index dropped a record 17.4%

Home prices are currently at great levels for home buyers, but not so great for those refinancing if they happen to live in a severely depressed region. It is always best to get a handle on your home value before refinance shopping, so that you know where you fall on the loan-to-value scale. Since refinance rates are so low, those with adequate equity in their homes can stand to receive nice savings in the current environment.

Most feel that the current low mortgage rates should hold for a while. It is a little less clear as to whether rates will drop further. There is not much room left for the bond yields to go lower, but the mortgage risk spreads should tighten on the government announcement. It is quite possible that bond yields could go up as the economy recovers, while the mortgage spread declines with lower risk. In that event, we could stay at these levels for quite some time. But hey, that’s a good thing for those refinancing, as rates are in a great spot now.


May the Mortgage Refinance Rates be with You!

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Consumer Price Drop May Help Mortgage Rates in Short Term

A dirty word as far as mortgage rates go, is “inflation”. The CPI numbers reported today showed a huge drop in consumer prices and a boost in confidence for those concerned about inflation in our economy. Consumer prices dropped by 1 percent last month, the largest amount in the past 61 years as gasoline pump prices dropped by a record amount.

The reaction to that announcement was met by a nice decrease to an already declining 10-year treasury yield. The current yield is approaching the January 2008 lows, which also offered the best mortgage rates by historical standards. While some worry that we could enter a period of deflation with continued drops in prices, most economists believe that current conditions are not likely to set the stage for a deflationary period, such as witnessed in the Great Depression.

The current mortgage spread premium continues to hover near all-time highs, which may hinder the full effect of the falling treasury yield, but expect at least a short-term dip in rates. Whether the dip lasts one day or several weeks, I will not venture to guess, as current market conditions are affecting mortgage rates at a furious pace.

On the negative side for housing, it was also reported today that construction of US homes fell by 4.5 percent in October as home builders have cut way back. This represents the lowest level on government records dating back to 1959. It appears that tighter lending standards, rising foreclosures, and fear of the housing market’s value have kept many potential homebuyers on the sidelines.

Look for continued government intervention to curtail the current housing slump. Hopefully it will come in the form of assistance to troubled homeowners along with programs aimed at stimulating buyers to step up and purchase homes. Home stabilization is the key to our ailing economy and future growth of our nation.

May the Mortgage Refinance Rates be with You!

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Is The New Federal Mortgage Relief Plan Enough To Help Ailing Economy?

The government announced yesterday, it’s latest effort to help troubled homeowners, but will it really help?

On the surface, it appears like a great plan to help people stay in their homes and to keep newly foreclosed homes from entering the market. Qualified borrowers would receive help in a few key ways. Their interest rate would be reduced so that the borrower would not pay any more than 38 percent of their gross income on housing expenses. Home loans can be extended up to 40 years and in some cases, some of the principle can be deferred, interest free.

To qualify, the homeowner will have to be at least 90 days late on their mortgage and would have to owe 90 percent or more of their home’s value. Investment property owners and those in bankruptcy would not be eligible.

Now for the catch. The plan is focused on loans owned or guaranteed by Fannie Mae and Freddie Mac. The problem with this is that although they are the dominant owners of mortgages in the US, their portfolio only represents 20 percent of delinquent loans.

The vast majority of troubled loans have been packaged into complex investments that are very difficult to unwind. Deutsche Bank estimates more than 80 percent of the $1.8 trillion in outstanding troubled loans have been packaged and sold in slices to investors worldwide. Most of those loans won't likely be helped by the new plan.

Citigroup and JP Morgan are expanding their mortgage modification programs, which in reality, may be a good sign of things to come. Modification and forebearance from the private sector will be good for all involved and help to make a significant dent in current expanding foreclosure rates.

As for further government assistance to troubled homeowners, a much better plan needs to be implemented in my opinion. Current government actions have been woefully inadequate and almost laughable in contrast to the mortgage bailout for big business.

Home value is key to our entire current economic problems, and a true effort by the government to help ailing homeowners would give the housing market the jumpstart needed to begin economic recovery.

Too often, economic matters come down to dollars and cents, leaving common sense out of the equation. People are hurting and experiencing tremendous stress as they lose, or are about to lose their homes. We should expect a much better plan to help the common person than what has been received.

May the Mortgage Refinance Rates be with You!

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Will the President-Elect Obama Administration Help the Ailing Housing Markets?

Congratulations to president-elect Obama and the hope his election brings for change in the economy and housing markets. No one can predict if his administration will help our ailing business environment, but hey, he can't do any worse than his predecessor.

Hopefully, the newly formatted staff on capital hill will enact legislation aimed at stabilizing housing prices. This is the number one area of concern for the revitalization of the economy in my opinion. The stabilization effort needs to be attacked on two fronts. The first being real legislation aimed at keeping struggling homeowners in their homes. The second front should be aimed at stimulating home buyers to purchase new and existing homes. Continued depreciating home prices will only continue the downard descent of our economy.

On the mortgage refinance rates front, the thirty year fixed rate jumped to 6.47 percent last week as mortgage purchase and refinance applications took a slide. Mortgage lenders are still hoarding cash and keeping the mortgage spread premium at higher than normal levels. This coupled with last week's jump in the 10-year treasury yield has caused the bump up in interest rates.

Those refinancing now are still in good shape on a historical level as a 6.5 percent 30 year fixed rate is relatively low. The 10 year yield has dropped a bit this week and we are experiencing a slight drop off that 6.5 percent level for those looking to lock a rate now.

Keep an eye on upcoming housing numbers as this will be a leading indicator for not only refinance rates, but the economy as a whole.

May the Mortgage Refinance Rates be with You!

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