Wednesday, March 18, 2009

Mortgage Rates Going Down

Mortgage rates are going down--and no doubt will stay down for some time to come.

The Federal Reserve announced today that it will continue to buy Mortgage-Backed Securities in an effort to force and keep mortgage rates down. Not only will this help some new buyers come into the market--especially those who take 30 yr. conforming loans--it will help mortgageholders to refinance at lower rates. This will contribute to economic stimulus by adding billions to 'household balance sheets,' allowing consumers to use their money in other ways.

So how soon will we see 4.5% mortgages? Or 4%? We'll be asking our friends over at The Mortgage Buzz, and look forward to a Q&A with them early next week on all things mortgage.

Meanwhile, if you want background about why mortgage rates have already been at historic lows, read our earlier Q&A here and for Re-fi's, here.

Related Reading:
Federal Reserve Press Release
Fed Pledges Another $1.2T to Support Housing Market - Housing Wire
Economists React to Fed's News - WSJ
Creating Vast New Sums of Money Out of Thin Air - NYT


downtownenvy said...

I read recently that in order for people to qualify for the lowest mortgage rates they need to have at least a 720 credit score or better. Does anyone have any idea what percentage of the population has that or above it? Just wondering.

FHA wouldn't really require that kind of score or would it? I hope they aren't still being super lenient in their lending standards.

Real C'ville - The Bubble Blog said...

This is a question that we'll put to Jason from the Mortgage Buzz for the upcoming post...he'll have the details.

Jason's company doesn't do FHA; UVa credit union is a good place to go locally for FHA. The advantage of FHA is the 3.5% downpayment....disadvantage is the cap on loan amount--$425.

We read recently that credit scores are going to have to be "reinterpreted" in the coming years b/c so many peoples' are going to suffer from foreclosures, short sales, bankruptcies...we'll look for the link on that story.

Nalle said...

My lender at Suntrust quoted 4.5% (with a 1/4 point). Unfortunately (or not) we closed last month on 4 7/8. As tempting as it was to wait for lower rates (which we might be seeing soon) there is an appraisal risk as they are run on 6-month comps and if foreclosures rise it might be hard to produce 20% equity in a lot of houses.

downtownenvy said...

Thank you for the information. I have always liked the idea that the FHA can really help first time home buyers, but I hate the idea that they don't really have very logical credit standards. I know you need to giveyoung families the benefit of the doubt, but I don't think the requirements should be too loose.

Anonymous said...

I'll bet that low mortgage rates are going to guarantee some sellers in this market stick to their inflated asking prices. Especially those whose askings are under $500 thousand.

Just another way to keep the market stalled.

jason said...

downtownenvy - the best conventional (Fannie Mae / Freddie Mac) rates are for those at 60% or less loan to value and 700+ credit scores. At 80% loan to value, you'll need 740+ scores

FHA has tightened their guidelines a bit because of their 13% delinquency rate. They reduced their LTV from 97% to 96.5% and now have a minimum credit score of 620. FHA rates are slightly higher (~.25%) and require an up front mortgage insurance premium (1.75 points for purchases and full refis), but they are helpful for those who don't meet conventional mortgage guidelines.

Nalle makes a great point. As sales prices fall, so do appraised values. Appraisals (and appraised values) are critical to the mortgage lending system - Loan to values hinge on them. Comps are used by appraisers to help determine value, and the more recent comps the better (for underwriting). In fact, most lenders need several comps within 3 months. 6 month comps are often considered too old.

downtownenvy said...

Thank you Jason. This is interesting. My husband and I are allergic to the Cville housing market, but we like to try and keep up with the most recent mortgage news.

mary said...

Falling mortgage rates mortgage rates down - and probably stay down for some time to descend. The Federal Reserve announced today it will continue to buy mortgage-backed securities in an effort to force and keep mortgage rates.Mortgage Calculator

Anonymous said...

i don't know why anyone would buy a house with an FHA loan. The monthly insurance premiums kill any chance of *potential* financial benefit to owning instead of renting. Same thing with the current rates on PMI.

and if you do have 20% to put down, and choose to go FHA or 5% down instead, I think that's a terrible decision. You'd have to invest your remaining 15% and return around 11 or 12% a year just to break even from the FHA/PMI costs.