December 2, 2008

It Finally Happened

Our readers were probably getting tired of us harping about rates on mortgages. We kept explaining why mortgages did not go down despite the fact that market rates had dropped significantly. We also kept explaining how important rates are with regard to the housing and ultimately the economic recovery. Obviously, the Federal Reserve Board agreed with this assessment as they forced rates down significantly throughout this year. But lowering short-term rates was not enough.

This week, the government’s decision to support the credit markets by spending hundreds of billions of dollars to purchase mortgage-backed securities and support Fannie Mae and Freddie Mac did the trick (see news section for more information). Rates on mortgages instantly moved down significantly, narrowing the spread between mortgages and Treasuries. Where they will settle is anyone’s guess, but for now we have a situation that could boost the housing markets instantly. Lower rates help housing by making ownership more affordable. As a matter of fact, coupled with lower housing prices, housing should be more affordable now than at any time in the past several years. This will attract more investors and first-time buyers into the markets. And it could start a cycle in which the markets gain even more confidence in purchasing mortgages because housing prices stop falling and the rate of defaults slow down. Perhaps we are getting ahead of ourselves, but for now, these lower rates are very good news and anyone who has been thinking about buying or obtaining a lower rate on their loan should act accordingly.

The Markets. Rates fell again this week and these numbers may not reflect the full extent of the drop the markets experienced. Freddie Mac announced that for the week ending November 26, 30-year fixed rates averaged 5.97%, down from 6.04% the week before. The average for 15-year fixed rose slightly to 5.74%. Adjustables fell as well with the average for one-year adjustables decreasing to 5.18% and five-year adjustables falling slightly to 5.86%. A year ago 30-year fixed rates were at 6.10%. "Rates fell for the fourth consecutive week as signs the overall economy is flagging lowered most rates market-wide," said Frank Nothaft, Freddie Mac vice president and chief economist. "And economic growth in the third quarter was revised downward this week, led by the first decline in consumer spending since the fourth quarter of 1991 and the largest drop since the second quarter of 1980. However, declining house prices and low rates have raised housing affordability in September to the highest level since February of this year, according to the National Association of Realtors® (NAR)."

Current Indices For Adjustable Rate Mortgages
Updated November 28, 2008

  Rates on mortgages fell sharply last week after the administration announced that it will pump another $800 billion into credit markets to free up frozen consumer and mortgage lending. That number dwarfed previous government actions aimed at bolstering the mortgage lending market. "The feds agreed to spend a half a trillion dollars to buy up mortgage backed securities and another $100 billion to fund lending for Fannie and Freddie; we’re not talking chump change anymore," said Keith Gumbinger of HSH Associates, a publisher of mortgage information. Rates averaged 5.77% for the day on a 30-year, fixed rate loan, down from 6.06% Monday of last week, according to Gumbinger. They fell as far as 0.75 percentage points during the day, according to Orawin Velz, Associate Vice President for Economic Forecasting at the Mortgage Bankers Association. That could save a typical homebuyer more than $90 a month on a $200,000 mortgage. "The government action was geared to bringing rates down," said Velz, "and it did." Most mortgages are sold to investors in so-called secondary markets but with foreclosure rates so high and expensive write downs of mortgage-backed securities so common over the past several months, investors had fled the mortgage market. Instead of buying mortgage bonds, they’ve been snapping up Treasury’s which have a lower risk. That showed up in the falling yields of Treasury bonds and the greater difference between Treasury yields and mortgages. Normally, rates on 30-year fixed rate mortgages are only slightly higher than yields on 10-year Treasury bonds, about 1.5 percentage points. That difference compensates mortgage investors for taking on extra risk. Lately, however, because investors have perceived, quite reasonably, that risks of mortgage-backed securities were far greater than previously supposed, they demanded greater reward for investing in them. Source: CNN/Money

The Federal Emergency Management Agency has released digitized flood insurance rate maps of more areas of the country. The maps were initially rolled out in some areas in 2003. This fall, they have been distributed in 100 communities in Alabama, Georgia, Illinois, Kansas, Mississippi, North Carolina, South Carolina, Tennessee and Wisconsin. By 2010, about 92 percent of the U.S. population and 65 percent of the land will be covered by the maps, FEMA says. Home owners in affected areas should check the new maps, which revise flood zones significantly. Some home owners who never needed flood insurance will need to buy it. Other homes will no longer be in flood zones, relieving their owners of the obligation to buy the insurance. "In the past, we did not have as precise information and so, with the digital products, in some areas the special flood-hazard area has gotten smaller. In other areas it has grown," says Roy Wright, deputy director of the risk analysis division for FEMA. Source: USA Today

As your trusted Mortgage Consultant & Advisor, I help you understand the process of acquiring a residential, commercial or investment property loan. Communication and integrity are very important to me in earning your trust and your business. I'm your "Mortgage Matchmaker" helping you through the mortgage process and showing you innovations and the latest news you can use in the real estate and mortgage industry.

As part of my effort to share knowledge and keep you abreast of the latest news in real estate, finances and business in general, I offer this weekly and monthly newsletter update to you.

Please feel free to forward this or send anyone you know to my personal blog, at which this and past newsletters are available.

http://blog.pdxloan.com

• Calculate a mortgage payment
• Compare the cost of owning versus renting
• Lower your payments through debt consolidation