RealEstateLoans.com Mortgage News

10 Jun, 2009

Is Anyone at the Fed or Treasury Listening? Mortgage Rate Buydowns for a Quicker Housing Recovery

FHA, Government Home Loans, Home Appraisals, Credit Repair, Tax Credits, Downpayment, Homeownership, Housing Bottom, Crystal Lake Real Estate Agents, Agonquin Real Estate Agents, Cary Illinois Real Estate Agents, Mortgages, Mortgage Interest Rates, Treasury, Federal Reserve, Fannie Mae, Freddie Mac, Housing Recovery, TARP, FHA Appraisals, FHA Appraisers, HUD Owned Homes, Fannie Mae 105%, Fannie Mae Refi Plus, McNeil Financial Group, Lake in the Hills Mortgage, McHenry Home Loans, realestateloans.com, mcneil financial group, (847) 458-8700, Mortgage Buydowns, Mortgage Modifications, 2-1 buydown, FHA 2-1 Buydowns - Posted by gilkerk @ 08:25

The Treasury and Fed created a program in January 2009 to purchase Mortgage Backed Securities directly from Fannie Mae and Freddie Mac. These MBS purchases by the Fed are being conducted in order to maintain capital flow into the housing mortgage market. The move was necessary and very well intentioned after the credit markets froze up in late '08.

Another goal of the Fed was to also maintain low mortgage rates in the hopes that the lower rates would stimulate home purchases.

An effective way to reach the Treasury and Fed's proposed goal of "low" rates for 30 year fixed mortgages would be through a temporary mortgage rate buydown program. Temporary mortgage rate buydowns were used regularly for years with FHA and conventioanl loans but went out of favor over the last fifteen years due to market conditions. These buydown programs are still available through mortgage lenders and are fairly simple to apply.

Why would they work so well?

Loan servicers, retail mortgage lenders, mortgage brokers, title insurance companies and closing entities all understand how to create and fund these mortgage interest rate buydown transactions on the retail side and can seamlessly package them for smooth transition to Wall Street. The concept is very straightforward:

A buyer buys a home for $300,000 and the current note rate is 6.0% on a 30 year fixed mortgage. The home buyer would be qualified at the 6.0% rate but would receive a "bought down" rate to 4.0%.

We are fairly certain the buyer could make the payments because their income and assets must qualify at the 6.0% note rate. The mortgage borrower would pay 4.0% the first year, 5.0% the second year and then adjust to the full note rate of 6.0% remaining at 6.0% until the note was paid off. This is not an adjustable mortgage, its completely fixed and qualified at 6.0%. The borrower is given a short two year term incentive to buy using the buydown program.

This program also makes practical sense because most home buyers experience added homeownership costs (paint, furniture, appliances, etc.) in the first two years which typically only start to settle down after the second year.

The typical cost for the above mortgage rate buydown example would be about $9,000. The above program would be a whole lot more broad based, quicker to execute and much less expensive for the taxpayer than the current Fed/Treasury idea of a tax refund that buyers must apply for.

Currently, the government is offering an $8,000 dollar tax credit for most first time buyers that buy on or before November 30th, 2009. The taxpayer, the government, the economy and the consumer would be better served by directing this tax credit to a buydown program.

The above buydown program offer would expire within one year so that home buyers would be forced to get into the market NOW. Buydowns would be focused towards housing sales and not refinances.

By stimulating home sales, those homeowners currently in default would be able to sell and downsize rather than work through complicated and uncertain mortgage modifications. The housing industry and derived demand segments of the economy would also benefit greatly.

I initiated a small campaign in 2008 to encourage the use of these buydowns rather than creating new unproven tactics: letter. The letter was sent to then Senator Obama, Senators McCain and Durbin. This letter was also sent out to 2000 real estate agents and mortgage professionals to sign and fax to these Senators.

Using tools that are currently available is a less expensive and more practical approach.

Gil Kerbashian

http://www.gilkerk.realestateloans.com