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What’s Going on with Rates on Mortgages??

So, you own a house and are wondering if you should refinance? Can you get a new loan? Are rates low and are they going lower? Man, you’ve got a lot of tough questions!

There has been a lot buzz lately about mortgage rates and mortgage availability; Rates are at 5% and the government is going to lower them to 4%. Nobody can get a loan. What’s the real deal? Well, we all know that the federal government does not “set” mortgage rates. Those rates are determined by the supply and demand for Mortgage Backed Securities (MBS) in the market place. When demand is high mortgage rates go down and vice versa. Lately, with all of the foreclosures the demand for MBS has fallen off because when a loan in a portfolio of loans (called a MBS and sold to investors) goes into foreclosure the investors in that pool all lose money, so mortgage backed securities are not the no-risk investment they were once thought of.

In steps the Federal Reserve with a mission to lower mortgage rates in an effort to stimulate the bruised housing market and what do they do? They become a buyer of mortgage backed securities – and a huge buyer to boot. The Fed announced last Wednesday a plan to purchase about a trillion dollars in MBS. The mortgage secondary market was elated and rates went down from 5.5% (conventional loan to $417,000) with no points to a low of 4.875%. Wow! The thing is that this can only be sustained if the Fed continues to support demand by buying and they can’t be a buyer everyday forever. So, as you can imagine, rates started creeping up the very next day and are currently at 5.375%. Still interest rates at or near 50 year lows.

The problem right now with keeping rates low is that the government is creating trillions of dollars of new government debt to pay for all of the various bailouts we are involved in and interest rates have to be attractive enough on this debt to encourage buyers to buy it and that is putting upward pressure on rates in general.

The bottom line on rates is that they are very attractive right now and although there may be some dips the likelihood of a significant drop is not very high.

In terms of availability, if you have good credit and equity in your home (or a down payment to buy) you can still get a great mortgage loan. Contrary to what you may have heard there are even some outstanding Jumbo loans available today. In my office we are doing loans up to $1.5 million at 5.25% on a 7 Year ARM. Granted, you have to have a 30% equity position in the property but if you do 5.25% is pretty incredible on a loan this size.

So, rates are great right now and are probably going to stick around this level for the immediate future, loans are still being made and if you are in the house buying market or considering a refinance the timing may be just right.

Tags: Adjustable-rate mortgage, Business, Federal Reserve System, Loan, mortgage, Mortgage loan, Mortgage-backed security, Refinancing

Ken’s Oakland County Mortgage Update – January 2009

Well, there has been more interesting activity in the mortgage interest rate market this month.  The Federal Government has been busy trying to keep the economic ship afloat and they are doing OK in some areas and poorly in others (my editorial opinion, of course).

I applaud the Fed’s for seeking to reduce mortgage rates and inspire home buying.  On the other hand it was very foolish (opinion again) when Treasury Secretary Paulson came out last month and basically stated that the Fed’s were going to push mortgage rates down to 4 ½%.  The problems with this statement are 2 fold:

1. The federal government does not control mortgage rates.  Rates are set by the supply and demand for mortgage backed securities (MBS) in the secondary market.  Rates fluctuate up and down based on whether investors (primarily institutional) are buying or selling MBS.  So, the government can’t make mortgage rates do anything.
2. When Paulson claimed the Fed’s were going to get rates down to 4 ½% that set up an expectation in consumers across the nation.  Instead of saying “Hey look, mortgage rates are at 50 year lows with fixed rate loans in the 5’s and I’m going to go out and buy a house!”, now people were saying “I’m going to wait to buy a new home because I think rates are going lower”.  He basically put the brakes on the whole real estate market!

One of the things the Fed’s have done that has worked out has been the Federal Reserve Bank becoming a buyer of mortgage backed securities.   The Federal Reserve Bank bought billions of dollars in MBS and due to this buying activity mortgage rates fell down to around 5%!  The bad news is that rates started creeping back up again almost immediately as market forces took over again after the fed’s buying spree.

The good news is that mortgage rates are holding pretty steady in the mid 5’s and will hopefully stay in this range.  When you can get a 30 Year fixed rate mortgage anywhere in the 5’s, that’s a great borrowing rate!

There has never been a better time to be a homebuyer with housing affordability at levels not seen in decades (real estate is selling cheap), mortgage rates at 50 year lows and a first time home buyer tax credit of up to $7,500 still available through June 30th.  If you are considering buying a home there has never been a better opportunity!

Tags: economy, Finance, first time buyer tax credit, mortgage