Mortgage relief
CHICAGO (MarketWatch) -- The government takeover of mortgage giants Fannie Mae and Freddie Mac has pushed mortgage rates lower, a boon for some home buyers and homeowners seeking to refinance, but it is not automatically going to make home loans easier to obtain.
In the wake of the takeover, interest rates on 30-year fixed-rate
mortgages dropped substantially, falling under 6% for the first time since
May, according to Freddie Mac's weekly rate survey. The national average
for the 30-year fixed-rate was 5.93% for the week ending Sept. 11, down
from 6.35% last week and 6.31% a year ago.
The national average for the 30-year fixed-rate mortgage was 5.93% for
the week ending Sept. 11, down from 6.35% last week and 6.31% a year
ago, according to Freddie Mac's weekly survey. The rate is down nearly 0.6
percentage points over the past four weeks.
"This means that the monthly principal and interest payment on a new
$200,000 loan is over $76 lower than a month ago," said Frank Nothaft,
Freddie Mac chief economist, in a news release. He expects the movement
to help spur home purchases and loan refinancing in coming weeks.
Fifteen-year fixed-rate mortgages averaged 5.54%, down from 5.90%
last week and 5.97% a year ago.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged
5.87% this week, down from 5.97% last week and 6.17% a year ago.
But 1-year Treasury-indexed ARMs headed the other direction,
averaging 5.21%, up from 5.15% last week. The ARM averaged 5.66% a
year ago.
To obtain the rates, the fixed-rate mortgages, as well as the 5-year ARM,
required payment of an average 0.7 point. The 1-year ARM required
payment of an average 0.6 point. A point is 1% of the mortgage amount,
charged as prepaid interest. of Fannie Mae and Freddie Mac.Rates fell
substantially earlier this week, after news of the government's bailout
Lower rates have occurred at an opportune time, as the July pending
sales data from the National Association of Realtors were off 3.2% from
June," Nothaft said. "The Mortgage Bankers Association reported that
refinance applications are up 18% over the past 3 weeks through September
5th, indicating that refinance activity has already begun to pick up."
Still, coming up with a bigger down payment has been a barrier for some
first-time home buyers, while others have struggled with tighter underwriting
that lenders have put in place in response to the weakened housing market.
"The credit-standards pendulum has been swinging to the conservative
side, and it could swing toward the middle," said Dan Cutaia, president of
Fairway Independent Mortgage Corp., based in Sun Prairie, Wis.
But any loosening of underwriting standards could be relatively small,
and it's unlikely that no-down payment or no-documentation mortgages --
staples of the housing boom earlier this decade -- will make a return in the
near term, Cutaia said.
After all, Uncle Sam had to step in and take control because of the
problems created by having bad loans on the books and the agency now
running the two mortgage giants certainly is not going to risk making more of
them, said Greg McBride, senior financial analyst at Bankrate.com.
For some borrowers, qualifying wasn't the issue, and neither was getting
the mortgage approval, McBride said. "Getting the loan to actually close was
a bigger issue because of the fact that so many lenders were capital-
constrained and Fannie and Freddie were buying fewer loans," he said.
With the U.S. Treasury adding mortgage capital to the companies under
the takeover plan, it is more likely that approved loans will actually close,
McBride said.
Rates fall
The government's move helps to stabilize the shaky mortgage market
and take out some of the unknowns, removing some of the fears of mortgage
investors, said Bob Moulton, president of Manhasset, N.Y.-based Americana
Mortgage Group. Without worries about Fannie and Freddie, more people
were willing to invest in mortgage bonds, creating downward pressure on
mortgage rates.
The lower rates could hold for a while, some mortgage professionals
said, a welcome respite compared with the mid-6% range the 30-year hit at
various times this year.
Another area where the government bailout could help homeowners:
So-called conforming jumbo mortgages could become more obtainable and
affordable, said Gibran Nicholas, CEO of the CMPS Institute, a training,
certification and membership program for those who provide mortgage and
real estate equity advice. These are mortgages at the top of the conforming
limit, as high as $729,000 in high-cost areas including California.
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