Lowest Mortgage Rates Enough to Keep Housing Recovery on Track?
Lowest Mortgage Rates Yet Closer
The benchmark average interest on a 30-year, fixed-rate mortgage remained below the psychologically important five percent mark this week. Indeed, it crept a little lower.
It now stands at 4.91%, compared with 6.14% this time last year. And that's tantalizingly close to April's lowest mortgage rates ever of 4.78%.
Check out current mortgage rates in your area here.
Frank Nothaft, a Freddie Mac vice president and its chief economist, was clearly pleased when he commented: "Mortgage rates eased further over the week, helping to promote an affordable home-purchase market and stimulate refinance. This comes at a time when house price declines are moderating and consumer demand for prime mortgages at commercial banks has picked up."
But Mortgage Purchase Applications Hit Nine-Year Low
Mr. Nothaft's suggestion there that consumer demand has picked up may be true overall. Certainly, the Mortgage Bankers Association (MBA) says that home refinance applications jogged along very healthily this week. But the same can't be said of mortgage applications to purchase a home. The MBA says that these reached a nine-year low this week.
Still, that could be down to a time lag between prospective purchasers realizing that the government's $8,000/$6,500 home buyer's tax credit has been extended--both in duration, and in eligibility criteria--and their making applications. Millions of Americans--including those who are not first time buyers--now qualify under that program, and many observers think that it will provide a real jolt to the market.
FHA Faces Problems
More worrying was news this week from the Federal Housing Administration (FHA) that revealed that its cash reserves are seriously low. The FHA is key to the property market's recovery because it insures mortgages that the private sector is, since the credit crunch, no longer willing to cover.
Congress says that the FHA should maintain reserves of two percent of its exposure. But a recent audit showed that those reserves are currently running at 0.53 percent.
In a statement, FHA commissioner, David H. Stevens, acknowledged the difficulties, and suggested that the organization was addressing them. He said:
There are real risks to the FHA and we are aggressively addressing those real risks with real reforms. FHA will not tolerate fraudulent or predatory lending practices and we have enforced tighter standards and taken action against lenders who violate FHA origination and underwriting requirements... The FHA has also implemented several reforms to strengthen its credit policies, which will ultimately help shore up the reserves and reduce risk.
No Room for Complacency
Mr. Stevens makes it sound as if the FHA is on top of everything. And, even if he's proved wrong, there's no question of the government allowing the organization to fail.
But the FHA has a critical role to play in maintaining the recovery in the housing market. In the second quarter of 2009 almost half of all first-time buyers used loans backed by it.
It's already tightened its lending criteria, and to do so more can only exclude a greater number of purchasers from a market that is already oversupplied. Low mortgage loan rates won't be enough.
