Lowest mortgage rates creep downward again

Posted by  on Oct 08, 2010

A widely cited pseudo-curse attributed to Chinese wisdom says: "May you live in interesting times." Yet in spite of the dramatic drop in housing prices over the last couple of years, there has been little movement in mortgage rates for quite some time, as the Fed has worked to prop up the economy and housing prices.

This week, according to Freddie Mac, the average rate for a 30-year, fixed-rate mortgage (FRM) is 4.95 percent, a tiny drop from last week's 4.97 percent, and down only slightly more from the 5.03 percent rate that was current this time last year.

Mortgage loan applications up

Even though its weekly survey covers a slightly different period, the Mortgage Bankers Association (MBA) agrees with Freddie Mac that today's mortgage rates for that sort of loan average 4.95 percent. And it reports a small rise (0.5 percent) in the number of mortgage loan applications, with purchase applications up 5.7 percent (seasonally adjusted) while refinance applications were down 1.5 percent.

Of course, such a small variation may be just a blip, but it would be good if it turned into a trend. That's because the housing market will only truly recover when current inventory (the number of homes for sale) falls to pre-boom levels. Still, it's not wholly clear why the MBA's Purchase Index increased, although the government's $8,000 tax credit program is likely to have had an influence.

A likely reason also is the confidence created by the latest employment figures, as Freddie Mac's chief economist yesterday observed upward revisions to January and December employment numbers, fewer jobs lost in February than previously forecast, and a current unemployment rate steady at 9.7 percent.

Mortgage loans going private?

Also yesterday, the New York Times reported some potentially good news for housing market confidence. Since May 2008, private investors have shied away from buying mortgage bonds that weren't guaranteed by either Fannie Mae or Freddie Mac.

But those government-backed bonds are now providing such low returns than some investors are thinking of dipping their toes back into private waters. And that's in spite of the fact that today's mortgage rates are so low. However, it's likely that they'll only want to buy jumbo mortgages, and that their lending criteria will be extremely strict. The Times says:

Prospective buyers of new jumbo mortgage-backed securities will want assurances the loans have all the proper documents and proof of income. They'll probably want borrowers to have put down as much as 40 percent of their own money. And they'll expect that, even if house prices have dropped since the mortgage was made, the average loan balance is still no more than, say, 60 percent of the property's value.

Such extremely restrictive criteria will likely limit the quantity of loans made thereunder for now, but any private foray into MBS investment must be welcomed as a preliminary sign of economic and housing market recovery.

Lowest mortgage rates still tempting

Today, Americans still have access to some of the lowest mortgage rates for 50 years. But few observers expect that to remain the case for long. So, if you're thinking of buying a home or refinancing, now may well be the best time to act. Get a competitive mortgage quote now.


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