Freddie Mac unveiled yet more good mortgage news for borrowers on Friday in its weekly survey of average rates. The figure for a 30-year loan was 5.19 percent, which the Wall Street Journal says is the lowest since records began in 1971, 37 years ago. New 15-year mortgages were averaging 4.92 percent.

The Journal also pointed out that mortgages generally closely track long-term government notes, and that these are also continuing to decline. This means that there’s every reason to expect mortgage rates to continue their downward trend.

All of this positivity is translating into a much larger volume of mortgage applications. The Mortgage Bankers Association reports that these are up 37.3 percent up on the same week last year. However, refinancing represents 76.9 percent of all activity, which may not be quite such good news.

More on that soon.

We’re all happy to learn from Freddie Mac that this week’s rates for 30-year FRMs (fixed rate mortgages) are at their lowest since March 2004. They’re now averaging 5.47 percent, down from last week’s 5.53 percent. This time last year, they were at 6.11 percent.

But there are two pieces of bad news. Read the rest of this entry »

To much fanfare, the Federal Reserve cut interest rates on October 29th. That was supposed to be this week’s Halloween treat for the markets. The trick came the next day, when Freddie Mac’s survey of mortgage rates revealed that 30-year rates had risen sharply for the week. 

So what gives? A clue to why market rates moved contrary to the federal funds rate could be found in two other pieces of news:

• The housing market continued to be weak, as one survey of major housing markets saw prices extent their slide to 25 consecutive months
• The U.S. dollar showed signs of weakness which were exacerbated by the cut in federal funds rates.

For the time being then, despite the Fed’s actions, things got tougher for borrowers rather than easier. This highlights some realities of what the Fed can and cannot do.

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Most mortgage borrowers know that underwriters look at their debt-to-income ratios when determining how much home they qualify to buy. But most don’t know that Fannie Mae and Freddie Mac give them “extra credit” for any non-taxable income they receive. According to Fannie Mae and Freddie Mac underwriting guidelines,this income can be “grossed up” or increased by 25%. Because it’s not taxable it’s worth more to you–and more to your underwriter. So whether it’s a government pension, interest on muni bonds, Social Security, child support, or whatever–make sure you tell your loan officer that the income is tax-free. And be prepared to supply documents proving it. You might find yourself able to afford more than you thought.

There’s an old saying that it’s an ill wind that blows nobody any good. It applied this week, as the whirlwinds on Wall Street had an unexpected benefit for mortgage shoppers.

• Insurance giant AIG became the latest addition to the string of financial failures, the taxpayer cost of which is rapidly rising
• Leading economic indicators declined by more than expected in August
• Along with a slowing economy, inflation also backed off rapidly in August
• Lower inflation gave interest rates room to fall, so mortgage rates took another impressive step downward over the past week

While mortgage shoppers should not ignore the gathering economic and financial clouds, those lower mortgage rates should remain their primary focus.

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30-year mortgage rates fell sharply over the past week, extending a sustained move into more affordable territory. Two key factors were behind the change:

• The high-profile government bail-out of Freddie Mac and Fannie Mae increased lender confidence
• Interest rates in general have been falling, responding to easing inflation worries

Is this reason to be optimistic about the housing market? As always, optimism about housing should be tempered with a healthy dose of caution, but this does spell opportunity for certain buyers and home owners who want to refinance — especially those with strong credit histories.

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Banks are famous for being willing to lend only when you don’t need it. Like the guy who hands you an umbrella when it’s nice and sunny–only to take it back at the first sign of rain–banks are unwilling to extend credit when it’s needed to restore economic stability. Why? Because the system is designed to reward behavior that is bad for society and punish conduct which is good.

For example, when money was cheap and pentiful, anyone who could fog a mirror was granted mortgage financing. Lenders couldn’t write loans fast enough, and the ones who wrote them fastest and loosest earned the most. Then, when economic conditions turned sour and money was most needed to restore order in financial markets, lenders took it all away and pulled back. Which made things worse and perpetuated the cycle. Because banks are businesses, and businesses owe a duty to their stockholders to make as much money as legally possible, current law reinforces this behavior.

So like it or not, government has to step in when the best decision for business isn’t the best for society. An article in the LA Times explains why we should care about the takeover of the two mortgage giants Fannie Mae and Freddie Mac. Experts predict that government control of Fannie and Freddie will ensure a certain level of liquidity in mortgage financing, keeping money available for those who should be granted mortgages and supporting the housing markets. Right now, banks and other mortgage lenders have no downside–when times are good they can lend early and often–and rashly. Then, when the bad loans come back to bite, taxpayers are asked to shoulder the losses. So a company doing its duty by its shareholders is pretty much obligated to exploit this loophole. It needs to be closed so that taxpayers can get out of the mortgage business.

The past week saw more symptoms that the mortgage crisis is likely to drag on: 

• Stocks in mortgage financers Fannie Mae and Freddie Mac took a tumble, as investors questioned their long-term viability
• The problems of Fannie Mae and Freddie Mac are already evident to mortgage borrowers in the form of higher fees, tougher approval standards, and higher interest rates
• Mortgage experts warned that the impact of so-called “liar loans” has yet to fully play out
• Not surprisingly, with these and other woes, mortgage application volume continued to slip

For prospective homebuyers, these symptoms of long-term consequences of the mortgage crisis signal that waiting for the storm to blow over may not be the best strategy.

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Mortgage news was dominated by two items this week:

• President George W. Bush signed the mortgage relief bill, designed to help troubled home owners stave off foreclosure
• A prominent home price index reported a 15.8% decline for the year ending May 31, 2008, the biggest year-over-year decline so far

On the surface, the first would seem to be a highlight, and the second a lowlight, of the week’s mortgage and housing news. Reading between the lines, though, reveals that the first item may not be as good as it’s been reported, but the second item may not be as bad.

Read the rest of this entry »

There were mixed messages for borrowers in this week’s mortgage news, but there was certainly no shortage of headline-worthy stories:

• The U.S. Federal Reserve Board released a new set of mortgage lending guidelines on July 14th, designed to reform some practices that have been associated with the current lending crisis
• Leading government-sponsored mortgage financers Fannie Mae and Freddie Mac struggled to fend of rumors that they did not have enough liquidity to survive without a bail-out
• Perhaps more quietly — but of grave concern with regard to mortgage rates — inflation continued to surge, with very high readings for both wholesale and consumer price increases in June

The message on balance was that potential mortgage borrowers may not want to delay exploring their options, as long as they make educated choices about their loans.

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