Mortgage Rate News

Many people waiting for mortgage rates to drop right now. Indeed, many people think that they should be heading lower soon, what with banks starting — albeit cautiously — to lend to each other again. Additionally, Ben Bernanke is supporting efforts for a second economic stimulus package and hinting that Fed rates may be cut again. While the Fed rates do not have a lot of impact on a first home mortgage, a second home mortgage is definitely affected by Fed rates. So, whether people are looking to refinance or to get a first home mortgage, there is some tendency to wait for either:

1. Mortgage rates to head lower.
2. The market to hit bottom.

At this point, waiting could lead to problems. Here is what The Mortgage Reports says about how things are likely to get in the coming months:

Starting 60 days from now, qualifying for a conforming mortgage will require more home equity than at any time since 2003.

Now, there are a lot of people sitting around right now, waiting for mortgage rates to fall before buying or refinancing their home.

I’d offer a more prudent idea: Just get on with it already.

The reference here is to the latest round of mortgage lending guidelines issued by Fannie Mae. These new guidelines are going to limit the amount of money you can get on a refinance: Primary residence “cash out” to 85% loan-to-value and 75% loan-to-value for secondary residences. And you better have a 25% equity position if you want to refinance an investment property.

On top of that, down payment requirements are getting tighter. The down payment thing has been happening across the board with many mortgage lenders. 5% and 10% are becoming the norm, and some mortgage lenders are requiring 20%. While Fannie Mae is the only lender tightening these refinance guidelines officially, it probably won’t be long until other mortgage lenders follow suit. Fannie has long been a trend setter in the mortgage world, and this is probably not such a different situation.

This means that, if you are looking into a refinance — or even a first home mortgage — now is probably the time to do what you can. Because it’s about to get tougher.

Tags: refinance, home mortgage, home mortgage loan, Ben Bernanke,
second home mortgage, first home mortgage, mortgage lenders

This morning marked an historic coordinated effort by central banks around the world to ease the credit crisis. As the flow of capital has been reduced across the globe, banks have been stepping in to do what they can to alleviate the crisis and get credit moving. Unthawing the credit markets is seen as vital because it affects economies around the world in various ways:

• Consumer spending with credit and debt.
• The ability of businesses to get loans.
• Banks’ willingness to lend to each other and others.
• Available capital in the money markets.
• Mortgages are harder to come by, keeping housing markets unstable.

The idea behind the coordinated action is to help increase the amount of money that is “out there.”

However, it is generally agreed that the action by the central banks is not going to be enough to solve the problems facing the global economy. In the United States, there is already talk of further rate cuts in the coming months, depending on how things go. That would bring rates even below the already low 1.5% reached today. The move should have some effect on mortgage interest rates, provided the credit market really does ease. And it offers a good opportunity for those struggling with consumer debt — especially credit cards — to more efficiently pay it off.

Britain buys equity in top banks

One of the more interesting moves made in recent hours is the decision by the Bank of England to buy preferred stocks in some of the top banks. This is an interesting move that allows the banks capital, while providing the British government with assets that are likely to increase in value. (Perhaps this is something more along the lines of what the U.S. should have done.)

At any rate, no one thing is likely to fix the economic problems plaguing the globe, and a series of actions, taken in the countries with the economic lead, will be needed to halt the crisis.

Tags: Fed rate cut, mortgage interest rates, home mortgage loan, mortgage loan blog,
economy, interest rates, credit cards

Even as Congress continues to wrangle over the $700 billion bailout plan with the White House, mortgage interest rates are already being affected. While the details have yet to be worked out, it is very clear that sometime in the next two weeks to six months a very large amount of money is going to be entering the market. And this causes inflation.

This inflationary reality is explained by Behind the Mortgage:

In borrowing more, the government is (in effect) expanding the money supply; either by literally putting more dollars in circulation, or by creating a perception in world markets that they will, or will have to, in order to repay the debt.

And expanding the supply of dollars is inflationary - More dollars floating around means the dollars the Federal government uses to pay back these debts will be worth less (For evidence of this in action: Just yesterday the dollar recorded its largest ever one day drop.)

This is something that is important to remember, because mortgage interest rates are connected to long term (usually 10 year) Treasury notes. So as government debt, inflation and the money market makes the dollar worth less, investors *need* more greenbacks to recover their return and beat the rate of inflation. The Mortgage Reports Blog connects the dots to what this means for mortgage loan rates:

And lastly, the mortgage market got hit.   Because mortgage bonds are repaid in U.S. dollars, the value of those repayments dropped.  This forced mortgage rates higher because the only way to entice investors to buy devalued mortgage-backed bonds is to offer them with a higher interest rate.

If you’re wondering why conforming mortgage rates are up by 0.750 percent since last week, this is it — it’s because mortgage rates are responding to the expectations of a weaker dollar going forward.  This is the reverse of what happened in August.

So, even though many expect lending standards to loosen up a bit in the coming weeks, it still doesn’t equal a slam-dunk for the consumer. Because now borrowers will be able to get the home mortgage loan, but they will be paying more for it.