Mortgage Rate News

With all the largess flowing from Washington, it’s starting to become difficult in terms of figuring out where money is going (no one’s worried about where it’s coming from, at any rate). And I know everyone’s all about the Citi bailout this morning, but another stimulus may be on the way. This one may have more of a direct impact on “ordinary” folks — or at least first time homebuyers. The new stimulus is one suggested by the National Association of Homebuilders (NAHB).

Trying to fix the housing market first

As one might guess, the National Association of Hombuilders is fairly certain that the government is throwing money at all the wrong thigns right now. Instead of fixing the housing market and trying to get things back on track with homeowners and home prices, the government continues to chuck money, through bailouts, at a number of companies that made downright poor business decisions. Instead, suggests the NAHB, the government should aim at creating measures to help get the housing market moving, mainly by:

1. Offering a tax credit that is larger than the $7,500 offered right now to first time homebuyers. Also, NAHB doesn’t think that the credit should be paid back.
2. Subsidy for mortgage interest rates that would, according to Mortgage News Daily, “target interest rates on 30-year fixed-rate government-backed mortgages for conforming loans that would bring rates down from the current 6.0 percent range to around 3 percent for those made in the first half of next year and 4 percent for those originated during the third and fourth quarters of 2009.”

It’s an interesting thought — focusing on people who might be interested in buying. However, it does not address some of the problems facing the economy right now. Like, you know, foreclosure. Instead, the NAHB plan runs the risk of putting more unoccupied homes out there, without doing anything to forestall foreclosure. The other issue is that first time homebuyers can’t take advantage of any of this as long as they can’t get approved for mortgage loans.

Back when my parents bought their first home, a 20% down payment was a must. You weren’t even considered for  home mortgage loan unless you had 20% down. Straight-up. No fancy piggy-back loans or other “creative financing.” Nope. You had to have a 20% down payment.

Somewhere between when my parents bought their first home 30 years ago and my husband and I bought our first home last year, the times changed. (We bought our home with a rather small down payment — no 20% for us.) You could get fancy financing. Buying a home was possible with a 0% down payment. Private mortgage insurance could be purchased to avoid the 20% down payment requirement.

But the mortgage lenders are starting to wonder if maybe the way things used to be done really were better. AllFinancialMatters reports that some mortgage lenders are starting to require a 20% down payment again. At the very least, some are requiring 10% down. You might still find someone that will accept 5%. While I think 20% down may be a litle overkill with home prices now (my parents put 20% down on a $50,000 house — $10,000), when 20% down on a what passes as a modest home at $150,000 is $30,000. But it wouldn’t hurt to require that someone buying a $150,000 home at least have $15,000 for a down payment.

The fact of the matter is that not everyone is in a financial position to own a house. It would be nice if everyone could buy a home, but it just isn’t feasible. Some people just aren’t there. They don’t have the financial stability to pull it off in a way that is sustainable. And trying to get them there — through low teaser rates, interest only loans, creative financing and 0% down payment options — just won’t work out well in the long run.

Obviously.

There are two bits of housing and mortgage market news that have recently come out: Both housing starts and mortgage applications are declining. In this economy, things are getting a little dicey, and it is more difficult to get a loan — and fewer people are even bothering. And as a result of declining interest in buying homes, as well as the difficulty builders are experiencing in getting loans themselves, housing starts are down as well.

ActionForex sums up, rather well, the problems encountered right now with the housing market:

“Unfortunately, there just does not seem to be a bottom for the housing market anywhere in sight,” said Matthew Carniol, chief currency strategist at TheLFB-forex.com. “With credit remaining relatively expensive and difficult to obtain and unemployment rising, don’t expect to see housing improve until prices fall at least another 10-15%.”

It’s just not practical for many to buy right now. With uncertain times plaguing the economy, and with worries mounting about whether or not jobs will be kept, buying a home just isn’t high on the list of things that many households are prepared to do.

Mortgage applications fall

After rising recently, mortgage applications are falling again. Mortgage News Daily reports on the numbers for last week:

The portion of fixed-rate mortgages fell 6.4%, after rising 12.0% previously, while those opting for variable rates expanded 3.4% following the previous week’s 5.7% increase.

Compared to last year, the market composite index fell 41.2%.

Clearly, would-be home buyers are becoming discouraged in the current climate. It is so difficult to get approval for a home mortgage loan that many are just not bothering to try. Besides, what happens when you do get a home mortgage loan, and then you lose your job and default down the road anyway? It’s a bit of a pessimistic climate out there right now.

However, if you have good credit, a reasonable down payment and are fairly certain about your job, the flip side is that this is a buyer’s market and you could get a really sweet deal.