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.

With Alt-A loans heading into the same realm of foreclosure as the subprime loans before them, things are increasingly looking grim for mortgage lenders. Indeed, many people are deciding that trying to save their homes are too much trouble, and simply walking away. With all of these issues coming into play, it is no surprise that mortgage lenders are — somewhat reluctantly — starting to do what they can to keep people in their homes. And the process may be helped along by the government’s latest efforts at housing market rescue: streamlined mortgage loan modifications.

Are streamlined mortgage loan modifications the answer?

In order to try and make the process of mortgage loan modifications easier (and quicker) the government is introducing a “streamlined” process through Fannie Mae and Freddie Mac. The hope is that by creating a process that is relatively simple, as well as one that ensures that borrowers can make their mortgage payments, foreclosures can be averted.

The plan centers around efforts to change mortgage terms so that they result in lower payments. Calculated Risk points this out about the plan, however:

Note that this does not include principal reduction as a solution to create an affordable payment, and is limited to: “extending the term, reducing the interest rate, and forbearing interest”.

Obviously, the idea is more in line with assuring mortgage lenders that they will still make plenty of money. The idea — much like the proposed mortgage rate freeze late last year — is to make it possible for borrowers to keep paying lenders. One of the biggest features of this plan seems to be mortgage term extension. Refinancing a home that has 25 years left on the mortgage so that the borrower is going to be making for 40 years is actually very helpful to mortgage lenders. They recover the principal and — even if the mortgage interest rates are lowered — they get more money in interest payments.

Honestly, I’m not entirely sure why  mortgage lenders haven’t been doing this all along.

Lending rates are falling right now, and this is good news. Indeed, today’s Election Day is bringing all sorts of good news to the people of the United States. There are indications that banks are starting to lend to each other again, and that could mean that at some point they’ll start lending to the rest of us. CNN Money reports on the drop in lending rates:

A number of U.S. programs aimed at easing funding concerns for banks and encouraging lending between financial institutions have also helped lower Libor rates. Such initiatives include lowering interest rates, injecting capital into banks and providing insurance on all non-interest bearing accounts.

As rates fell, two key indicators of risk sentiment showed that confidence in the market was improving, but credit still remains tight.

Credit remains tight; credit cards set to cause next leg of crisis

Despite some optimism over the falling lending rates, things may not turn out rosy. The next leg of the financial crisis is expected to be credit cards. Companies are seeing an increase in credit card defaults, and that could lead to a whole new round of problems for the credit market — and for consumers looking to use credit to ease cash flow in these tough economic times.

And, unfortunately, the short-term lending rates do not have much impact on long-term rates, like mortgage loans. So mortgage interest rates are still somewhat high, comparatively speaking. And the tighter credit requirements, combined with home values that are still low, are not helping those trying to get second home mortgage loans.

Election Day: Get out and vote

While the next president’s effects on the economy — and even on the housing market — will be limited, whether we have John McCain or Barack Obama will make some difference in the policies that are enacted. Today is your chance to get out and vote for the person that you think will best be able to handle this crisis and get us back on track.