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You might have heard today that the treasury department may devise a plan to drop mortgage rates to 4.5% or so. ARE YOU SERIOUS? That is the first thing I think about as a mortgage professional. But you have to read between the lines. This is something that is being talked about, and that is in the beginning stages of being talked about. Also, this would be for people buying homes, NOT REFINANCING!

How would they do that?

"The Treasury would fund the purchases by issuing Treasury debt at 3%, suggesting the government could make a profit on the difference".

What would this potentially do for the housing market?

The thought is that it would help people who currently are priced out of the market, to be able to qualify for and afford homes. If that happens then the demand would rise, thus causing supplies to shrink. Home prices would then start to increase. Once that happened we could see the ability for folks without equity to potentially refinance out of their troubled loans. It might create a nice real estate cycle to help all. Although those folks without equity would have to be able to hold on during that cycle.

The word on the street is that if there is any plan put in place, it wouldn't be done until the Obama administration takes over. Food for thought: "They may have their own ideas or plans?"

Stay tuned~

Ray

As we know by now, if you follow my blog, the fed rate cuts don't equal lower mortgage rates.

Check out this article I found of interest tonight on what to expect after the rate cut. He makes a few good points that I normally don't cover.

In short my advice is to not get stuck in the cold. Rates are at 50 year lows. What that means is if you wait for lower rates you may end up losing out on the already low rates. If you can refinance into the 5% range and it makes sense don't hedge the market for lower rates. I have seen many people play that game only to lose. If your mortgage guy is refinancing, something is up! As I am right now.

check out My other blog from tonight~

Ray

I was having an email discussion with a client this morning about the state of rates as we explored the potential refinance on his home. He mentioned listening to a local radio station last night and that someone mentioned that rates for people with good credit will go lower , and they should wait to refinance. Let's explore this:

"The market has ran 287 BPS since November 25th, and still it will take another 100 BPS probably to get 5.375% on a no cost option (this is where your typical fees from the lender and title company are NOT wrapped into the loan, but paid by me the lender on your behalf). We are way above the last 2 year low's for rates. The gut would say bonds are in an over bought state and stand to be pulled down (higher rates). We need 100BPS more in run, probably before lenders will come off that 5.375% and 200BPS more to see 5%. If we see 5% hold on to your hat. But I might be willing to put my first born on the line that we won't see that happen, given historical data"

Here is some more food for thought on all of our personal situations:

We all have individual situations, but right now I am experiencing that many people are still working with inexperienced professionals selling them a mortgage. This is a toxic mix. Is it more important to you at a time of flat housing prices to increase your loan amount with fees to achieve a lower rate? That is a personal question, but explored with a caring advisor, you will have a tailored solution you feel good about. After all, would you feel good adding $8-10K to your current loan balance, all in the name of .5% and $60 per month of additional savings? Two people I am now working with almost walked down that road. 

Rates are also different for folks who have conventional loans, and conventional loans with mortgage insurance. You may see that combining the two mortgages and going into FHA could yield you substantial savings (due to FHA mortgage insurance and rates). Conventional rates are tied heavily to your FICO score, as is, conventional mortgage insurance at this juncture.

Be wise as you explore refinancing right now. An extra 30 minutes with the right person could save thousands in equity and interest on your loan.

Ray

This idea is similar to the November 26th announcement from the Federal Reserve where they indicated the intent to purchase up to $500 billion in mortgage-backed securities from Fannie Mae, Freddie Mac and Ginnie Mae. In addition they would buy another $100 billion in direct debt issued by those firms. The November news caused bond prices to spike higher and forced mortgage rates lower. Just like any commodity, whenever tremendous buying interest exists, prices rise. Mortgage rates fell almost 1/2% in rate following the announcement. However, the following week market forces continued and rates spiked a bit higher from the recent lows.

It is important to remember that there are no details to the Treasury plan as of yet. The Federal Government does not directly dictate home loan rates. Rates are determined by price movements of Mortgage Backed Securities (MBS), which compete for investor funds in the open market. The Treasury can buy mortgage bonds on the open market but remember that they are not the only entity buying and selling these instruments.

The Treasury is in a very tough position in trying to manipulate home loan rates. Creating a new Federal mortgage program could be very risky. How would rates be set, who would qualify, and can the funds be used for purchases and refinances are just some of the questions being asked. The other critical concern is implementing such a program without destroying the current mortgage securities market. Doing so could have the unintended consequence of causing additional economic turmoil.

Rates are not going to 4.5% with the wave of a wand by Hank Paulson or Ben Bernanke. As a matter of fact, the massive borrowing to fund the TARP program has a negative effect on rates. At this time, the announcement still leaves a lot of uncertainty. What we do know is that rates are at historic lows and house prices have moderated setting up a great scenario for people who need to refinance or are looking to buy a home. Waiting for rates to fall to 4.5% may leave people sorely disappointed.

I do see low 5% rates peaking out from under a rock to see how the weather is, so if you are buying a home using FHA right now let me know!

Ray~

303-779-0591 ext101

The latest news is that the treasury is going to buy up agency debt, and mortgage bonds responded positively. What we saw off of that news was an initial push positive, then a retraction.

Recently 30 year fixed rates have been in the ranges of 5.5%-6% at this current time. If you have a VA or FHA mortgage this means, you may be eligible for a streamline refinance. This refinance is a non-requalifying refinance. That means, no appraisal, no income or employment verification, no asset verification. Overall, none of the pain you may have felt when you took out your mortgage last time. You will also skip a payment and receive a refund on your current escrow account balance.

So should you refinance? You want to look at a combination of things to determine if you should. How long do you plan on living in the home? Do you plan on converting this home into a rental later? What is your current rate? How much lower can you get your rate and thus your payment? What will it cost (or add to your current loan amount)? How long have you had your current mortgage? Has the person you are talking with understand the impacts of a refinance and has analyzed the financial impact on your family?

If you are sitting at 6.5% or higher on your current mortgage or higher, you may want to strongly consider the refinance, if done right. Afterall, saving $100 a month in interest will save you $36,000 in interest on your mortgage.

Call or email for more details, and to go over the positive and negatives of refinancing your current mortgage. And make sure to ask what a true no cost refinance is, with whoever you are talking too. Ray

rwilliams@summit-mortgage.com