Immediate Release - URGENT

2011-10-06T16:26:52

WASHINGTON — The average rate on the 30-year fixed mortgage this week fell below 4 percent for the first time ever, to 3.94 percent.

For those who can qualify, it's an extraordinary opportunity to buy or refinance. And mortgage rates could fall even further now that the Federal Reserve plans to reshuffle its portfolio of securities to try and lower long-term rates.

On Thursday, Freddie Mac said the average rate on a 30-year fixed mortgage dropped from 4.01 percent last week, the previous low. The average rate on a 15-year fixed loan, a popular refinancing option, dipped to 3.26 percent, also a record.

Still, rates have been below 5 percent for all but two weeks in the past year and have done little to boost home sales. This year is shaping up to be among the worst for sales of previously occupied homes in 14 years.

Many people are reluctant to take the risk in this market. High unemployment, scant pay raises and heavy debt loads are deterring many would-be buyers.

Others can't qualify for the historically low rates. Banks are insisting on higher credit scores. And many want first-time buyers to put down 20 percent. Few people have that much cash or home equity to satisfy the requirement.

Mortgage rates have tumbled because they tend to track the yield on the 10-year Treasury note. The yield has fallen in recent weeks, largely because investors are worried about the U.S. economy and the debt crisis in Europe. So they have shifted their money out of stocks and into the safety of Treasurys.

A drop in mortgage rates could provide some help to the economy if more people could refinance. When people refinance at lower rates, they pay less interest on their loans and have more money to spend.

Consider a homeowner who owes $250,000 and is paying 5.09 percent on a 30-year fixed mortgage. That was the average rate being offered in January 2010. Refinancing the loan at 3.94 percent could save him or her more than $2,000 a year.

But many homeowners with good jobs and stable finances have already refinanced over the past year. Most economists say rates would need to fall at least a full percentage point before it makes sense to refinance again.

The reason is homeowners typically pay a few thousand dollars in closing costs when they refinance. And the low rates being offered don't include extra fees, known as points, which many borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

Story: Want to refinance your mortgage? Get in line

The average fee for the 30-year and 15-year rose to 0.8. The average fees for both the five-year and one-year adjustable-rate loans were 0.6 and 0.5, respectively.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.

The average rate on a five-year adjustable-rate mortgage fell to 2.96 percent. The average for the one-year adjustable-rate mortgage ticked up to 2.95 percent.

If you are interested in learning more about what rate you may qualify for - please call Courtney Orlando with RE/MAX Classic Group at 732.921.1825. 

Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.

Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid.

Many in the housing industry believe this credit could do a lot to jump start the moribund housing market.

"Our economists have studied the effect [of the credit] and they say there could be a 10% increase in home sales if it's implemented," said Mary Trupo, a spokeswoman for the National Association of Realtors. "It gives people who are sitting on the fence or who have inadequate funds for closing costs an incentive to act now."

A 10% increase would yield an extra half million sales this year.

To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.

Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.

Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.

And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability. So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund.

The housing industry has been pushing this idea for many months, arguing that first-time homebuyers are the key to boosting home sales. First time buyers who purchase from existing homeowners free those sellers to trade up to bigger, better houses.

But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card. Williams points out that buyers should beware that they won't actually receive any refund for a home purchased this year until after they file their 2009 income taxes in April 2010.

And he argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway.

And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back - the suspicion that prices are going to keep falling.

"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."

The industry would like to make the tax credit stronger by making it available to all homebuyers, not just first-timers. And it's pushing to have the credit last through the end of the year, at least.

"By the time it's implemented," said Trupo, "there could be very few months left to act." 

'Frannie' bailout makes money cheaper, not easier

Interest rates already down on takeover

By Matt Carter, Monday, September 8, 2008.

The government takeover of mortgage financiers Fannie Mae and Freddie Mac could mean lower interest rates for many borrowers but is unlikely to solve one of the biggest problems of the credit crunch: the shrinking number of people who can get a loan in the first place.

Fannie and Freddie will be permitted to expand their direct investments in mortgage-backed securities from $1.5 trillion to $1.7 trillion over the next year. With the government standing behind their debts, investors are also expected to be more willing to buy mortgage-backed securities guaranteed by Fannie and Freddie.

That could push the rate for a 30-year fixed-rate conforming mortgage down from 6.35 percent last week to "well below" 6 percent, according to Mark Zandi, chief economist at Moody's Economy.com.

Rates are already coming down to around 6 percent today, but it will take 30 to 45 days to get a sense of how the takeover will ultimately affect rates, said John Courson, chief operating officer of the Mortgage Bankers Association.

Today's lower rates "could be a one-day reaction," Courson warned. But the Treasury's actions have "put a safety net under (secondary markets where mortgages are sold) that restores investor confidence ... that should be a driver that leads to lower rates."

In a commentary for Moody's Economy.com's Dismal Scientist newsletter, Zandi said lower interest rates won't stop further house-price declines, but "raises the odds" that those declines will not exceed 5 percent to 10 percent of current levels.

Columbia Business School real estate professor Chris Mayer has estimated that higher borrowing costs -- as reflected by the unusually wide spread between mortgage rates and Treasurys -- has increased the cost of owning a home by 10 percent to 20 percent (see story).

With the government's explicit backing of Fannie and Freddie's debt, Zandi and others think the spread will return to levels more in line with historic norms.

"The immediate impact, already in evidence today, is clearly that the spreads between U.S. Treasurys and Fannie and Freddie securities have gotten a lot narrower," said Robert Satnick, chairman of the California Mortgage Bankers Association. "A tremendous amount of uncertainty has been taken out of the conforming mortgage market."

Dan Green, a loan officer for Chicago-based Mobium Mortgage Group Inc., sees mortgage rates improving in the short term, which will make homes more affordable by lowering borrowers' monthly payments. But Green, the author of The Mortgage Reports blog, sees a recovery in housing markets tied less to mortgage rates than to the availability of credit.

Until would-be home buyers and homeowners who have been "frozen out of the mortgage market in the last 12 months" have access to money, "a recovery won't be as quick as it should be," Green said.

While Congress has raised the conforming loan limit -- the ceiling for mortgages eligible for purchase or guarantee by Fannie and Freddie -- many borrowers in high-cost markets remain in "jumbo loan" territory.

Congress and the Bush administration have been allowing Fannie and Freddie to purchase and guarantee mortgages of up to $729,750 in high-cost markets until the end of the year. But the cap will be lowered to $625,550 on Jan. 1, and in markets where home prices didn't head into the stratosphere the old $417,000 conforming loan limit has remained in place.

So far, Fannie and Freddie haven't done much with the authority they were granted to purchase and guarantee mortgages above the old conforming loan limit. But with an infusion of capital from the Treasury, "they will have the financial muscle to do what Congress originally intended," Zandi said.

Because Fannie and Freddie aren't allowed to turn jumbo loans into guaranteed securities that are purchased by investors, those loans are costlier and harder to obtain. That's an especially acute problem in high-cost markets like California, where many homes are priced well above the conforming loan limit.

Satnick said it's too early to judge the impact of the takeover on the "nonconforming" (jumbo) loan market, but he doesn't expect the spread between the rates for conforming and jumbo loans to grow any wider. That means that if rates on conforming loans do come down, jumbo rates should follow suit.

Courson also expects jumbo and conforming rates to move in sync, although the margin between conforming and jumbo loans won't necessarily narrow, he said.

Those seeking a loan that falls within Fannie and Freddie's limits must still cope with higher fees and tightened underwriting standards instituted during the downturn. Many borrowers are being told to bring larger down payments to the table, if they can get a loan at all. Fannie and Freddie have eliminated zero-down loans, and many private mortgage insurers are requiring minimum down payments of 5 percent in declining markets.

Green said many of the changes Fannie Mae instituted in its latest version of its automated underwriting system, Desktop Underwriter 7.0, are more subtle and have not been widely publicized, but have a real impact on housing markets. When purchasing investment properties, for example, borrowers can't use rental income from the property to qualify unless their loan-to-value (LTV) ratio is 70 percent or less.

"If you are getting $2,500 a month in rent, and making a 20 percent down payment, to Fannie and Freddie that $2,500 doesn't exist," Green said. "When you get into the deep, dark changes in the guidelines, it goes beyond (loan-to-value ratio), but to a desire of having a risk-free loan."

In announcing a $2.3 billion quarterly loss last month, Fannie Mae officials said the changes they've made to Desktop Underwriter helped reduce by 80 percent purchases and guarantees of the kind of mortgages that accounted for most of their losses. Fannie Mae said it would stop buying Alt-A mortgages -- riskier loans often made with little or no documentation -- altogether by the end of the year.

While critics have derided Alt-A mortgages as "liar loans," they can be the only option for some buyers, including investors and the self-employed. Alt-A loans aren't inherently bad, but did perform poorly when other risks were "layered" on top of them, Courson said.

"It's the risk layering -- high LTV, no income verification, no FICO -- that's where those loans get into trouble," Courson said. Although the MBA does not advocate a return to "some of the ill-conceived credit practices" that helped produce the current crisis, it would encourage the government, in its role as conservator of Fannie and Freddie, to reconsider some of the recent guideline changes.

One reason Fannie and Freddie instituted new fees and tightened guidelines was the need to generate revenue and raise capital, Courson said. With the government preparing to provide $100 billion each in backing for Fannie and Freddie, that's a less immediate concern.

"I think there were some loans they made a decision not to make that may well become available" again, Courson said.

The government takeover is viewed as a short-term solution -- the Treasury Department's authority to backstop Fannie and Freddie expires at the end of next year. It will be up to the next administration to determine whether the government will step in and take over the role Fannie and Freddie played in the mortgage markets, or perhaps spin them off as private companies once they return to health.

Courson said the crisis presents an opportunity to take a step back and look not only at how Fannie and Freddie might be fixed, but at the secondary mortgage market as a whole. One question to consider, he said, is whether the Federal Home Loan Banks could be allowed to purchase and securitize loans made or purchased by their member banks.

"This is an opportunity to take a blank sheet of paper, and ask what is the best structure, without limiting ourselves to what we've got," Courson said.

In announcing the takeover Sunday, Treasury Secretary Henry Paulson said there is an inherent conflict in the way Fannie and Freddie are structured -- as private companies that aim not only to generate profits for shareholders but fulfill a public mission as defined by Congress.

Home sales were down in 26 metropolitan areas during the second quarter this year, compared to only 16 metros losing ground in prices during the first quarter, according to the National Association of Realtors.

The second quarter median condo price, measured in 57 metropolitan markets, was down 0.3 percent from a year earlier as 14 markets revealed price declines. Only five condo markets came in with price declines in the first quarter.

Speculators are rolling up their tents in once super-hot markets, investors are moving money to emerging markets and some potential first-time buyers, thwarted by higher energy costs, are opting for the rental market.

For the first in more than two years, the median condo price in metropolitan statistical areas (MSAs) is less than the median single-family price in metro areas.

That's a quantum shift in previous pricing anomaly that was caused by a concentration of condos in metro areas.

In a growing number of housing markets, selling a home is no longer a slam-dunk proposition. If you want to hear the net go 'swish' on your home sale, you'd better have some new moves.

Otherwise buyers will shut down your game.

"After half a decade of unprecedented growth in the housing market, it looks like home buyers are finally holding the cards as we move into a buyer's market," said Holly Slaughter, consumer experience expert at RealEstate.com.

Slaughter contacted us with a new game plan for sellers and we brought in some real estate agents from around the nation to help her coach.

If sellers want to stay in the game, here's what they'll have to do.

• Don't foul out. Price it right. Truly competitive prices that reflect market conditions are game winners. Slaughter suggests getting an appraisal to help set the asking price.

"The most important thing is pricing your property correctly. This can be done by contacting your real estate agent and having them perform a Comparative Market Analysis (CMA) for homes in your area that have sold or those that are on the market that are similar to the home that you are selling. A home that is priced too high for an area will not see a strong flow of interested buyers. Pricing your home too low may make buyers wonder if there are problems with the property," said, Brandon Green, owner and president of 40 Acres Realty Investments in Houston.

• Respect your opponent. Treat every consumer and every agent as if they were the person willing to pay the highest price for the property.

"Realize that in a declining market, a low offer today is likely to be a high offer in 60 days so give careful consideration to any offer even if less than you expected," said Richard Calhoun, San Jose-based Creekside Realty's broker.

• Give up some free throws. Negotiate with concessions and incentives.

"From a paint and carpet allowance to a new plasma TV. Creative extras may cost you a little up front, but are a great way to sweeten the deal," said Slaughter.

The market may be slowing, but home prices aren't cheap and buyers are cash-strapped.

"Pricing in New England is running about the same or just under it was a year ago, and settlement is coming in between 2 percent to 5 percent below asking. Sellers are offering to pay the property taxes for a year as an inducement to a buyer. Or giving free gasoline for a year. We have seen one developer offer a new BMW in the garage of any new house sold during a particular period. Some sellers are offering to pay the mortgage for the first year or two," said Dane Hahn, owner of EXIT 11 Real Estate, in Stratham, NH.

• Razzle, dazzle them with some new moves. Curb appeal enhances first impressions. Removing clutter sends impressions into overtime. Likewise, staging the game can put points on the board.

"Sellers in a changing market should consider the power of having a professional stage their home. If they are wary of being charged for these services, even just having a savvy real estate agent walk through and around the home and give suggestions on how the home could look better to potential buyers is huge," said Marcie Hahn, a real estate agent and Dane Hahn's daughter, at Williams Realty, in Salt Lake City.

"Many times the sellers don't see their home as others do because it's just that ... their home ... fresh eyes can be very powerful," she added.

• Shoot! Because so many consumers browse for housing, post plenty of high-quality photos of your home's interior and exterior online.

"Print out a nice report of your home. Add plenty of pictures, a detailed list of the home's amenities, a list of local amenities, third party information on schools, etc. Leave a couple of bottles of water for them to take (from the open house) as well," said Slaughter.

• Bring in an assistant coach. Hire an inspector.

"A large number of home sales fall apart after the inspection. Hire a professional to inspect your house from roof to basement before you put it on the market, giving you plenty of time to make repairs or price accordingly," said Slaughter.

• Know your way around the court. Know your neighborhood.

"Part of my listing presentation focuses on current market conditions. I educate them on the importance of competitive price, the average days-on-market in their area, and I make suggestions on the presentation of their home for potential buyers," said Shawneequa Badger, a real estate agent with Century 21-Alpha in San Jose.

• Sit on the bench. Most buyers want to feel comfortable when they're considering buying your home. Hanging around during the open house may run off potential buyers.
• Bring in some trick plays.