Mortgage rates near low for the year

Home loan rates are near their lowest point of the year in the wake of government efforts to help the housing markets. That has spurred a surge in applications to refinance mortgages, but the worst-off borrowers and people with jumbo mortgages aren’t being helped.

Mortgage giant Freddie Mac said today that the average rate on 30-year mortgages dropped to 5.53%, down from 5.97% last week and the lowest since the week of Jan. 24, when it was 5.48%.

The decline reflected the Federal Reserve’s commitment last week to buy $600 bmillion of mortgage securities and other debt issued by Freddie Mac and Fannie Mae. The government also is said to be considering a proposal by the financial industry for the Treasury Department to buy mortgage securities in a bid to force rates to as low as 4.5%.

New applications for mortgages last week shot up 51% from the previous week -- largely because of refinancings -- but were down 22% from a year earlier, the Mortgage Bankers Assn. reported Wednesday.

But analysts said trimming rates on mortgages financed by Fannie and Freddie won’t help the many Californians with jumbo loans because the government-backed companies don't buy them. Lower interest rates also won't do anything for struggling homeowners who have little or no home equity.

“This does not directly help jumbo mortgage borrowers, and it especially won’t help the majority of delinquent, upside-down or poor-credit homeowners who are going into foreclosure,” said Greg McBride of rate tracker Bankrate.com.

-- E. Scott Reckard

Comments

[Laker]

"...Federal Reserve’s commitment last week to buy $600 million of mortgage securities..."

I think you should fix that. The Fed will buy $600 Billion with a B.
i know it is a chump change compared to the $8.5 Trillion committed thus far....but still Billions and not Millions.

[smrr]

Laker (or E or Cal any other LA Land vets that didn't die when viles left), What's your estimation of what 4.5% interest rates on 30 yr fixed, as is being proposed now, impact on keeping prices inflated? Looking for feedback on this latest ploy, wondering if it impacts my plans to hunker down in Samo for 2 more years of rent control.

[smrr]

oops. was looking at the wrong post. i saw the great comments & the now revitalized blog on the 4.5% article. good to see the blog come back to life.

[Laker]

smrr,
I think it will get some people to buy instead of continuing to wait. It will reward investors as it will improve the cash flow.
However, looking numbers:
On a $600,000 house, you still need 20% down that is $120,000. That is not changing. So financing $480,000 with 4.5% will get you a $2432 payment versus $2877. That is $400 savings per month...not to shabby. Add $625 taxes per month. On the other hand think of letting the market return to equilibrium, and thus this same house will cost 30% less, that is $420,000. Now, assuming (not really needed) but say you still have (and want) to put the $120,000 down towards that house. You'll only need to finance $300,000. Even at the "high" 6% the monthly will be $1800. Now add the REDUCED taxes on $420K, to be $438 monthly.
You get buy in Dec 08 at 4.5% and pay $3057 PIT or buy in Jan 2010, and pay $2238 PIT.
So????
I say, if the FED is giving me 0% APR for 30 years, I'm buying tomorrow. Otherwise I'm still waiting.

[Samuel Margolies]

The solution: http://www.debtrealignment.com Contact the president-elect and your representatives — NOW. The rest is just a sad commentary on the vacuum in Washington. The present policies just add to the debt, plus — they are not working. We need debt and mortgage realignment. http://www.debtrealignment.com

[Drew]

Any loan program like this will of necessity be limited to purchases of primary residences.

Flippers and investors will not be permitted to ride that gravy train.

Count on it.

[Drew]

Laker, your calculus makes sense if in fact there is another 30% price drop in the next 12 months.

However, we don't know if: a) these 4.5% 30-yr loans will even be made available; b) if they are made available, whether they will still be available in a year's time or if it's going to be a short-term program; or c) how much prices actually will drop in the next 12 months.

For a) there's no guarantee these loans will be made available, I'm guessing they won't be, or will be at more like 5.5% or 6%. For b) I'm guessing that any such program will be temporary, maybe only for the single year 2009, maybe only for part of it. And for c) you know I don't think there's another 30% to drop in some neighborhoods (though there may be in some).