Will mortgage rates drop again?

Will the latest nugget of news about the Federal Reserve's plan to buy mortgage bonds send home-loan rates plummeting again?

Borrowers and analysts will be closely watching quotes from lenders Wednesday, especially because another key mortgage player is predicting a sharp decline.

The Fed said late today that it would begin purchasing $500 billion in Fannie Mae, Freddie Mac and Ginnie Mae securities early next month.

When the Fed initially announced that plan in November, and when it reaffirmed it two weeks ago, rates promptly plunged -- although only for solid, creditworthy borrowers with big down payments or lots of equity in their homes. These borrowers discovered recently that they could get 30-year fixed mortgages in the 4.5% range.

They have since edged back up to just under 5% for solid borrowers who pay a 1% upfront fee and shoulder about $3,000 in closing costs, mortgage brokers said.

There was not much movement in rates from that level today. But as bankrate.com's Greg McBride points out, the Fed spoke today "after market close, so we might see some reaction to that tomorrow."

More encouraging words: Separately today, Federal Housing Finance Agency Director James Lockhart, the regulatory supervisor of Fannie Mae and Freddie Mac -- said on CNBC that he expects mortgage rates to fall again by a half percentage point to a whole point.

-- E. Scott Reckard

Photo credit: Home sale signs are visible on a street corner in Portland. AP Photo/Don Ryan

Comments

[Colon]

What is the primary indicator to watch for in terms of a leading indicator that mortgage rates will go down?. I have been reading lots of articles over the last month or so that talk about 4.5 % interest rates and I want to buy a home but I am concerned that I will wait too long to buy and miss the already low rates so I would like to know if any indicator can be watched that will give a solid indication on the direction of rates for 30 year fixed mortgages?.

[Nelcisco]

The fed anounced"rates promptly plunged--although only for creditworthy borrowers with big down payments or lots of equity in their homes".

I agree thats what it'll take.

But notice.The operative words are "BIG"down payment
and "LOTS" of equity in their homes.

Theres an issue here with unemployment on the rise and falling equity....Oh and lets not forget creditworthyness will get thin when more and more people are out of work and not paying car, notes mortgages, you all know the drill we've been talking about this for at the last yr. I've been reading and commenting on this blog. So what will happen? as people become more and more subprime because of income and credit it'll be a good time to buy?
rate won't mean crap, the last post about prices dropping in LA and those comments are a better forcast

[k2polo]

Mortgage rates will help the re-financing market, but have very little affect on the sale of existing homes. Unemployment numbers, job..that's the answer. If people do not have secure employment, they will not commit to a mortgage, no matter the rate!

[Danny]

Lower rates are actually not good news. In five years' time, interest rates are going to have to rise across the board to combat runaway inflation. And that means that we will have a whole new housing crash on our hands. Any banks that have a bunch of these "artificially low" 30 year mortgages on their books are going to go under.

[sailor7x]

RE's are very upset with hints of future lower rates. Why buy now when prices and rates are looking to drop?!? This was a big part of RE agents' ability to "Create Buyer Urgency" . Agents love to tell you "buy now because rates might go up"! Now they will have a tough time selling that one. As a 2011 buyer I love IT!

[ray]

At 4.5 interest rate I'm in. With a credit score of 800+, great work history with a well-known company, and my 20% down and then some I'll have no problem securing the 4.5% financing.

So what about inflation? Don't you know its easier to pay your debts if your wages are going higher with inflation. Here's a tip if you want to ride out inflation, commodities, precious metals, equities and debt. (All things being equal, of course.)

[Pasadena'ed]

Lower rates are only good for folks like me with existing mortgages. Lower PRICES are good for potential buyers. For as long as prices are as high as they are -- and yes, they are still high when compared against incomes -- lower mortgage rates only prolong the problem.

Don't worry about missing the bottom on interest rates, Colon. Focus on the bottom of PRICING.

[MyLessThanPrimeBeef]

As we close out the year, let us reflect on the people we lost the last 12 months.

1. My investment banker. He was fired and is nowhere to be found. I have lost him.

2. My bank. Last I heard, the FDIC got it locked up somewhere. Can't find it. I know I have lost it.

3. My real estate agent. I think he quit the 'profession,' and is now a coin clipper for the Fed...not really sure on that, but I know I have lost him.

4. My loan broker. I think I have lost him too. He's making too money refinancing and is not returning my calls. Adios to him too!

5. My investment advisor. Can't find the guy either. Last I heard, he was mumbling something about mad, mad something and cyanide pills.

6. My car dealer. I called to check on my warranty and discovered the lines had been disconnected. I guess I lost that one as well.

7. My canary in the coal mining. He was screaming 'Sub-prime Tsunami!' 'Subprime Tsunami!' night in and night out. So, I had to throw him out. In that sense, he is lost to me as well.

8. My friend Pollyanna. She was killed by the SIV virus. Now, everyday seems like it's the end. In fact, I die every night after reading the nightly financial news only to miracously resurrect the next morning.

[hake d.]

That's gold, LessThanPrime, gold.... thanks, man.

[keith]

So what about inflation? Don't you know its easier to pay your debts if your wages are going higher with inflation. Here's a tip if you want to ride out inflation, commodities, precious metals, equities and debt. (All things being equal, of course.)

Posted by: ray | December 31, 2008 at 12:52 PM

Well ray, you're sure not in the accounting or finance department

[Laker]

Danny wrote: "...we will have a whole new housing crash on our hands. Any banks that have a bunch of these "artificially low" 30 year mortgages on their books are going to go under...."

Danny, So what is exactly the problem. We will simply have 700 Billion bailout number two or in short TARP 2.0 to save these banks

[Cal]

The most important part of the Fed announcement:

"How will purchases under the agency MBS program be financed?
Purchases will be financed through the creation of additional bank reserves."

That means printing money. The operations to this point have been sterlized (buying one thing meant selling another). This one isn't. The fed is determined to keep long rates low and will print money to do it.

[RateNerd]

Its really hard to time the market, and with all the intervention going on now its harder than ever. Find a good rate from a reputable lender, refinance your home and get on with your life. Dont sweat 1/8 of a point on rate - its not that much money.

[Mortgage Rates]

Well hopefully by now the answer is known. Yes mortgage rates did go lower. With rates at a low 4.5-5% range, I'm thinking this could be rock bottom. The Fed will likely have to pay banks (instead of charging the banks interest) to borrow money in order to get them to drop mortgage rates anymore! lol Too bad only a small percentage of Americans can actually qualify now with the tightening of credit and lenders demanding high credit scores and big downpayments to get a loan these days...

[erick]

Do you think rates will drop again after the sharp rise last week? I'm buying a new home that will be done in late sep. 2009.