Published: Thursday, March 19, 2009
Mortgage rates likely to fall
WASHINGTON -- If you've got a good job, solid credit and your home's value hasn't fallen dramatically, you're likely to benefit from the Federal Reserve's extraordinary action Wednesday to help drive mortgage rates to historic lows and revive the U.S. housing market.
The Fed's plan to buy up to $300 billion of long-term government bonds and $750 billion in additional mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, should benefit many -- but not all -- borrowers. It's likely to produce a big drop in mortgage rates. Analysts expect rates will fall 0.25 to 0.5 percentage points as soon as Thursday.
The national average rate on 30-year, fixed mortgages was 5.15 percent on Wednesday, according to financial publisher HSH Associates, up slightly from a day earlier. Heralding a drop in mortgage rates, the yield on the benchmark 10-year Treasury note fell Wednesday to 2.51 percent from late Tuesday's 3.01 percent.
"It's going to keep rates low for a longer period of time," said Greg McBride, senior financial analyst at Bankrate.com.
Average rates for 30-year-fixed-rate mortgages hit a record low of 4.96 percent in January, according to mortgage finance company Freddie Mac. That was after the Fed launched its initial plan to buy $500 billion in mortgage-backed securities.
The Fed, seeking to push rates down further, is effectively planning to buy at least half of the home loans made in the U.S. this year based on last year's total of about $1.4 trillion in mortgages. Around 70 percent of new loans in recent months have been backed by Fannie and Freddie, the mortgage finance companies seized by government regulators in September.
Fannie and Freddie own or guarantee almost 31 million mortgages worth about $5.5 trillion, more than half of all U.S home mortgages.
The Fed actions were great news for John Tuggle, a mortgage banker in Columbus, Ga., where the economy and housing market have remained relatively healthy. His business already had been looking up this year due to a new $8,000 tax credit for first-time buyers, and the Fed's moves amounted to icing on the cake.
"Bottom line is, those people who already are gainfully employed and can qualify for mortgage can buy more of a house," Tuggle said.
Still, mortgage lenders have severely restricted the availability of new loans to borrowers who don't have 20 percent down payments and good credit, making it tough for many first-time borrowers to qualify.
While the Fed's actions are likely to aid those who have saved up to make a down payment on their house, or have enough equity in their homes to refinance, they are less likely to benefit the nearly 14 million American households that owe more on their home loans than their houses are worth, or those on the verge of foreclosure. The mortgage industry, armed with $75 billion in federal bailout money that President Barack Obama wants to use to prevent foreclosures, is receiving record-high levels of requests for help from troubled homeowners.
More than 13,500 homeowners a day have called the Homeownership Preservation Foundation's 1-888-885-HOPE hot line since the Obama administration's program launched earlier this month, about triple the daily level of calls received before the plan was announced.
Mortgage applications jumped 21 percent last week from a week earlier, as low interest rates fueled refinancing activity, according to the Mortgage Bankers Association. About 73 percent of applications came from borrowers seeking to refinance home loans at lower rates. Fannie Mae said Wednesday the volume of mortgage loans it refinanced in February totaled $41 billion, nearly triple January's volume.
The Fed's plan to buy up to $300 billion of long-term government bonds and $750 billion in additional mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, should benefit many -- but not all -- borrowers. It's likely to produce a big drop in mortgage rates. Analysts expect rates will fall 0.25 to 0.5 percentage points as soon as Thursday.
The national average rate on 30-year, fixed mortgages was 5.15 percent on Wednesday, according to financial publisher HSH Associates, up slightly from a day earlier. Heralding a drop in mortgage rates, the yield on the benchmark 10-year Treasury note fell Wednesday to 2.51 percent from late Tuesday's 3.01 percent.
"It's going to keep rates low for a longer period of time," said Greg McBride, senior financial analyst at Bankrate.com.
Average rates for 30-year-fixed-rate mortgages hit a record low of 4.96 percent in January, according to mortgage finance company Freddie Mac. That was after the Fed launched its initial plan to buy $500 billion in mortgage-backed securities.
The Fed, seeking to push rates down further, is effectively planning to buy at least half of the home loans made in the U.S. this year based on last year's total of about $1.4 trillion in mortgages. Around 70 percent of new loans in recent months have been backed by Fannie and Freddie, the mortgage finance companies seized by government regulators in September.
Fannie and Freddie own or guarantee almost 31 million mortgages worth about $5.5 trillion, more than half of all U.S home mortgages.
The Fed actions were great news for John Tuggle, a mortgage banker in Columbus, Ga., where the economy and housing market have remained relatively healthy. His business already had been looking up this year due to a new $8,000 tax credit for first-time buyers, and the Fed's moves amounted to icing on the cake.
"Bottom line is, those people who already are gainfully employed and can qualify for mortgage can buy more of a house," Tuggle said.
Still, mortgage lenders have severely restricted the availability of new loans to borrowers who don't have 20 percent down payments and good credit, making it tough for many first-time borrowers to qualify.
While the Fed's actions are likely to aid those who have saved up to make a down payment on their house, or have enough equity in their homes to refinance, they are less likely to benefit the nearly 14 million American households that owe more on their home loans than their houses are worth, or those on the verge of foreclosure. The mortgage industry, armed with $75 billion in federal bailout money that President Barack Obama wants to use to prevent foreclosures, is receiving record-high levels of requests for help from troubled homeowners.
More than 13,500 homeowners a day have called the Homeownership Preservation Foundation's 1-888-885-HOPE hot line since the Obama administration's program launched earlier this month, about triple the daily level of calls received before the plan was announced.
Mortgage applications jumped 21 percent last week from a week earlier, as low interest rates fueled refinancing activity, according to the Mortgage Bankers Association. About 73 percent of applications came from borrowers seeking to refinance home loans at lower rates. Fannie Mae said Wednesday the volume of mortgage loans it refinanced in February totaled $41 billion, nearly triple January's volume.
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