Mortgage Rate News

This morning, the Federal Reserve announced a plan specifically designed to send mortgage loan interest rates lower. Right now, mortgage rates are higher than they should be, and that is discouraging some buyers. The new program initiated by the Fed will include directly buying housing-related and mortgage-related obligations from Freddie Mac and Fannie Mae, as well as mortgage backed securities. Included in this mortgage-backed securities purchase is Ginnie Mae. Behind the Mortgage reports on the point of the Fed’s action:

This action is aimed directly at, and intended to narrow, the interest rate “spreads” between Mortgage related securities and treasury securities, which have been leaking wider ever since the Fed stopped short of affirming a “full faith and credit guarantee” for Fannie and Freddie’s obligations.

It is clear that all of the efforts being made by the government so far to increase liquidity have not been working. And, even though a lot of play as been given to the $700 billion bailout, another zero needs to be added in order to get the scope of what has actually been promised in terms of bailouts and rescues: $7 trillion.

New phase in Fed liquidity plan: target consumer loans

Today’s announcement of a plan for easing mortgage loan interest rates was not the only new loan program offered by the Fed. TARP will also soon be including consumer loans in its 4th incarnation. In order to encourage investment in consumer debt-backed securities, loans are being offered to those who invest in such things as credit card debt, car loans and student loans.

The idea behind this particular plan is to encourage lenders to loosen their tightened credit requirements so that borrowers can get more credit. The hope is that lenders will give more loans, and that consumers will then go on a debt-fueled spending spree to help the economy. The Big Hope is that this will come in time for consumers to get the credit lines they need to “save” the holiday shopping season.

With all the largess flowing from Washington, it’s starting to become difficult in terms of figuring out where money is going (no one’s worried about where it’s coming from, at any rate). And I know everyone’s all about the Citi bailout this morning, but another stimulus may be on the way. This one may have more of a direct impact on “ordinary” folks — or at least first time homebuyers. The new stimulus is one suggested by the National Association of Homebuilders (NAHB).

Trying to fix the housing market first

As one might guess, the National Association of Hombuilders is fairly certain that the government is throwing money at all the wrong thigns right now. Instead of fixing the housing market and trying to get things back on track with homeowners and home prices, the government continues to chuck money, through bailouts, at a number of companies that made downright poor business decisions. Instead, suggests the NAHB, the government should aim at creating measures to help get the housing market moving, mainly by:

1. Offering a tax credit that is larger than the $7,500 offered right now to first time homebuyers. Also, NAHB doesn’t think that the credit should be paid back.
2. Subsidy for mortgage interest rates that would, according to Mortgage News Daily, “target interest rates on 30-year fixed-rate government-backed mortgages for conforming loans that would bring rates down from the current 6.0 percent range to around 3 percent for those made in the first half of next year and 4 percent for those originated during the third and fourth quarters of 2009.”

It’s an interesting thought — focusing on people who might be interested in buying. However, it does not address some of the problems facing the economy right now. Like, you know, foreclosure. Instead, the NAHB plan runs the risk of putting more unoccupied homes out there, without doing anything to forestall foreclosure. The other issue is that first time homebuyers can’t take advantage of any of this as long as they can’t get approved for mortgage loans.

Back when my parents bought their first home, a 20% down payment was a must. You weren’t even considered for  home mortgage loan unless you had 20% down. Straight-up. No fancy piggy-back loans or other “creative financing.” Nope. You had to have a 20% down payment.

Somewhere between when my parents bought their first home 30 years ago and my husband and I bought our first home last year, the times changed. (We bought our home with a rather small down payment — no 20% for us.) You could get fancy financing. Buying a home was possible with a 0% down payment. Private mortgage insurance could be purchased to avoid the 20% down payment requirement.

But the mortgage lenders are starting to wonder if maybe the way things used to be done really were better. AllFinancialMatters reports that some mortgage lenders are starting to require a 20% down payment again. At the very least, some are requiring 10% down. You might still find someone that will accept 5%. While I think 20% down may be a litle overkill with home prices now (my parents put 20% down on a $50,000 house — $10,000), when 20% down on a what passes as a modest home at $150,000 is $30,000. But it wouldn’t hurt to require that someone buying a $150,000 home at least have $15,000 for a down payment.

The fact of the matter is that not everyone is in a financial position to own a house. It would be nice if everyone could buy a home, but it just isn’t feasible. Some people just aren’t there. They don’t have the financial stability to pull it off in a way that is sustainable. And trying to get them there — through low teaser rates, interest only loans, creative financing and 0% down payment options — just won’t work out well in the long run.

Obviously.