Mortgage Rate News

The numbers are in, and December new home sales fell 14.7 percent. Indeed, this is an indicator that times really are quite tough in the housing and mortgage market. After all, it is very difficult to buy a home when you don’t have a job — or are afraid of losing your job. With unemployment rising, it is no surprise that many markets are seeing problems with home sales.

Good news for those who are looking to buy a home

Even though the mortgage market and the housing market are both in such poor shape, it doesn’t mean that things are all bad. In fact, there are some great home buying opportunities right now. First of all, the dismal mortgage market means that interest rates are falling again. Between promises from the Federal Reserve, passage in the House of an economic stimulus bill and the failing mortgage market, interest rates are quite low. CNN Money reports on mortgage interest rates this week:

The average 30-year fixed mortgage rate fell to 5.48% from 5.59% for the week ended Jan. 28, according Bankrate.com.

The average 15-year fixed rate mortgage slipped to 5.10% from 5.2% and the average jumbo 30-year fixed rate dropped to 7.06% from 7.22%.

Another opportunity provided by the housing market is good prices on homes. With the slow housing market, many buyers are more willing to negotiate. You can get a better deal in some areas in addition to a low interest rate. The key is not to view your home as an investment so much as a purchase that you hope to enjoy for years to come. The housing bubble had many people thinking of their homes as investments, but in reality — especially when figure how much interest you pay — it’s just a big purchase. And right now, it is possible to get this purchase for a bargain.

One of the features of the economic stimulus package that was passed yesterday was a change in the way the $7,500 tax credit for new homebuyers is administered. Prior, this tax credit was meant to paid back over 15 years. Needless to say, this credit wasn’t particularly popular. (Not to mention the fact that many first time homebuyers couldn’t get approved for the loans they were trying to get.) Now, though, the new stimulus bill allows for a true tax credit — one that does not have to be paid back and is still worth up to $7,500. (That would have been awesome when I was buying my house.)

At any rate, that is the main sop in there for homebuyers. It would have been nice if they had made the credit retroactive to 2007 — for my sake — and even included those who are refinancing. Such a move would encourage more people to refinance their homes, and even help those of us who made good buying decisions just before the problems really began. Other measures in the economic stimulus bill include:

• Tax cuts for businesses and individuals.
• Infrastructure spending to help improve our power grid, roads and bridges.
• Renewable energy development to create more cost efficient power sources — and get us off of fossil fuels (especially foreign oil).
• Education money so that secondary and higher education learning can help us prepare for the futures.

There are also a number of other projects and expenses included in the economic stimulus bill, including money for STD education and a supercomputer. Really, though, it appears that most of the money is not going for truly viable economic stimulus projects. And let’s not discount the fact that mortgage lenders and other banks will probably get more bailout money in addition to the economic stimulus bill. After all, we’ve spent more than $7 trillion so far on economic stimulus, and most of it hasn’t been included in massive spending bills.

The House is looking over an economic stimulus package right now, and as it does that a House panel has also been examining the merits of cram downs. The findings? Cram downs should help the economy. Now, of course, Congress hasn’t exactly been doing a bang up job with the economy, considering how the $7 trillion spent so far on economic stimulus has been little more than wasted. But cram downs might actually help prevent foreclosures.

What are crams downs?

Essentially, cram downs are when bankruptcy judges force lenders to reduce the principal on a loan. This has been happening in cases of other types of debt for quite some time. But mortgage lenders have managed to be excluded from this practice by virtue of the fact that they lobby really well. Now, though, with the powers that be recognizing that some of the blame (but certainly not all) for the housing market mess can be put on mortgage lenders who approved loans they shouldn’t have, cram downs are becoming an issue.

The idea is to allow bankruptcy judges to modify loan terms and reduce the principal on home mortgage loans for those who are in danger of foreclosure. In order to take advantage of this, however, the borrower much let the mortgage lender know about the intention to file for bankruptcy at least 15 days in advance. Additionally, borrowers who sell the home within 5 years of any cram downs have to share some of the gains with their mortgage lenders.

Pros and cons of cram downs

This should prevent some foreclosures, since it will allow bankruptcy judges to force changes that the borrower can afford. Additionally, another side effect should be to force mortgage lenders to better consider the loans they offer.

On the downside, pickier mortgage lenders will not approve as many people, and the housing market may not get moving as quickly as some may like. And, of course, cram downs are likely to result in even more losses to mortgage lenders.