Mortgage Rate News

There are have been a number of mortgage rate predictions flying about lately, and it is interesting to see how rates have been playing out. Right now, 30 year mortgage rates have returned to record lows as pressure remains on the housing market. Right now, the average 30 year mortgage rate is at 4.78%. That’s pretty darn low. And other mortgage rates have followed suit, reports MarketWatch:

The 15-year fixed-rate mortgage averaged 4.48% this week, unchanged for the third week in a row. It is also tied for the lowest rate recorded during the survey; Freddie Mac began tracking this mortgage in 1991. The mortgage averaged 5.59% a year ago.

Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.80%, down from 4.85% last week and 5.73% a year ago. This week’s rate is the lowest since Freddie Mac began tracking the product in 2005.

It is interesting to note that fixed rate mortgages are actually lower than adjustable rate mortgages. Normally you see an adjustable rate that is lower. But there is a lot of emphasis right now on home buying, and many borrowers have learned the lesson of the last decade: adjustable rate mortgages are likely to come back to haunt you in a major way. As a result, many are asking (and getting) lower fixed rate mortgages.

Of course, in order to take advantage of the best rates you have to have good credit and a reasonable down payment. For those trying to refinance to one of these lower rates, a reasonable amount of equity is needed in the home. However, if you have lost equity due to falling home values, it is still possible for you to refinance. Plans aimed at helping those who want a second home mortgage are in effect, and some of them do not require you to have a great deal of equity in your home.

Image by Getty Images via Daylife

Back in February, the Obama Administration revealed a foreclosure prevention plan, called Making Home Affordable. This plan is aimed at helping home owners avoid foreclosure through a combination of lower mortgage interest rates, refinancing and loan modification. Incentives for mortgage lenders and borrowers were revealed. However, the plan was mostly aimed at first home mortgages. Unfortunately, about half of the folks with at-risk first home mortgage also have second home mortgages. And nothing in the foreclosure prevention plan had much to do with this home equity loans.

So the government is introducing another plan, specifically aimed at helping reduce paymets on a second home mortgage.

A second home mortgage may have an interest rate as low as 1% under the latest foreclosure prevention measure.

Today, the Obama Administration unveiled another plan. This one is meant to help those with second home mortgages. The L.A. Times reports on the new government mortgage program:

Under the new program, the government would share lenders’ cost of reducing second-mortgage interest rates. For second-mortgage loans that amortize (those with monthly payments that include principal and interest) the loan rate would be cut to 1% for five years. For interest-only loans the rate would be cut to 2%.

The hope is that the new mortgage interest rates — resulting in lower payments — will keep home owners from defaulting on their second mortgages. This program is meant to be used alongside the Making Home Affordable program. Combined, these programs would make the overall payments owed by at-risk borrowers more affordable.

Of course, the program is voluntary, so mortgage lenders are being offered incentives to help out. One of the carrots being dangled in front of mortgage lenders, in addition to subsidies for reducing interest rates, is a one-time payment for lenders who forgive second home mortgages outright.

It’s an interesting thought, but what happens in five years when the low, low mortgage interest rates reset? While some may be in a better position to make second home (and first home) mortgage payments, many will be right back at this point.

Image via CrunchBase

Peer to peer (P2P) lending has been around for a while, but it has really been gaining in popularity since the financial crisis. With the credit markets gummed up, many people are turning to regular people — with the help of such organizations as Prosper and Lending Club — to get financing. And ordinary people are willing to supply this financing, since it often provides better returns than many of the current investments are offering. For the most part, though, P2P lending focuses on getting individuals together. But now Prosper wants to arrange it so that banks can put their smaller loans up for bid. BusinessWeek reports on how this person to bank lending would work:

How will peer-to-peer lending work for financial institutions? Just as in any regular loan, the financial institutions—banks, car dealerships, community lending organizations, and the like—will lend to people buying a car or running a business. The loan must then gestate for three months. After those first three payments have been received, the financial institution can post the loan for bids on Prosper. This is not meant to be a place to unload toxic bank loans (there are other places for that), and only loans up to $25,000 that are current on payments may be posted.

It’s an interesting idea that could actually help loosen the credit markets a bit. Banks could make some money on the spread between the it’s rate and the rate being charged by the regular folks. And the regular folks get access to investments that have the potential to be of reasonably high quality.

It’s an interesting concept. Normally, the relationship between bank and consumer is limited to the customer receiving interest on money it has in the bank (and that the bank lends out to others to make more money). This setup would provide better returns for customers than savings account yields, and it would help banks keep credit moving. It will be interesting to see whether Prosper gets SEC approval — and whether the process works as it should.