Mortgage Rate News

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It is increasingly looking as though October may be the time to buy a home. After all, many people will be rushing to take advantage of the tax credit being offered to first time home buyers. But even if you don’t qualify for a first time home buyer credit, October may be a good time to buy — if you have been planning ahead to buy a home — because there is the possibility of lower interest rates. Or at least the possibility that October is your last chance to take advantage of record-low mortgage interest rates before they start rising. Here is what Subprime Blogger points out about mortgage interest rates, Treasury yields and Federal Reserve policy:

No one knows how much yields will have to increase to be attractive to foreign investors but we can assume that 3.3% on the 10 year yield is not attractive.  If the 10 year yield pushes towards 4% like it did during the summer there is a good chance that we could see 6% mortgage rates coming in the near future.  This is not going to happen while the Fed still has both hands in the pot but it could happen when the Fed stops buying up Treasuries.

With this in mind, if mortgage rates are going to hit all time lows it is going to have to happen in October.  This is not to say that mortgage rates will not stay at low levels but all time lows will be out of the question without the Fed’s assistance buying treasuries.

And buying a home isn’t the only way to reap advantages of low interest rates. You can also refinance your home. Just realize that to get the best mortgage interest rates you are going to need a good credit score and a decently-sized down payment. Otherwise, mortgage lenders will not qualify you for the best interest rates.

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Recently, the news has got out that the FDIC’s bank fund is in the process of being depleted. As a result, the FDIC is meeting today to try and hash out issues related to replenishing its fund. Here is what MarketWatch reports about the situation:

The FDIC meets Tuesday to tackle the thorny issue of how to fund the coverage of insured depositors. Ninety-five banks have failed to date in 2009, up from 25 during 2008 and only three in 2007.

The FDIC will also reportedly consider other options to figure out how to raise enough money to keep depositors to failed institutions whole.

Complicating the situation, 50 institutions were closed in the third quarter for a total estimated cost to the FDIC of $14.9 billion, according to researchers at Keefe Bruyette & Woods.

One of the problems that the FDIC has with cash flow is the fact that between 1996 and 2006, many banks stopped paying their FDIC insurance premiums. So when the crisis hit, the FDIC’s bank fund wasn’t nearly as big as it could have been.

Prepayment from banks?

Considering this history, it is no surprise that the FDIC is mulling over the idea of prepayment from banks. The FDIC might ask banks to prepay three years’ worth of fees in order to help replenish the bank fund. Personally, I think the FDIC would be in line to create a payment plan — charging interest — for the banks to repay all of the fees that they didn’t pay for 10 years. Isn’t that what banks do to the rest of us when we’re delinquent on something? Jack up the interest rate and make us repay everything? They can even make a plan to help banks cope with the current economic conditions.

In any case, the FDIC needs more funds to cover the bank failures and ensure that our money is kept safe. And perhaps the banks need to step it up a bit.

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During the credit crunch, Freddie Mac and Fannie Mae, the two government sponsored entities responsible for making home mortgage loans more affordable, have been providing loans. Fannie Mae has been doing this by allowing people with credit scores of around 580 to qualify for home mortgage loans. However, Fannie Mae can not longer keep this up. Starting on November 1 for manually underwritten mortgages and December 12 for loans underwritten using Desktop Underwriter, the new requirements will be 620. DS News reports on exceptions to the new requirements, as well as why Fannie has decided to tighten credit requirements for home mortgage loans:

Exceptions to the new minimum credit score requirement are limited to mortgage loans that are manually underwritten with nontraditional credit and those originated in accordance with the GSE’s Refi Plus offerings, which are being used to help underwater borrowers refinance under the Obama administration’s Making Home Affordable program. …

Brian Faith, a spokesman for Fannie Mae, told American Banker, “Our experience with recently delivered loans with credit scores below 620 is that they reached a level of serious delinquency at a rate approximately nine times higher than other acquisitions during the same period.”

Even with the tighter lending standards, though, Fannie Mae remains one of the most generous mortgage lenders. Many mortgage lenders are now requiring a minimum credit score of between 680 and 720 in order to qualify for mortgage loans, with some expecting a 740 if borrowers want the best home loan rates.

Mortgage standards have also been tightened across the board for mortgage lenders offering refinancing. Indeed, since refinancing is an exception to Fannie’s new tightened requirements, those wishing to refinance, especially under Making Home Affordable, might consider it. The deals are good, and you could save a quite a bit of money. If you are looking for a first home mortgage, though, you might find things more difficult to arrange.