Mortgage Rate News

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This morning, the Senate voted to pass housing bill that aims at helping to reduce the rate of foreclosure in this country. With foreclosures mounting again (following a moratorium over the holidays), government officials are scrambling to try to and do what they can to stem the tide of foreclosure and prop up the housing market. This is important to political leaders, since the housing market is considered an essential part of economic recovery. The new bill makes it easier for homeowners with risky credit to take advantage of a government program to help prevent foreclosure through refinancing and loan modification. The hope is that lower requirements will allow more people to take advantage of programs that can keep them in their homes.

The bill also expands an existing foreclosure prevention program, reports Foreclosure Warehouse:

The Senate housing bill would expand an existing $300 billion program called “Hope for Homeowners,” which persuades lenders to write down an individual’s mortgage if the homeowner agrees to pay an insurance premium. The program, which is set to expire in 2011, is intended to swap out a homeowner’s high-interest rate for a 30-year fixed loan backed by the Federal Housing Administration (FHA).

Congress is holding out hope that it will be able to help at least 400,000 troubled homeowners avoid foreclosure. Unfortunately, the fact that the programs are largely voluntary for mortgage lenders is slowing efforts to prevent foreclosure. Even with government incentives, mortgage lenders have been reluctant to engage in loan modification.

One thing that did not make in the bill was a provision to allow bankruptcy judges to reduce mortgage payments. Leaders have tried repeatedly to have this provision passed in various bills, but they are always blocked by the strong banking lobby. Obviously, mortgage lenders do not want to be forced into offering lower mortgage payments, much as credit card companies and other creditors are required to accept during bankruptcy proceedings.

Mortgages rates are a little higher this week, thanks in part to optimism over economic “green shoots“. However, it remains to be seen whether or not rates will keep climbing. Indications are that celebration over these tentative signs of possible and imminent economic recovery are a bit premature. This means that mortgage rates might possibly fall back as economic news continues to point to the possibility that a bottom may not have been reached yet.

Retail sales data and the economy

April retail sales data was reported earlier this week, and things are not looking particularly good. Economists has expected a slight gain for retail sales, and were instead faced with a drop. This indicates that consumer spending, a staple of the U.S. economy, is not really recovering.  Consumers are not terribly interested in buying goods; they are more concerned with saving money and shoring up their personal finances.

Jobless data resumes its weakness

After jobless data dropped last week, showing slowing unemployment rates, it has resumed its climb this week. Jobless claims jumped this week, adding to the speculation that the “green shoots” of economic recovery probably are not very reliable. New unemployment claims are up on the week, and the moving average of continuing unemployment remains a problem.

With these issues pointing to continued recession, it is little surprise that mortgage rates remain at record lows. After all, even though they have ticked upward, mortgage rates still remain below 5%, offering an excellent buying opportunity. And it is possible that next week mortgage rates will fall back down. With the recession still firmly in place, rates should not be rising dramatically any time in the immediate future. It is quite likely (though by no means certain), that mortgage rates will remain low for the coming few months. While they will probably fluctuate, they are likely to remain within + or - 25 points of 5%.

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.