Mortgage Rate News

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It is little surprise that, even as the stock market soars today, that the home builder sentiment index is falling. The first time home buyer tax credit that so many have been taking advantage of over the last few months is set to expire November 30. However, since the mortgage has to close by the deadline, anyone who hasn’t already got things in motion is unlikely to make the deadline. And it also means that home sales are likely to dip this month, and the months after. No wonder home builders are concerned. So, with the imminent expiration of the first time home buyer tax credit (unless Congress extends the deadline), there is a new plan to help home buyers.

Obama Administration ready to unveil new plan to help home buyers

In order to try and continue stemming the tide of foreclosures, the Obama Administration is working on a new plan. This is not one that will help in terms of new home buyers. Subprime Blogger offers this summary of the new plan to help home buyers:

The new mortgage help plan will have two parts.  The first part will be a new bond purchase program that will support new lending by housing agencies.  The second part will be a temporary credit and liquidity program to improve the access that housing agencies have to credit sources.  This comes on the heels of the Federal Reserve Bank stopping their purchases of US Treasuries by the end of October.

Clearly, the idea is to keep mortgage interest rates low so that people are still interested in using home mortgage loans to purchase. (This should also help those wishing to refinance.) The plan will provide money to state housing agencies that work to help low to middle income earners buy homes. The idea is to provide funding so that more people can afford homes. It is important to be careful here, though, to make sure that buyers can afford the homes they are getting. Otherwise, we’ll end up with a repeat of the mortgage market disaster.

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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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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.