Mortgage Rate News

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There is speculation that October will be a good month to buy a home. Mortgage interest rates are back below 5%, and people are having a fire lit under them by the prospect of the end of the first time home buyer tax credit. But will it really be the end? There are debates going on right now about extending the first time home buyer tax credit. There are two main proposals on the table right now:

1. Six-month extension: This would extend the deadline for the first time home buyer tax credit to May of 2010, without changing much about the program. This is the plan favored by Senator Ben Cardin, and backed by Majority Leader Harry Reid.
2. Year extension, and tax credit for every home buyer: Senator Johnny Isakson is ready to one-up the other plan. He proposes that the home buyer tax credit be extended to December 1, 2009, and available to everyone who buys a home. He also feels that the tax credit amount should be $15,000.

Clearly, both plans would cost money (though #2 would cost more). Even though #2 would be much more expensive than merely extending the deadline, it would open up another segment of the housing market, resulting in an increase in homes for those who are “moving up”. If they did decide to go with #2, I’d even consider selling and moving into a different house. Assuming they let the immediate use ability of the current tax credit to go through, it would mean at least $15,000 as a substantial down payment.

These extensions, though, also bring us close to another thought: Will a tax credit for buying a home become standard, like the tax credit for mortgage interest? That is a possibility, since taking away the credit might send the housing market back into a nosedive.

What do you think? Should the first time home buyer tax credit be extended?

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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.

There has been a ton of news related to the mortgage market today. It’s a veritable explosion of mortgage news. Here are some of the highlights from recent mortgage and real estate related news:

• Congress considers extending the home buyer tax credit: Right now, lawmakers are thinking about extending the first time home buyer tax credit by six months, so that it would expire in May 2010 instead of at the end of November 2009. (Congress is also mulling a $15,000 tax credit for any home buyer.)
• Mortgage brokers no longer have to register with the FHA: Mortgage brokers have been on the decline since the housing market crash. However, the FHA is now saying that “direct endorsement” lenders are liable for loans done through brokers, while brokers do not have to register. Additionally, net worth requirements for brokers will no longer be required.
• Senate increases FHA insurance allowance: For fiscal year 2010, the FHA has been authorized by the Senate to insure $400 billion of single family home loans. This is an increase, and should allow more people to take advantage of FHA loans.
• Home prices unlikely to peak for 10 years: Moody’s feels that it will take 10 years for home prices to recapture their peaks.
• FDIC Might borrow from the Treasury: All the bank failures, thanks to bad mortgage loans, have been tapping out the FDIC’s funds. As a result, the FDIC is considering that it might have to borrow money from the U.S. Treasury.

For the most part, economic data and trends are showing that things are starting to recover. Even if home prices don’t peak for a decade, the housing market has stabilized, and that is actually providing some help for home builder stocks and real estate funds on the stock market. So, overall, a recovery in the housing market is likely, even though it may be a gradual recovery.