Friday, December 5, 2008
Thursday, December 4, 2008
Treasury Mulls Plan to Lower Mortgage Rates to 4.5%
Move would help homeowners and buyers with good credit, but would do little for troubled borrowers, experts said. NEW YORK (CNNMoney.com) -- Lobbyists are pushing the Treasury Department to consider a plan to purchase mortgage-backed securities in the hopes of driving mortgage rates to as low as 4.5%, an industry source said.
Similar to an effort unveiled last week by the Federal Reserve, the proposal calls for Treasury to buy securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac. Details on the plan remain sketchy, but an announcement could come as early as next week, the source said.
The increased demand for mortgage-backed securities would prompt mortgage rates to drop. That, in turn, would enable homeowners to refinance into lower-cost loans and make it cheaper for potential homebuyers to get into the market.
Spokeswomen from Treasury and the Federal Housing Finance Agency, which oversees Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), declined to comment.
Last week's Fed move drove mortgage rates down to 5.5%, from 6.06% a week earlier. The Fed said on Nov. 26 that it would purchase up to $500 billion in mortgage-backed securities from Fannie, Freddie and Ginnie Mae, and that it would buy another $100 billion in direct debt issued by those firms.
Mortgage applications more than doubled as a result, the Mortgage Bankers Association said Wednesday. Much of the activity stemmed from homeowners looking to refinance.
Industry groups have been pressuring President-elect Barack Obama and lawmakers to lend a helping hand to the housing market. The National Association of Realtors, for instance, has called for Treasury to buy mortgage-backed securities.
Meanwhile, a coalition of industry groups have banded together under the "Fix Housing First" banner to call for measures including tax credits of up to $22,000 and the creation of a 30-year mortgage, carrying rates as low as 2.99%.
Experts, however, had mixed views on how much a new Treasury initiative would help homeowners and the economy. Some felt lower rates would help stabilize the housing market by bringing in new buyers and would give those who refinance more money to spend.
"If it gets people buying homes and spending, it will help reverse the economy and get us out of this recession," said Scott Talbot, senior vice president of the Financial Services Roundtable, which is pushing the measure.
While it takes time to entice new buyers into the market, low rates accelerate that process, said Greg McBride, senior financial analyst at Bankrate.com.
"It is clearly designed to bring buyers into the marketplace and soak the inventory of unsold homes," he said.
But others questioned whether rates would remain low and, even if they did, only a narrow slice of credit-worthy borrowers would benefit.
Rates are already inching up, hitting 5.75% on Wednesday, said Keith Gumbinger, vice president of HSH Associates. Several government attempts to lower mortgage rates this year have failed to have a lasting effect.
Also, the proposal would do little to help troubled borrowers who have fallen behind on their payments, have no equity in their homes or have lost their jobs. With credit standards still high, these homeowners would not be able to refinance and take advantage of the lower rates, he said.
Finally, super-low rates could keep private investors out of the mortgage-backed securities market, forcing the government to remain the primary buyer of such investments, Gumbinger said. Rates have not fallen below 5.37% in more than 45 years.
"I can't imagine there will be a significantly active marketplace of people who want to buy at these low rates," he said.
Monday, November 24, 2008
Washington Report: Buydowns?
It seems that everybody is looking to Capitol Hill right now for a bailout: the Big Three auto manufacturers, banks, insurance companies, Wall Street titans.
But real estate and housing advocacy groups are floating a very different "b-word" -- "buydowns" -- or interest rate reductions on mortgages to stimulate more purchases of new and existing houses.
The buydown idea is not something dreamed up by builders or Realtors for the current tough market. Rate buydowns were used successfully during the 1970s, when Congress authorized the Government National Mortgage Association, "Ginnie Mae," to subsidize rates on mortgages funded through Fannie Mae.
Ginnie Mae essentially bought low-rate loans from Fannie but paid for them as if they carried higher, prevailing market rates. The government absorbed the difference.
Back then, it was known as the "Tandem Plan." Though neither the National Association of Home Builders nor the National Association of Realtors has spelled out the mechanics, both are urging the incoming Obama administration to include some version of a Tandem Plan-type buydown in its economic stimulus package expected as early as January.
The builders' buydown proposal is the more aggressive -- and expensive. It would cut rates on loans for new and existing homes to 2.99 percent, fixed for 30 years, for people who buy between now and next June 30. On purchases from July 1 through December 2009, mortgage rates would be fixed at 3.99 percent.
The home builders make no bones about their objective here: By slashing mortgage rates drastically, the plan would jolt buyers off the sidelines in droves, stabilize prices, get rid of unsold inventories, and send positive ripple effects through the economy as a whole.
The Realtors also favor some type of buydown plan. Chief economist Lawrence Yun has called for at least a one-point rate reduction, but they want to leave the details up in the air for the moment to see what the new administration might find acceptable.
So how likely is it that we'll see rate buydowns anytime soon? At the moment that's unclear. Any form of national buydown would be expensive -- the builders estimate the one year cost of their plan at $130 billion or more.
But there's precedent and there's little question that buyers would respond to even a modest rate subsidy. The main question is: Can a new Congress and new administration fit this into their already bulging package of promises to other needy causes?
And do they accept the core idea here that if you stimulate the housing sector, you stimulate the economy as a whole?
Published: November 24, 2008
Thursday, November 13, 2008
Mortgage Rates Down for 2nd Week
NEW YORK (CNNMoney.com) -- Mortgage rates fell for the second week in a row, finance firm Freddie Mac said Thursday, as the weakening economy resulted in the slowest pace of home purchase applications in nearly eight years.
Freddie Mac said 30-year fixed-rate mortgages averaged 6.14% this week. That's down from 6.20% last week and below the 6.24% rate at this time last year.
Rates for 30-year fixed-rate mortgages have been at 6% or higher for five consecutive weeks. Between the week of Oct. 9 and Oct. 16, the 30-year fixed-rate mortgage posted its biggest weekly jump since April 1987, rising from 5.94% to 6.46%
"Long-term mortgage rates fell slightly this week as signs the overall economy is weakening brought interest rates down market-wide," according to a statement by Frank Nothaft, Freddie Mac vice president and chief economist.
Rates on 15-year fixed-rate mortgages fell to 5.81% from 5.88% last week. A year ago, the rate was 5.88%.
The five-year adjustable-rate mortgage fell to 5.98%, from 6.19% last week. A year ago, the rate was 5.96%.
The rate on a one-year adjustable-rate mortgage rose to 5.33% from 5.25% last week. At this time last year, the rate was 5.50%.
Mortgage applications for home purchase loans fell during the last week in October to the slowest pace since the week of Dec. 29, 2000, according to data from the Mortgage Bankers Association.
On Thursday, the head of the Senate Banking Committee said banks receiving money as part of the $700 billion federal bailout must increase their lending to businesses and consumers.
Banks are failing to use public funds to make credit more available and to help troubled homeowners, said Sen. Christopher Dodd, D-Conn.
A recent survey of senior loan officers from the Federal Reserve found that about 70% of banks raised their lending standards for prime mortgages, and about 90% of banks that offer nontraditional mortgages did so as well.
In September, Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) were on the brink of failure, having racked up nearly $12 billion in losses from declining home prices, mortgage delinquencies and foreclosures.
Federal officials assumed control of the firms and the $5 trillion in home loans they back. The Treasury put up as much as $200 billion to bail them out and placed them in a temporary "conservatorship" overseen by the Federal Housing Finance Agency.
By Lara Moscrip, CNNMoney.com contributing writer
November 13, 2008: 1:05 PM ET
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