Monday, September 29, 2008

HOME-LOAN RATES UNDER 6 PERCENT BOOST NATION’S HOUSING MARKET

The nation’s housing market received a major shot of adrenaline in the form of lower home loan rates after Uncle Sam’s dramatic takeover of mortgage giants Fannie Mae and Freddie Mac.

Benchmark 30-year fixed-rate mortgages fell to an average of 5.93 percent in mid-September—the lowest level in five months, according to Freddie Mac. And, with some lenders already quoting 5.5 percent rates on 30-year loans, a survey by Bankrate.com noted that these benchmark loans were available at an average rate of 5.88 percent.

Some analysts believe rates could fall below 5.5 percent, giving a hefty boost to the battered housing market. The recent historic bottom for the benchmark rate was 5.21 percent reported by Freddie Mac in June of 2003, the lowest level in 40 years.

In mid-September, Freddie Mac reported that average 30-year mortgage rates fell to 5.93 percent from 6.35 percent. Earlier this summer the rate had been above 6.5 percent. A year ago, lenders were charging 6.31 percent on a 30-year fixed mortgage.

Economists predicted that the government’s move in early September to take control of Fannie Mae and Freddie Mac would result in lower mortgage rates for consumers because it removed a huge uncertainty about the future of the two federally chartered firms, which own or guarantee half of the nation’s home loans—a total of $5 trillion in mortgages.

Mortgage bankers and economists expect rates to continue to fall. They could drop as much as a full percentage point or more because of the Treasury Department’s plan to buy Fannie and Freddie-issued mortgage-backed securities.

This move will make those instruments appear less risky and more appealing to investors.

That will lower Freddie and Fannie’s costs and the savings will be passed on to borrowers in the form of lower home-loan rates, experts say.

Homeowners seeking to refinance likely will be the first consumers to benefit from lower rates. However home buyers also will be lured into the housing market because rates in the 5-percent bracket are a good psychological benchmark.

“Interest rates for 30-year fixed-rate mortgages are down almost six-tenths of 1 percentage point over the past four weeks, which will help spur home purchases and loan refinancing in coming weeks,” predicted Frank Nothaft, Freddie Mac vice president and chief economist. This means that the monthly principal and interest payment on a new $200,000 loan is more than $76 lower than a month ago.”

Lower rates have come at an opportune time, Nothaft said. The July pending existing home sales data from the National Association of Realtors declined 3.2 percent from June.

“The Mortgage Bankers Association reported that refinance applications are up 18 percent over the past three weeks through the first week of September, indicating that refinance activity has already begun to pick up,” Nothaft said.