Mortgage rates continue to slide down
September 29, 2009 by admin
The mortgage industry may never offer another year like we have experienced in 2009. Interest rates have been at or below historic low levels for almost the entire year, offering home buyers the opportunity to purchase homes locking in ultra low payments and existing home owners a window to refinance their mortgages at interest rates that once seemed unattainable. The window to lock in even larger savings has arrived as mortgage rates have moved to their lowest levels since January of this year, following a commitment from the FOMC to continue to support the secondary mortgage market. The recent announcement from the FOMC and Ben Bernanke has helped to drop interest rates on mortgage loans by over a quarter of a percent. This drop has positioned long term interest rates barely above five percent on thirty year loan terms and well below five percent for fifteen year loan terms.
The recent downward trend with interest rates may spur a record month in home sales. The potential for a record housing month could grow momentum as to date the government has yet to extend the first time home buyer tax credit. The current credit for purchasing a home and receiving up to $8,000 back from the government ends at the end of November. The combination of the improved rates and potential elimination of this program is likely to push buyers who have been on the fence into action. This opportunity may be one of the greatest financial windfalls new home owners could ever imagine.
Long term interest rates are likely to stay in the five to six percent range for the balance of 2009 and well into 2010, thanks to recent policy decision by the FOMC. The secondary mortgage market remains quite dysfunctional. Despite a surge by the stock market and growing sentiment that the economy is doing better, there remains a lack of investment buyers in the marketplace for mortgage securities. This dramatically impacts all areas of the mortgage industry, especially areas such as jumbo loans and home equity loans, which are not eligible for sale to Fannie Mae, Freddie Mac or Hud through their FHA mortgage program. These three companies remain the catalyst of home lending in the U.S. and will be responsible for securitizing upward of ninety percent of all mortgage loans financed this year. The government has stepped up and provided these companies with a partner to securitize these loans on a secondary market, freeing up working capital which allows the agency lenders to continue offering mortgage loans on a capital lending basis.
Clearly the FOMC would like to move out of primary positions supporting the secondary market. The likelihood of this transition beginning in 2010 is growing more realistic. Every month that the economy improves helps to bring more investors into the market. The stabilization of home prices will help to bring more investors into the market as well, and housing is likely to reach a bottom in the next six to twelve months. It is unclear what impact the presence of more private investors will have on mortgage rates, one can assume the likelihood interest rates will be moving higher is pretty certain. This year has offered homeowners a window to some of the best mortgage rates ever, but that window could begin to close over time and locking into a great interest rate should not be taken for granted.