Low Rate Mortgage Relief May Be Temporary

By admin • January 20th, 2009
Find Pre-screened Business Lawyers for FREE!

In a recent article, Julie Haviv analyzes the enormous efforts by the Federal Reserve to slash mortgage rates have so far been a success, but homeowners had better refinance fast or seek a loan modification from your lender, because many forecast that the record low interest rates could be gone as soon as this summer. Thirty-year mortgage rates dropped to a low of 5.01% this week — their lowest since 1971 — after the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of securities backed by Fannie Mae, Freddie Mac and Ginnie Mae.  They could touch as low as 4.50%, but the cheap loans will not last long, mortgage experts warned.  “The downward trend we have seen in mortgage rates will not last beyond the first half of this year,” said Celia Chen, senior director of housing economics at Moody’s Economy.com in West Chester, Pennsylvania.  “By then, the Federal Reserve’s program will have run its course and other issues will move to the forefront that could push mortgage rates higher,” she said.

Will Low Mortgage Rates Last?

The Fed has also embarked on a program to buy up to $100 billion in unsecured debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks in a move also aimed at lowering interest rates on mortgage loans.  The prospect of affordable mortgage financing has provided a glimmer of hope for the U.S. economy with the housing market in the worst downturn since the Great Depression.

But if home mortgage rates rise, they will further paralyze a housing market already beset by plunging home prices, an unwieldy supply of homes for sale, tighter lending standards by risk-shy banks and surging foreclosures. Even if the Fed extends its mortgage bond buying program past the summer, its other efforts to flood financial markets with cash will work against low rates.  They include the inflationary impact of both the Federal Reserve’s near-zero interest rate policy and the massive looming fiscal stimulus from the government which must be paid for by more government debt, pushing up interest rates.

A 30-year fixed-rate mortgage at 4.50% is a level apparently targeted by policy makers.  Several FHA lenders have reported that rate for FHA loans have dropped below 5% on fixed thirty-year mortgages.  Moody’s Economy.com forecasts interest rates hitting 4.50% by the summer of 2009 after dropping to a low of 4.37 % in the second quarter. But, by the third quarter and fourth quarter interest rates will be climbing to 4.57% and 5.18%, respectively.  By the first quarter of 2010, home loan rates should be at 5.87%, Chen said.  “Low mortgage rates are important, but there is no evidence that lenders are lending and that is crucial,” she said.  Read the original article >

Comments are closed.


« Bankruptcy Law Update | Home | Lien Stripping Eliminates Home Equity Loans »