Finally, some good news. Mortgage rates are now at their lowest since 1971 as the Federal Reserve continued to pour money into the morgage market in an effort to jump-start housing sales. Freddie Mac announced that rates for 30-year, fixed conventional mortgages have dropped to 5.19%. This is the lowest rate since Freddie began its weekly mortgage survey in April 1971. Subsequently, nationwide rates fell to 5.06, the lowest since the 1960s.
All this comes as a result of the Federal Reserve buying up $600 billion of mortgage-related securities and other debt issued by Fannie Mae, Freddie Mac and other Federal Home Loan banks.
This has resulted in a surge of homeowners seeking to refinance adjustable-rate mortgages. Refinancing, however, has become a much more difficult game than in the past few years when home owners seemed to view their homes as alternative ATM machines, refinancing sometimes two or even three times in the same year. Refinancing is now far more difficult.
First, homeowners must have equity in their homes. Here in SoCal where prices have dropped over 35% in the past year, this means either the very conservative who did not participate in the refi craze or those who have owned their homes in good areas for a long time. Second, the old days of no qualifying and no verification are over. Now homeowners must qualify, providing evidence of income via tax returns, W-2s and bank statements. Also, even qualifying homeowners must be aware that refinancing costs money for points, title and escrow fees as well as appraisal fees. Yes, the fees are integrated into the new loan, but in these days of plummeting equity is that a good idea?
For those near or in foreclosure these new rates will mean little or nothing as the foreclosure will continue. However,Fannie and Freddie do plan to help distressed more homeowners via loan modifications. In fact, the plan is to up the loan mods from the 60,000 last year to 75,000 this year. Loan modifications typically are applicable only to those who’ve missed at least three loan payments, have sufficient income to make a modified payment and still live in their homes. Recent data have shown that, distressingly, even those who get loan mods wind up in foreclosure a few months later.
Falling interest rates are a godsend to the economy. Just as consumers have benefited from falling gas prices, homeowners who buy now or who can refinance will find themselves with quite a windfall of extra money in their pockets. In the aggregate, this should account for billions of dollars of extra spending power and may accomplish its goal of stimulating the now-moribund housing sector.
It looks like good news for the new year. We could certainly use some.