Posts Tagged ‘Mortgage Rates’
Are housing tax breaks in jeopardy?
Federal housing policy offers the wealthiest Americans billions in tax breaks without delivering much bang for the buck in increased homeownership, critics told government policymakers Tuesday. “We aren’t getting our money’s worth,” Mark Zandi, chief economist of Moody’s Analytics, said at a government conference on reforming housing policy. The government spent $230 billion last year to promote homeownership through tax breaks and spending programs. The biggest chunk – $80 billion – went toward the mortgage interest deduction, according to the Congressional Budget Office. Michael Stegman, housing policy specialist at the MacArthur Foundation, said the mortgage tax break goes primarily to the wealthiest households. A study this year by the Tax Policy Center of the Brookings Institution and the Urban Institute noted that the mortgage deduction was worth just $91 a year to families earning less than $40,000 – and $5,459 a year to those making more than $250,000. The government, seeking to overhaul the housing market after the collapse of mortgage giants Fannie Mae and Freddie Mac, is unlikely to touch the politically sacrosanct deduction anytime soon. But analysts suggested that the government’s debt – $8.8 trillion and growing – meant that housing subsidies might one day face the knife. “We can’t afford it,” Zandi said. The U.S. homeownership rate (66.9 percent) is about the same as Canada’s and is lower than Australia, Ireland, Spain and Britain’s even though “these countries provide far less government support for homeownership,” Michael Lea of San Diego State University wrote this year. For now, the government is neck-deep in housing. Private money has fled the market in the wake of a housing-market meltdown. Fannie, Freddie and other government agencies have filled the gap, guaranteeing more than 90 percent of new mortgages. “Without government guarantees, mortgage rates would be hundreds of basis points higher, resulting in a moribund housing market,” said William Gross, managing director of bond fund Pimco. “We don’t want government in the housing market, but it’s a necessity.” Treasury Secretary Timothy Geithner told the conference “there’s no clear consensus yet” on reforming the way mortgages are financed. He promised “fundamental change” in the way Fannie and Freddie do business: They used an implicit government guarantee to borrow cheap money and make big bets in the housing market. When their gamble went bad, taxpayers picked up the tab. Copyright © 2010 USA TODAY, a division of Gannett Co. Inc., Paul Wiseman.
Banking execs say gov’t needs to back mortgages
The call from business for less government has a notable exception: the mortgage market. The Obama administration invited banking executives Tuesday to offer advice on changing the government’s role in backing the mortgage market. While they disagreed on the exact level of support needed, the group overwhelmingly advocated for the government to maintain a large role in the $11 trillion market. If the government pulled out, millions of Americans wouldn’t be able to convince banks to take the risk of giving them home loans, the executives said. Ending government support could lead to a spike in mortgage rates. That could deter many from buying homes, and banks, mortgage lenders and Realtors would lose money over time. “It will take on a different form, but there is a role for government,” Kevin Chavers, a managing director at Morgan Stanley, said in an interview. Most attendees agreed the time had come to do away with Fannie Mae and Freddie Mac. Rescuing the two mortgage giants has cost the government nearly $150 billion so far. Bill Gross, the managing director for bond giant Pimco, suggested Fannie and Freddie should be formally merged into the government. He also called on the administration to allow millions of homeowners to automatically refinance their loans to help stimulate the economy. A more widely held view at the conference is for the government to do away with Fannie and Freddie, and instead provide a guarantee that mortgage investors get paid even if borrowers default in droves. Figuring out a plan for Fannie and Freddie is also a political challenge for President Barack Obama and his party. Republicans have seized on the administration’s management of Fannie and Freddie to illustrate Democrats’ push for growing the reach of the federal government. While the banking industry has joined Republicans in criticizing the administration for instituting stronger regulations of Wall Street, they support the government playing a large role in the mortgage market. “There would be a lot of homeowners who wouldn’t be able to afford homes because we’d be dealing with higher interest rates,” said S.A. Ibrahim, chief executive of mortgage insurer Radian Group Inc. Treasury Secretary Timothy Geithner pledged on Tuesday “fundamental change” to the structure of Fannie and Freddie. The mortgage giants profited tremendously during good times but burdened taxpayers with losses when the housing market went bust. He said the two companies weren’t the only cause of the financial crisis, but made it worse. Fannie and Freddie buy mortgages and package them into securities with a guarantee against default. They have ensured that millions of Americans can get home loans – even after the housing market collapsed. The two companies, the Federal Housing Administration and the Veterans Administration together backed about 90 percent of loans made in the first half of the year, according to trade publication Inside Mortgage Finance. Geithner did not offer a specific exit strategy for Fannie and Freddie. But he said, “It is our responsibility to make sure that we create a system that is not vulnerable to these same failures happening again.” The administration is expected to offer a plan next year. One option that dominated the discussion Tuesday is for the government to collect money from the mortgage industry and set up an insurance fund that could be used to cover losses during a severe downturn. This would prevent taxpayers from having to foot the bill for the industry. Some want the administration to take more dramatic actions. Gross said Fannie and Freddie’s function should be consolidated into one government agency that would issue mortgage-backed securities. Without such a solid guarantee, mortgage rates would soar, he warned. He also told the administration that the economic recovery required more government stimulus, particularly in the housing market. He suggested the administration push for the automatic refinancing of millions of home loans backed by Fannie and Freddie. Refinancing those loans at the lowest mortgage rates in decades would give Americans more money each month. That would boost consumer spending by $50 billion to $60 billion and lift housing prices by as much as 10 percent, he said. Without such stimulus in the next six months, Gross said, the economy will move at a “snail’s pace.” Obama officials say they do not plan to enact such a program, which has been the subject of intense rumors on Wall Street in recent weeks. Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer. All rights reserved. This material may not be published, broadca
Risks abound if too many refinance
Lots of homeowners are frustrated these days that they can’t seem to get a mortgage refinance even though interest rates are at historical lows. It turns out they’re not alone. Plenty of people on Wall Street would also love to see a boom in refinancing activity, saying it would be a near-painless way to inject more money into the economy. If more people can refinance, the thinking goes, the more cash they’ll have to spend. Those economists and analysts calling for a mass mortgage reset say it could be engineered by the government, which controls the giant mortgage lenders Fannie Mae and Freddie Mac. Have them loosen underwriting standards and give breaks on fees, and more people will qualify to refinance. Here’s what the Obama administration says about that idea: Don’t get your hopes up. And that’s a good thing, since ushering in a refinancing boom would only be a short-term fix for the housing market and the economy that would have long-term consequences. A widespread refinancing of loans would mean reverting to looser lending standards, one of the things that got us into this mess. It could also boost mortgage rates for new borrowers and force U.S. taxpayers to shoulder more risk, since they technically own Fannie and Freddie. “At some point, we have to ask ourselves how much more can we ask taxpayers to do to support people staying in their homes,” says Dean Baker, co-director of the left-leaning Center for Economic and Policy Research in Washington. Wall Street has been abuzz in recent weeks over the possibility of the government engineering a broad refinancing of loans. Mortgage rates for a 30-year fixed home loan are now 4.49 percent, the lowest it has been since Freddie Mac began tracking rates in 1971. But millions of borrowers haven’t been able to benefit from those low rates. A big reason has to do with the fact that falling housing prices have left many borrowers with little or no home equity, which is also known as being “underwater.” As a result, they can’t qualify for refinancing. Others are deterred from refinancing by strict lending standards and the high fees that come with it. To get more mortgage resets done, some well-known economists and analysts at firms like Morgan Stanley and Goldman Sachs say the government should encourage a refinancing wave by adjusting lending policies at Fannie and Freddie. The mortgage lenders were taken over by the government two years ago. They own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. They buy home loans from lenders, package them into bonds with a guarantee against default and sell them to investors. The savings from a major mortgage reset could be significant. Allow someone with a $200,000 mortgage at 6 percent to refinance down to 4.5 percent, and suddenly there is $3,000 a year available to be plunged back into the economy. Add that up across millions of people, and you have what Morgan Stanley economist David Greenlaw calls a “slam dunk stimulus.” The government is already trying to help borrowers refinance, but its existing program has been a bust. The Home Affordable Refinance Program, or HARP, is directed at homeowners whose loans nearly or completely outsize the value of their homes. The government had hoped HARP would lead to millions of mortgage resets, but only a few hundred thousand have been done. The problem is that there are too many restrictions when trying to refinance under HARP. That’s why some people on Wall Street want the government to roll out a less restrictive program to get more mortgages resets done. Regardless of the pressure coming from homeowners and some on Wall Street for the government to ease refinancing rules, Treasury Department spokesman Andrew Williams tells The Associated Press that “the administration is not considering a change in policy in this area.” The government sees where the pitfalls are. Taxpayers have already pumped $145 billion into Fannie and Freddie over this last two years, and widespread refinancing now could raise that burden. Fannie and Freddie would very likely see their earnings decline and writedowns on their mortgage securities go up. In total, a mass mortgage reset could cost the mortgage lenders $75 billion, according to research from investment firm Keefe, Bruyette & Woods. Let’s also consider that a refinancing boom could have unintended consequences. The pace of foreclosures might not slow. A lower interest rate still might not be attractive enough for deeply underwater borrowers to stay in their homes. To some, it is not worth paying any money toward a depreciating asset, regardless of the interest rate. New borrowers could also face higher interest rates. A large refinancing wave would depress the value of mortgage-backed securities, making them less attractive to investors such as pension funds and foreign governments. Weak demand for those securities could lead to higher mortgage rates because lenders could have a harder time selling off their loans to investors. A short-term refinancing wave could help stabilize the housing market now, but it could also hurt home sales later. Homeowners who are able to lock in a once-in-a-lifetime interest rate could be deterred from moving in the future. Hitting the mortgage reset button could put more money into homeowners’ pockets today, and would also give the economy a quick jolt. But the ultimate costs may be too high. Copyright © 2010 The Associated Press, Rachel Beck, AP business writer.
Mortgage rates hit low of 4.49%
Mortgage rates dropped to the lowest level in decades for the sixth time in seven weeks, offering the most attractive opportunity for those who qualify to refinance or purchase a home. Government-controlled mortgage buyer Freddie Mac said Thursday that the average rate for 30-year fixed loans this week was 4.49 percent, down from 4.54 percent last week. That’s the lowest since Freddie Mac began tracking rates in 1971. The average rate on the 15-year fixed loan dropped to 3.95 percent, down from 4 percent last week and the lowest on record. Rates have fallen since spring as investors seek the safety of U.S. Treasury bonds. That has lowered the yield on Treasurys. Mortgage rates tend to track those yields. The last time home loan rates were lower was during the 1950s, when most mortgages lasted just 20 or 25 years. Low rates have sparked some activity in the weak housing market, but not a massive boom in refinancing. Applications to refinance loans increased 1.3 percent and those to purchase homes increased 1.5 percent, according to the Mortgage Bankers Association. Nevertheless, high unemployment, slow job growth and tight credit have made it difficult for many to purchase homes. The housing industry received a boost this spring when the government offered homebuying tax credits, but housing activity has plummeted since they expired in April. The number of buyers who signed contracts to purchase homes plunged in June to the lowest level on records dating back to 2001, according to the National Association of Realtors. To calculate the national average, Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day. Rates on five-year adjustable-rate mortgages averaged 3.63 percent, down from 3.76 percent a week earlier. Rates on one-year adjustable-rate mortgages fell to an average of 3.55 percent from 3.64 percent. The rates do not include add-on fees known as points. One point is equal to 1 percent of the total loan amount. The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 a point for all loans. Copyright © 2010 The Associated Press, Alan Zibel, AP real estate writer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
5 Reasons to Buy a Home Now
The tax credit expired, but it’s still a great time to buy a home thanks to low mortgage rates and motivated sellers. Here are five reasons why now is a great time to buy: 1. Low mortgage rates serve as an equity shock absorber. When buyers borrow at today’s record-low rates, they start building equity as soon as they close. That means they can absorb a few ups and downs as the still-recovering housing market gains traction. 2. Houses are in move-in condition. Homeowners continue to spend on maintenance and repair, according to the Harvard Joint Center on Housing. As these houses enter the market, they stand in marked contrast to tattered foreclosures. 3. Terrific houses are coming on the market. Foreclosures are finally starting to clear the system, and they are being replaced by some very attractive properties. 4. Appraisal regulations are finally aligned with market realities. Fannie Mae has adjusted its appraisal guidelines, giving appraisers more flexibility to set values that reflect the current market. 5. Plenty of programs. Many programs that encourage middle-class families to buy homes still exist, despite market downturns. Buyers who qualify can get a big boost by combining one of these programs with today’s low mortgage rates. Source: ForSaleByOwner.com (07/29/2010) © Copyright 2010 INFORMATION, INC. Bethesda, MD (301) 215-4688
Stock Swoon Tanks Mortgage Rates
For those of you who consider me far too 'glass is half empty,' here's a little bright side to the near 1000-point drop in the Dow yesterday: Investors fled to the 10 year Treasury, driving the yield way down and pulling down the rate on the 30-year fixed mortgage right along with it.
