Mortgage Rates Fall, U.S. Seeks Further Interest Rate Reduction

With the US Treasury purchasing $600 billion in mortgage backed securities mortgage rates are falling. There is also a plan being floated where the government would set the 30 year mortgage rate at 4.50% on home purchases – almost 1% below current market rates.  The idea being of course that the whole thing started with housing, might as well end it with housing as well. I am sure we all agree that no one really knows the exact solution to cure this crisis.

Regardless here is a snapshot of how rates have fallen in the past few weeks (source: Freddie Mac Weekly Rates):

For reference Freddie Mac reported a weekly average mortgage rate of 6.100% on the first week of October. This week rates are averaging in the 5.500% range.

Changes to Declining Markets Policy

Over the past month or so Fannie Mae and Freddie Mac have made a few announcements regarding maximum loan levels. For some odd reason I didn’t post these changes as they were announced. Perhaps I was distracted by other things going on. So, I want to share with you some of the major changes which have been announced recently and how it could affect your situation for obtaining a home mortgage loan.

The really major change is regarding declining markets. As you may or may not be aware the term declining markets entered our lexicon late last year. In fact I even wrote a post suggesting that while “subprime” may have been the word of the year for 2007, “declining markets” has a good chance of being the word of the year for 2008. The reason being that because Fannie and Freddie (along with mortgage insurance companies) announced that they would be automatically cutting 5% off the the maximum loan to value on any property determined to be in a declining market. Now Arizona has been deemed a declining market, so it affects all loans in this great state of ours.

What does this mean to you? Well all Fannie and Freddie loans cap out at 95% which means the borrower needs to put 5% down from his/her own funds. This maximum loan amount was cut back to 90% in declining markets. Which meant the borrower no had to put 10% down for the same loan.

Recently Fannie and Freddie have made some changes stating that they would allow 95% loans again. The problem is finding mortgage insurance companies willing to insure mortgages up to that high of a loan to value. We have developed a relationship with such a mortgage insurance company. Hence, moving forward we are able to do loans upto 95% under the following conditions:

  • Fixed rate programs only (fully amortizing)
  • $417K max loan size
  • Primary residence only
  • Purchase or rate and term refinance (no cash out refinances allowed)
  • 680 minimum credit score

This is only part of the full set of guidelines, therefore it is important to review this completely with your lender. So I will forewarn you that not all will qualify for this new higher loan to value. Additionally this is a lender specific policy, different lenders have different risk tolerance and relationships with different mortgage insurance providers. Do not take this as an industry wide guideline.

The other changes announced are regarding loan to value for investment properties and cash out transactions. But due to the fact that the Phoenix market is designated a declining market, the changes do not really affect anything for loans here. Meaning our terms are already more strict and we are required to follow the more stringent guidelines when making an underwriting decision.

What A Lower Credit Scores Costs You Today

Aritmética

Not all mortgage interest rates are the same. The radio may blast away advertisements claiming low low low rates in the low 5.00% range, but alas how misleading these messages are. The truth of the matter is that while the 30 year mortgage rate remains at historic lows not everyone gets the same interest rate. Mortgage interest rates are determined by your credit score. The higher your score the better the rate you will receive. Consequently, if you have lower scores you will need to pay some fees to receive the same rate offered a higher credit score borrower.

During the credit boom lenders kept a pretty low barrier before slapping on additional charges for riskier borrowers. This has all changed and the thresholds are higher and there are additional layers . The table below is sample of what Fannie Mae/Freddie Mac have been charging lenders(and what lenders then pass on to you the borrower).

The example below is of the additional fees a borrower is charged in order to receive a 6.00% interest rate on a $200,000 mortgage:

Mortgage-Rates-Charges

In my opinion the numbers above provide ample reasons to work on improving your credit score and positioning yourself for a home purchase. To help you get started, below, I have provided additional links on credit score and credit report related posts on Arizona Mortgage Guru Blog:

Creative Commons License photo credit: My Buffo

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.