THE SPRING 2009 MORTGAGE OVERVIEW

Will the lower mortgage rates we have seen so far in 2009 help to lift the housing market this spring?

There have been several positive market developments recently, lower rates among them, but whether these positives finally have enough power to jump start buyers is the question of the season.

A little recent rate history is in order.  In the wake of the Federal Reserve’s announcement late in 2008 that it would be buying over $500 billion in mortgage-backed securities this year, rates on 30-year fixed-rate conforming mortgages started falling. 

And they fell and fell, every week for eleven straight weeks, finally hitting a low under 5% in mid-January, 4.92%.  That was the lowest rate ever registered on Freddie Mac’s weekly mortgage rate survey, which began in 1971. 

After touching those lows, rates shot up for a couple of weeks as nervousness about future inflation spooked the financial markets.  More recently, rates have backed down again, averaging below 5 1/4% in mid-February.

Good as those rates sound, we think there is something you need to know about them: you may not qualify to get the very lowest rates.

If your credit score is too low, below 740 or so, depending on the lender, you won’t be eligible for the best rates.  You can get a rough idea of how credit scores affect rates at myFICO.com.

The lowest rates are available for Fannie Mae and Freddie Mac conforming loans up to the regular $417,000 limit. 

However, those seeking “jumbo conforming” loans above that, available for loans as high as $729,750 in high-cost housing markets, will have to pay more in points or the rate. 

And jumbo loans that don’t have the blessing of Fannie Mae or Freddie Mac are still costing a percentage point and more in the rate.  That is because lenders will probably have to hold these mortgages themselves for at least a while, since the market for non- Fannie and Freddie mortgage securities is still broken.

Disturbingly, we have heard stories that the rates promised on some internet web sites aren’t always finding their way to the settlement table, so make sure that you review your Good Faith Estimate of closing charges and any loan lock documents.

These issues aside, the sweet perfume of low rates in the air did manage to lure extra homebuyers into the market in December, normally the off-est of off-months for home sales.  This could be good omen for spring sales.

While the low rates started attracting buyers, those rates really got mortgage lenders’ phones ringing for refinances.

 Sadly, because of the higher credit standards and loan-to-value ratios that couldn’t be attained, many (maybe half or more) of those callers weren’t able to qualify for a refinance. 

A particular problem has been appraisals.  In some communities, foreclosures and distress sales are fouling the pool of comparable sales, resulting in disappointing appraisals.  

As a general proposition, appraisers, who are now selected by the lender/investors, not local mortgage officers, are often going out of their way to come up with conservative appraisals.

While appraisers used to feel pressure to “make the number,” now they don’t really care if deals go through, so long as they are seen as protecting the lender.

Still, enough refi applicants did manage to qualify to overstuff the mortgage pipeline and it has caused the system to temporarily choke on the high volume.  Because many mortgage lenders have reduced their staffs as business sagged, they struggled to cope with the latest refi wave.

If this situation persists, it may require borrowers to seek longer lock options to make sure they don’t suffer if loan processing takes longer than expected.