Banks: Credit Restrictions Too High

Banks agree with Realtors that credit is too tight.  In a recent National Association of Realtors podcast, NAR President Ron Phipps discussed his recent meetings with Citibank.  Folks who should be able to get mortgages aren’t getting mortgages…the pendulum has swung too far. 

Things will loosen up again–but no one is sure how soon.

Mortgage Rates Should Remain Low

The Federal Reserve Board announced it’s going to buy ½ trillion dollars worth of mortgage backed securities by June of this year, according to the 2 January 09 WSJ. So what?

This means low mortgage rates should continue in the first half of 2009. The Fed will start buying this month. Our government is in effect purchasing all of the mortgages that banks will make to home owners in the next few months.

Why? The Fed thinks it has to; last year investors shunned CMO’s (collateralized mortgage obligations), turning instead to US Gov. Notes, Bills and Bond, which had the effect of destabilizing our mortgage system. The US Treasury has also recently purchased these mortgage backed securities, so far to the tune of $50 billion dollars.

So, it works like this: you get a mortgage issued by your bank. They in-turn, sell the mortgage to Freddie Mae, who bundles your mortgage with others into a CMO. The CMO is then sold to the Fed and other investors.

So far, it’s working. Current mortgage prices are around 5% for a 30 year, and in the high 4% range for a 15 year mortgage.

Our Federal Reserve Building.  Photo by Dan Smith.

Our Federal Reserve Building. Photo by Dan Smith.

Mortgages at new lows

Mortgage interest rates have dipped to historical lows. Last week, three of my mortgage writing friends were quoting par rates (no buydown) below 5% in Eugene. This was for a fixed-rate, conventional, 30 year loan (my favorite).

Principal and interest payments for a $175,000 loan would be in the $900/month range. These days, lenders are wanting credit scores above 680, at least for the best rates.

My title company friends have said business is increasing, which you might expect with refinances. But, with more rigorous standards for loans as well as potential difficulty in getting properties to appraise-out, the tsunami of refinances hasn’t happened yet.

Lower mortgage rates are bound to help stabilize housing prices. When? My guess is by summer of 2009

Interest Rates Have Plummeted.

Interest Rates Have Plummeted.