intownbethann.com

New broadcasts last night responded to information released regarding the government’s initiative to inspire home sales by reducing interest rates to 4.5%. I have already received calls from customers inquiring about whether or not this will affect their financing. The challenge with releasing information before it actually happens is it may or may not actually go through. Even more important, if the plan does take effect the 4.5% rates will not likely apply to everyone. As with any government initiative we have seen recently, what is first introduced is not always the end result.

 

With this in mind it is important to keep our customers informed of the facts. While I can’t tell you if, when or how this 4.5% will play out in the market, I can say that it won’t likely happen until February 2009. In addition, it will likely only benefit those looking to purchase new homes. This will certainly be great news for new homebuyers in early 2009. At the same time my hope is current buyers won’t be deterred by a possible rate drop that may or may not occur until February of next year.

 

Attached is an article in the Wall Street Journal that you can forward on to anyone who may inquire about 4.5% interest rates. I hope you will find it helpful.

In the meantime, it is important to reinforce that interest rates are extremely low right now. The market is volatile and rates shift daily. Right now the 30 year is trading anywhere from 5.125%-5.375% depending on the loan structure and the 15 year is between 4.875%-5%. FHA rates are also in the low 5’s depending on credit score.

 

 

 

U.S. Eyes Plan to Lift Home Sales

REAL ESTATE

 

DECEMBER 4, 2008

Treasury Considers Encouraging Banks to Offer Mortgages at Rates as Low as 4.5%

By

 

DEBORAH SOLOMON and

DAMIAN PALETTA

WASHINGTON — The Treasury Department is considering a plan to revitalize

the U.S. home market that would push down interest rates for loans to purchase

a home, according to people familiar with the matter.

The plan, which is in the development stage, would temporarily use the clout of

mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates

as low as 4.5%, more than a full point lower than prevailing rates for standard

30-year fixed-rate mortgages.

Government officials are under pressure to address falling home prices and

mounting foreclosures, which underpin the financial crisis. The Treasury has

struggled for months to come up with a plan that would ease the strains on

borrowers without appearing to bail out homeowners and lenders.

The plan remains in discussion and may not be made final before the Bush

administration’s term ends in January. President-elect Barack Obama has said

repeatedly that his administration would do more than the current one to help

struggling homeowners but he has not offered specifics.

Treasury views this plan as potentially halting the slide in home prices by

enabling borrowers to afford bigger loans, thus increasing demand and pushing

up home values. The lower interest rates would be available only to borrowers

who are buying a home, not those refinancing a mortgage.

Borrowers would have to qualify for a mortgage guaranteed by Fannie, Freddie

or the Federal Housing Administration. Those guarantees apply to loans where

borrowers can document their income and afford their monthly payments,

steering the government away from backing loans considered risky.

The Treasury and the Federal Reserve are already working to bring mortgage

rates down through a program announced last week in which the Fed will buy up

to $600 billion of debt issued or backed by Fannie and Freddie, along with

Ginnie Mae and the Federal Home Loan Banks. That move helped push down

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Benefit To Stocks

rates on 30-year mortgages, and applications to refinance have jumped, the

Mortgage Bankers Association said Wednesday.

In this climate, stocks of banks and home builders drew more investor attention

Wednesday, helping the Dow Jones Industrial Average rise 172.60 points, or

2.05%, to 8591.69, despite continued bleak economic news in the Fed’s “beige

book” survey of regional conditions.

The plan the Treasury is considering would encourage banks to issue new

mortgages at lower rates by offering to purchase securities underpinning the

loans at a price equivalent to the 4.5% rate.

The Treasury would fund the purchases by issuing Treasury debt at 3%,

suggesting the government could make a profit on the difference.

The average rate on 30-year fixed-rate mortgages conforming to Fannie’s and

Freddie’s standards was about 5.75% Wednesday, according to HSH Associates, a

financial publisher. That’s up from about 5.5% Monday but down from more

than 6% before last week’s announcement.

The plan is very similar to an idea floated in October by R. Glenn Hubbard and

Christopher Mayer, academics at Columbia University’s Business School. “I think

a program to substantially bring down rates for homebuyers would be an

incredibly valuable program, and I think it captures a real part of solving what

has been an incredibly challenging dislocation in the credit markets,” Mr. Mayer

said in an interview. He estimated the idea under consideration could quickly

help 1.5 million to 2.5 million people buy homes, giving a major boost to the

housing market and broader economy.

The plan also could be good news for banks hit hard by the housing slowdown. In

addition to having the government play the role of guaranteed buyer, financial

institutions could pocket fees for making loans to buyers able to afford homes at

the lower rates. That, in turn, could boost the economy and improve the weak

outlook for other consumer loans, such as credit cards, that also are weighing

heavily on the banking industry’s profitability.

Normally, the rates lenders charge consumers, including home buyers, are

determined by the secondary market, in which investors buy mortgages or

mortgage-backed securities. But Treasury Secretary Henry Paulson views

lowering mortgage rates as key to fixing the housing crisis; hence the mortgagesecurity-

buying program announced last week.

“The most important thing we can do to mitigate foreclosures and progress

through the housing correction,” Mr. Paulson said in a speech Monday, “is to

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The Refinancing Picture

reduce the cost of mortgage finance, so more families can afford to buy a home

and so homeowners can refinance into more affordable mortgages.”

Fannie, Freddie, their regulator and the Department of Housing and Urban

Development — which oversees the FHA — all declined to comment. “The

Secretary has said repeatedly that we are looking at a number of options to help

homeowners,” said Treasury Spokeswoman Jennifer Zuccarelli.

On the refinancing front, the Mortgage Bankers Association said its index of

refinance applications had tripled from the previous week, the largest increase

since it began tracking such data in 1990. Applications to buy homes, which tend

to be less sensitive to interest-rate movements, also increased, by a smaller

amount.

Application volume remains lower than it was as recently as March. Last week’s

numbers are adjusted for a shortened holiday week, which can make

comparisons more difficult.

The Treasury plan is similar to ideas previously floated by the National

Association of Realtors and the lobby group for home builders, but has skeptics.

“I don’t think it’s the answer to the foreclosure problem because that problem is a

combination of negative equity with unemployment,” said Mark Zandi, chief

economist of Moody’s Economy.com.

Mr. Paulson has been wrestling for months with ways to stem foreclosures. The

Bush administration has supported mostly voluntary efforts to get the mortgage

industry to help borrowers in danger of losing their homes and has resisted calls

to use taxpayer money to bail out homeowners. Those voluntary efforts have had

only a limited impact as home prices continue to fall and foreclosures to rise.

The administration has been split about its approach, with Federal Deposit

Insurance Corp. Chairman Sheila Bair floating a proposal to use $24 billion from

the government’s $700 billion financial rescue fund to provide a federal

guarantee on roughly two million modified mortgages.

Her plan was a hit with Democrats and some Republicans on Capitol Hill but fell

flat with the White House, where some speculated the FDIC plan could cost $70

billion to $80 billion. Mr. Paulson has expressed reservations about the plan on

the ground that it would spend taxpayer money, instead of investing it, and that

it could encourage banks to foreclose and borrowers to halt payments. Treasury

staff have been working on a plan to improve Ms. Bair’s model, but Mr. Paulson

has so far resisted implementing it over concerns that it costs too much and

might not be all that effective.

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—Robin Sidel, Ruth Simon and James R. Hagerty contributed to this article.

Resolving the crisis is likely to fall to Mr. Obama. He reiterated his position on

Wednesday, saying, “We’ve got to start helping homeowners in a serious way,

prevent foreclosures.” Some Treasury officials are frustrated that the Obama

team has not provided more specifics about what it would like the Treasury to do

to help homeowners.

Write to

 

Deborah Solomon at deborah.solomon@wsj.com and Damian Paletta

Some good news for buyers who are qualified to buy!

Treasury plan could offer home buyers government-backed loans with fixed rate of 4.5 percent.
By:Alison Rice

The Treasury Department is reportedly considering a plan to bolster the housing market with low-interest government-backed mortgages for home buyers.

The approach, first reported by the Wall Street Journal yesterday afternoon, would allow banks to offer fixed-rate 30-year home loans at interest rates as low as 4.5 percent to home buyers who qualify for government-backed financing. This would include home loans made through the Federal Housing Administration (FHA) or conforming mortgages eligible for purchase or guarantee by mortgage finance firms Fannie Mae or Freddie Mac. “Treasury views this plan as potentially halting the slide in home prices by enabling borrowers to afford bigger loans, thus increasing demand and pushing up home values,” according to the Journal’s story.

In a move that could be significant for builders, the plan would apply only to home purchases, not refinancing an existing mortgage. That means would-be home shoppers would now have two big reasons to finally buy a house: low interest rates and bargain prices.

Of course, those low, low prices also remind consumers of how much home prices have fallen in recent months, which also has made them reluctant to buy.

“In our view, confidence of potential home buyers that prices are unlikely to deteriorate further is the primary factor today as traditional affordability metrics are back to acceptable levels,” analyst Ivy Zelman said today in a report discussing the Treasury plan. “Unless the government can end the downward foreclosure spiral, we believe that consumers will be unwilling to purchase a home when there exists a high probability that their down payment could be eliminated in a short amount of time by further home price deflation.”

She added: “With that said, lower funding costs have to be considered an incremental positive and could further fuel foreclosure purchases that have been helping to clear excess inventory from the market.”

Reducing the number of both foreclosed and new inventory homes is critical to the health of the housing market, which is considered by many to be both the source of and a partial solution to the country’s current economic ills. As such, the Treasury continues to explore ways to stabilize the financial markets and residential real estate, as Neel Kashkari, interim assistant secretary for financial stability, said today in testimony before a Senate appropriations subcommittee.

“On December 1, Secretary Paulson underscored the critical priorities for the most effective deployment of remaining TARP funds, foremost of which is to ensure our banking sector has the necessary capital base to continue lending to consumers and businesses and support economic growth, and to help homeowners avoid preventable foreclosures,” Kashkari said. “… [W]e continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications, which are a necessary part of working through the necessary housing correction and maintaining the strength of our communities.”

Alison Rice is senior editor, online, at BUILDER magazine.

Here is a great article from the wall street journal that gives more information about what has happened with the Freddie Mac and Fannie Mae rolls for lending and such. Right now getting financing approved is the biggest challenge for any person in the real estate market.