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Category – Mortgage Crisis

Administration Proposes Mortgage Rules Changes

March 13, 2008 – The administration today announced rules changes in the mortgage industry to prevent a recurrence of the current mortgage credit crisis.

Specific provisions that Treasury Secretary Henry Paulson proposed were to have stronger state and federal regulation over mortgage brokers and lenders. The proposal included a strong national licensing program for mortgage brokers. Many critics contend that borrowers were placed in mortgage rates and loans that they could not afford by mortgage brokers acting unethically or fraudulently which lead to the housing contraction.

Secretary Paulson also recommended that issuers of mortgage backed securities provide more clarity and disclosures on the loans that they package and resell. Because of the complexity of the structured products many bond investors did not fully appreciate the risk level of the assets.

Paulson indicated that he did not want to new measures to create a burden but instead act to prevent future credit disruptions.

The current credit crisis continued in full force as the latest February 2008 data indicated foreclosure filings increased 60% over a year ago. Over 220,000 homes across the nation received at least one foreclosure notice from lenders due to late mortgage payments compared to 139,000 a year ago. Nevada, California and Florida showed the highest foreclosure rates.

Other measures being proposed include one by Senator John Cornyn to help families facing foreclosure. The proposal includes $10 billion dollars to refinance distressed subprime mortgages, a $15,000 tax credit for the purchase of an unoccupied or foreclosed home, and $180 million in loan counseling to help families avoid foreclosure. The proposal also includes an update to the Truth in Lending Act concerning adjustable mortgages to ensures borrowers understand their loans.

Despite all the government measures the current crisis shows no signs of abating. Freddie Mac chief executive officer Richard Syron recently stated that “home price drops are only one third done” and that “the US is in the worst housing market in a century.”

Increase In Conforming Loan Limits Will Lower Interest Rates For Jumbo Mortgages

February 13, 2008 -

The new law President Bush signed providing $170 Billion of economic stimulus also includes an increase in conforming loan limits. The bill increases the limit on mortgages that the Federal Housing Authority (FHA), Fannie Mae and Freddie Mac can purchase from $417,000 to up to $729,750 for a period of one year.

After a loan is originated it is sold on the secondary market. Government entities can only buy loans that are below the conforming limit. Since this creates more demand below the conforming limit the interest rate charged is lower. Above the conforming limit less investors bid for the loans so a higher mortgage interest rate is charged. As mortgage defaults have increased investors have been reluctant to purchase jumbo mortgages driving up interest rates on large loans.

Normally the difference between conforming and jumbo loans has been ¼ percentage point. However, because of the increasing number of loan defaults and lender bankruptcies in the subprime crises, now the difference is over one percent. Thus under the new guidelines many homeowners with a mortgage from $417,000 up to $729,000 may see up to a full percentage point decrease in their mortgage interest rate. This can result in a savings of hundreds of dollars every month on their mortgage payments. Many homeowners will refinance their mortgage to capture the lower interest rates.

The exact amount of the conforming loan increase will be different for each county. Within 30 days the Department of Housing and Urban Development (HUD) will publish a new conforming loan amount that is 125% of the local median home price with an upward limit of $729,750. The local conforming loan amount should be available in March at www.hud.gov. The increase in conforming loan amount is temporary and will expire December 31, 2008.

The Federal Reserve dropped interest rates a half a percentage point today. The Federal Funds rate was slashed from 3.5% to 3.0%. This latest decrease comes after a three quarter point decrease just last week from 4.25% to 3.5%. The January 22 decrease was the first inter meeting rate change since 2001 and the largest since 1984. Since last fall the Fed has lowered the rate from 5.25% down to the now 3.0%.

The Federal Reserve has stated that financial markets are under stress and the committee was acting in a timely manner to address risks. That same committee also reassured investors it will act as needed in the future.

The Federal Reserve is acting in an attempt to prevent a possible recession. Growth in the U.S. economy slowed sharply in the fourth quarter as consumers decreased spending and the real estate downturn accelerated. The Commerce Department said gross domestic product grew at an annual rate of .6 percent for the fourth quarter, the slowest rate in five years.

Borrowers and businesses are likely to see their cost of borrowing decrease as a result of the Federal Reserve move. Commercial Banks are expected to lower their prime interest rate by half a percent, from 6.5 percent to 6.0 percent. The prime rate applies to credit cards, home equity lines of credit and other mortgage loans. The Fed funds rate and the prime rate are now at three year lows.

Which it makes it more imperative then ever to really look at either buying, with real estate pricing down, or at refinancing your mortgage to get really the best mortgage rates in years.

Federal Reserve Slashes rates Three Quarters of a Point

The US Federal Reserve slashed interest rates ¾ of a point on Tuesday driving rates back down to near historic lows. Current mortgage interest rates, for a 30 year mortgage, were down to near 5.25% and rates for a 15 year mortgage were down to 4.85%. This has given millions of homeowners the opportunity to now refinance their mortgages, (a driving force of intent behind this large of a drop) with many saving upwards of several percentage points, which can literally mean thousands off of your mortgage.

Driving The Real Estate Market
It is also hoped that this cut would help drive a sluggish real estate market allowing more and more non-homeowners the ability to qualify for a home purchase loan through lower rates which can mean qualifying for more home due to the now lower mortgage payments. Read the rest of this entry »

When the lowest mortgage rate really isn’t the best deal

You have undoubtedly heard that comparing interest rates, and different loan quotes, really is one of the best ways to save on your loan. This holds true for all types of mortgage financing. Whether you are buying a home, taking some cash out of your equity, or even refinancing to lower your payment or rate, or possibly even both.

Quite frankly that’s what we really feel defines us here at Compare Free Mortgage Rates. The ability to receive free no obligation low rate mortgage quotes from lenders and loan specialists so that you can save the most money on your mortgage financing.

But when is the lowest rate not always the best deal?… Read the rest of this entry »