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30-Year Fixed Mortgage Rates and Refinance Loan Rates Will Fall

Written By: admin on December 4, 2008 No Comment

It’s excellent news for mortgage and refinancing. The Treasury Department is considering a plot to jump-start the falling housing market by financing new mortgages and mortgage refinancing at interest rates as low as 4.5%, according to financial and housing industry sources. The plot could help stabilize the struggling economy and gyrating stock markets.

Under the initiative, the Treasury would offer to buy securities that finance newly issued loans for home buys, according to the sources. But to participate in the government’s program, mortgage lenders would have to set exceptionally low interest rates, for instance, no more than 4.5 percent for traditional, 30-year fixed-rate loans.

Sources said the department could launch the plot through mortgage giants Fannie Mae (FNM: 0.84, +0.02, +2.44%) and Freddie Mac (FRE: 0.82, +0.05, +6.49%).

A financial industry source close to the discussions said Treasury officials have not made any final decisions on a low-interest mortgage plot and that it was “too early to tell” what limits Treasury might place on applicants and on the plot’s size.

But a Congressional source familiar with the discussions said the Treasury could support the program by buying securities backing loans guaranteed by Fannie and Freddie, as well as those guaranteed by the Federal Housing Administration.

Currently, lenders are offering about 5.5% on most 30-year fixed rate mortgages.

Treasury Secretary Henry M. Paulson Jr. has said that a recovery in the housing market is key to solving the financial crisis. Such a rebound would restore confidence in the banking system and support the value of troubled assets backed by mortgages.

Though he has said a mortgage modification plot proposed by Federal Deposit Insurance Corp. Chairman Sheila C. Bair could help the housing market, Paulson has expressed concerns about whether it would reward borrowers who bought houses they couldn’t afford. Bair’s plot would use tens of billions in federal funds to modify adjustable-rate mortgages for several million financially troubled homeowners.

Borrowers would have to meet standards set by Fannie Mae, Freddie Mac or the Federal Housing Administrations that include documenting their income, sources said. Fannie and Freddie were place under government control in September. The Treasury plot would not apply to refinances.

Any efforts by the Treasury to lower rates on new mortgages would work in concert with a Federal Reserve plot announced last week to buy $500 billion worth of existing mortgage-backed securities issued by Fannie Mae and Freddie Mac, and $100 billion worth of those companies’ debt.

An industry source said one plot pitched to Treasury recently would target two groups for the low-interest rate government mortgages, which would be offered for a limited period of six months:
• Potential new home buyers and others who have been sitting on the sidelines, waiting for a bottom in the housing market before they buy a home, as they don’t want to suffer paper losses on a buy. This would help clear out the current large inventory of unsold homes, sources said. Other previous government housing incentive programs, such as tax credits, have been limited to first-time home buyers and principal residences; they are often capped by income limits and other restrictions as well.
• Existing homeowners with mortgages they can’t afford, including those facing foreclosure. Sources noted that other plans to help struggling homeowners have included income tests, loan-to-value guidelines and other requirements. Such plans have also been restricted to principal residences.

Sources could not say if the Treasury has signed on to this particular targeted plot. But many analysts have said that the current economic downturn and financial instability will not end until the continuing decline in housing prices and instability in the housing market end.

It’s very excellent news for you who want to buy a new home or refinancing your mortgage. You can get low mortgage interest rates and refinance loan rates. So, let’s get started to looking around for a home, when the mortgages rates fall, you already have your dream house to buy.