Mortgage Insights Blog

Nothing gets the stock market more excited than the government talking about and taking initiative to lower interest rates to record levels. Between their plan that would have the Treasury buying up loans from Fannie & Freddie in efforts to artificially lower mortgage rates below 4.5% to the Federal Reserve dropping their key interest rate to below 0.25%, the government’s latest intervention has caused quite a stir that we have not seen for some time in the real estate markets.

Many questions remain though - for example, who would be eligible for these low interest loans? Preliminary information is suggesting that that these loans would be available for purchases only. And then the government could further restrict these low interest loans to only those homebuyers with the best credit, or maybe to just first-time buyers and/or low-to-moderate income buyers. And of course, the rates would only be available for 30 year fixed rate mortgages with conforming loan amounts (Less than $417,000) and the new high cost conforming loan amounts (between $417,001 and $625,500).

More importantly, what would this plan do for interest rates offered for other loans such as refinances? We may not ultimately know the answer but we have seen recent speculation create downward pressure on interest rates currently offered on 30 year fixed mortgages for both purchases and refinances offered on conforming loan amounts that qualify to be purchased by Fannie and Freddie. Interest Rates have finally hit a level seen only a few times in the past several decades.

Why? With the government stepping up and backing loans secured by real estate, it gives the investment markets confidence to start buying mortgage backed securities again. So, in essence, the markets are already reacting to the possibility and the general public can already take advantage of these great rates. But keep in mind that it is no certainty that the governments proposal to artificially drive rates below 4.5% will even come to fruition. Bottom-line: the recent fall in interest rates is prompting many homeowners to act right now – don’t get left out, have a real estate financing professional look into your options.

What alternatives exist for those who do not qualify for the current mortgage rates? There could be another housing stimulus coming out early next year when congress resumes their next term. Speculation has already been made about creating refinances that do not require appraisals and even allow for lenders to write down their loan balances. But we’ll have to wait and see how things turn out in early 2009.

Already available for homeowners who are suffering form increased mortgage payments due to rate adjustments – Fannie Mae has just implemented a “streamlined loan modification” program that should help many renegotiate the terms of their mortgage – some homeowners have already benefited from reduced interest rates (even reduced below 4.5%) and principal reductions.

To learn more about loan modifications please follow the link on my website.