Mortgage Rate Drop Not Expected To Do Much

The good news is that interest rates have fallen after the Freddie and Fannie take over by the government. The bad news is that it probably won’t do anything in the short term to help the market out of the current “funk”….

Mortgage rates fell Monday in response to the federal government’s virtual takeover of struggling mortgage financing companies Fannie Mae and Freddie Mac, which was announced Sunday.

This week’s fast decline in mortgage interest rates has created a surge of activity at Silicon Valley mortgage companies, as homeowners ponder refinancing and buyers decide whether to lock in a loan rate.

Rates for borrowers with the best credit dropped half a percentage point or more by Monday afternoon. As of Wednesday, the national average for 30-year, fixed-rate mortgages was 6.15 percent, down from 6.55 percent a week earlier, according to

Narbik Karamian, a mortgage broker in Los Gatos with Arvest Financial, said he has gotten calls from seven or eight clients since Monday, some wanting to make offers on homes while rates are low, others wanting to refinance their existing mortgages.

“As soon as it hit the high 5s people started pouring in,” he said, referring to interest rates for 30-year mortgages, some of which are in the 5.75 percent range, if the borrower is willing to pay a “point” up-front to lower the rate. A point is equal to 1 percent of the loan amount.

The decline in rates is “a small positive,” for the Bay Area housing market, said Kenneth T. Rosen, chairman of the Fisher Center for Real Estate at the University of California-Berkeley. He estimated that lower rates could increase buyer demand by 4 percent or 5 percent, but mostly among borrowers with high credit scores who can make big down payments — people who weren’t experiencing much trouble getting loans

It’s too soon to tell whether interest in the lower rates will translate into significant improvement for the local real estate market.

Lower rates have “gotten people excited,” agreed Nina Yamaguchi, who manages a Coldwell Banker office in Cupertino. But, she said, “it’s so new that it

hasn’t had a chance to translate into deals yet.”

Inquiries are up this week at Technology Credit Union, too, said Steve Donahue, vice president of mortgage originations, but most callers are still in the “exploration phase,” he said, not charging out to make offers.

One of the factors hindering home sales in the Bay Area — not to mention all over the country — is that mortgage lenders are continuing to tighten their borrowing criteria in an effort to lessen the chances of future foreclosures. Whereas a credit score of 620 was considered good a year ago, only scores of 720 or higher earn borrowers the best interest rates now, for example. (850 is the maximum score given by the Fair Isaac Co., whose scores are the industry standard.) Borrowers with down payments of 10 percent or less find it more difficult to get loans, except through channels such as the California Housing Finance Agency and the Federal Housing Administration.

Also slowing the market is the fact that many homeowners opt not to sell if they can’t get what they think their house “should” be worth, based on its peak value. And many prospective owners don’t like the idea of buying a home that may decline in value.

“We don’t want to buy anything if we think it’s going to go on sale next week,” Donahue said.

In recent months, however, more buyers have been pouncing on “bank-owned” properties — those that have been foreclosed upon — and as a result there’s increased competition for those bargain-priced homes. Lower rates might further spur buying in that segment of the market, Donahue said.

The government rescue plan for Fannie and Freddie may have slight benefits for consumers, Rosen said. But the plan by the U.S. Treasury Department, committing perhaps $200 billion or more to guarantee the security of Fannie and Freddie, is “a sign of distress, not a sign of recovery,” he said. Before the housing market can recover, he said, “confidence has to be restored. It’s going to take job creation and the foreclosures we have working through the system,” which he estimated will take at least another year.

About Kent Clothier

Kent Clothier is President and CEO of Real Estate Worldwide (REWW), a highly sought-after speaker, the owner of three multi-million dollar a year Internet marketed brands, and proud husband and father. Kent is motivated by his love of family and freedom, creating products that enable people to live their lives the way they choose.

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