The Tale of the Incredible Shrinking Rate

As we reported last week, mortgage rates decreased after The Federal Reserve purchased $750 billion in mortgage related securities. This was done in order to bring the rates under 5% and stimulate activity in the home purchase and refinance segments of the housing market. This action may even cause rates to decrease further as mortgage rates adjust in response to action in the bond market. Mortgage Tracker HSH Associates expect rates to level off at 4.9% and not decrease further.

30 year fixed mortgage products are now being offered by both local banks and national lenders in the 4.6% to 4.75% range with no points. You may want to read the small print as points may be added.

There is so much refinance and new loan business that some banks are not reducing interest rates since they cannot handle the demand. Rates were already in the mid to low 5% range and many homeowners were already in the refinance process. Mortgage brokers are experiencing an overwhelming increase in just one week of refinance and purchase loans according to The Boston Globe. Consumers who are refinancing today are saving thousands of dollars a year in monthly payments. Buyers who take advantage of low prices and low fixed rates will be in the incredible situation of having more “house” at a lower carrying cost. 

There is an important side note: Homebuyers will, in most cases, have to put down at least 25% to benefit from these low rates. Also, jumbo loan rates remain around 6%. Jumbo loans start at $523,750 in the Greater Boston and Barnstable County areas. Congress has defined a new segment of loans between $417,000 and the jumbo starting point to be a class similar to jumbo but partially conforming. Lenders have not embraced this area of financing as of yet, however, it will definitely be pertinent to our market in Provincetown and Truro. We’ll keep you updated. 

Fed Invests Another $750B In Mortgage Backed Securities

Good news for buyers and homeowners! In a move designed to lower interest rates and make credit more widely available, the Fed has committed to buy another $750B in Mortgage Backed Securities. 

There are speculations that this action will push mortgage rates down close to 4%. That remains to be seen. However, the present rates are at near historic lows. Wells Fargo is posting 4.625% today on a 30-year fixed conforming loan!

With prices near or at bottom, and rates at extraordinary lows, the time is right for purchasing or refinancing. Call your mortgage broker today and explore your options.

Obama Housing plan

The finer details of the Obama Housing Policy have been released. What does this overly complex plan entail and who will benefit from it? 

Firstly, primary homeowners who are having a hard time paying their mortgages can now work with their lender to modify their mortgages. $75 billion in incentives will be offered to help prevent foreclosures. Mortgage servicers will be able to take advantage of financial benefits if they work to modify loans. Adjusted monthly payments are prohibited from being in excess of up to 38% of the homeowner’s income. The government will subsidize part of if not all the difference and ensure that not more than 31% of the borrower’s monthly income is tied up in a mortgage payment.

Secondly, homeowners who have not been able to refinance due to decreased property values and have a mortgage higher than their home’s worth, may be able to take advantage of loan modification and refinance. $200 billion has been slated to help these homeowners refinance. The administration estimates there are 5 million homeowners in need of this assistance. However, the current mortgage must be at most 5% higher than the value of their home. Mortgages must be owned by Fannie Mae or Freddie Mac and homeowners must be current on their existing loans. 

There is speculation that refinanced and modified mortgages may have interest rates as low as 2% for five years. That, however, is not a reality as of yet, and it is not easy for all lenders to arbitrarily modify mortgage products. The investors behind the mortgages will have the final say. If a lender takes bailout money then the law requires them to modify mortgages that are in danger of defaulting. This can cause conflict between the bank and the investor behind the product.

The plan is very complex and full of details. For more information on President Obama’s Housing Plan, please visit www.financialstability.gov.

If you are not sure how Fannie Mae, Freddie Mac or the housing plan pertains to you or pertains to your loan situation, please call your mortgage service provider or bank.

If you are interested in more information about Fannie Mae or Freddie Mac, please click on one of the following links.

- Fannie Mae at 1-800-7FANNIE , online at www.Fanniemae.com
- Freddie Mac at 1-800-FREDDIE, online at www.freddiemac.com

Creative Thinking

Getting creative just may be the answer to working out a vacation home purchase or sale in today’s economic environment. Buyers and sellers are thinking outside the box to bring deals together for win-win situations. Whether buying or selling, your success will improve if you open yourself up to broader and more creative solutions.

Consider these options:

Lease purchase: Back in the height of the seller’s market, it was rare for a property owner to consider an offer that proposed renting with an option to buy. In today’s market, this is one way to creatively bring a negotiation together. Sellers benefit by receiving income from the property and by having a commitment from the tenant to move toward purchase, and the buyer/tenant benefits by having longer period in which to gather financing while beginning to build equity in the property by having a portion of their rent applied toward the purchase. For more details about how lease purchase agreements work, click here.

Seller Financing: Owner financing was also more of a rarity in the boom markets of the early 2000’s, but more buyers are asking for it today, and more owners are accepting these offers. With the lending markets tightening their restrictions, many well-qualified borrowers are being turned away from traditional financing. Owner financing offers a win-win solution in many cases. Owners who don’t have an immediate need for the proceeds stand to make more in the end by adding interest payments to their bottom line and buyers who otherwise couldn’t get financing are able to move toward their dream of owning an investment property or second home. For more details about seller financing, click here.

Sharing a Purchase: Many experts espouse that the time is now for buyers to make a move, but due to the daily negative reports on the credit and housing markets, some buyers are being held back by fear. Consider sharing the risk with a friend by investing in a property together. When you invest in a property in Provincetown, Truro or Wellfleet, you have the opportunity to offset many of your expenses with rental income. If you are sharing the cost burden with a partner, you enjoy all the benefits, while feeling more secure with less at stake. Investing with a friend or partner is another path to realizing your dream of owning a vacation home on Cape Cod.