Mortgage Rates Go Down

By Margarita Nahapetyan

Average rates on 30-year fixed-rate mortgages fell to 5.01% this week, setting a new record from the 5.1% last week, and from 5.87 % a year earlier, mortgage company giant Freddie Mac announced on Thursday based on the history of his weekly survey. Freddie Mac's survey began in 1971 and the rate has never been lower since. It covers conventional and conforming mortgages. "Interest rates are due partly to the Federal Reserve's recent purchases of so-called agency mortgage bonds issued by Freddie Mac, Fannie Mae and Ginnie Mae," said Frank Nothaft, Freddie Mac Vice President and Chief Economist." Since the end of October 2008, rates have declined by almost 1.5 percentage points. That has translated into a payment savings of $184 a month for a $200,000 loan", added Frank Nothaft.

The Federal Reserve Bank of New York began to buy the bundled loans (known as mortgage-backed securities) this week, of Fannie Mae, Freddie Mac and Federal Home Loan Banks debt in order to lower mortgage rates and borrowing costs for the consumers and repair the ailing real estate market and economy which has entered its third year of a downturn. It is planned to buy up to $500 billion worth of those securities by June. The buying is also intended to lower the yields on the bonds that influence the rates which lenders can offer their consumers. The Fed is using Pimco, Black Rock Inc., Goldman Sachs Group Inc. and Wellington Management Co. to manage its buying.

The largest U.S. banks started to offer people home loans with fixed interest rates below 5 percent. J.P.Morgan Chase & Co. is offering 30-year mortgages as low as 4.75 % on its website, Wells Fargo Bank has an offer for 4.875 %, and Bank of America Corp. has rates at 5 %. Although the drop in rates will not help homeowners who are in negative equity, the real-estate brokers say that even lower mortgage rates are being expected in the future. The bank offers presently are for clients with excellent credit history who put 20 % in down payment. But there is a doubt that after more than two million jobs being lost last year, people will be willing to start buying homes in this second year of recession. Another reason not to rush into buying is that apartment rent fees are drastically falling in the United States, and sometimes landlords are even eager to offer concessions such as free rent to avoid higher vacancies.

On Wednesday Henry Paulson, head of the U.S. Treasury Department, who completes his term on January 20, gave his parting thoughts on government support for the mortgage market to the Economic Club of Washington. Mr. Paulson demanded to abolish Fannie Mae and Freddie Mac and suggested to replace them with the Federal Housing Administration, which would not play such a big role in supporting the U.S. housing finance system. Paulson said that Fannie and Freddie own together and stand behind about half the nation's home loans and are both too big for any private institution or organization to compete with. Together they are worth about $5 trillion. As an alternative, Mr. Paulson said, Fannie and Freddie could be fully nationalized and, perhaps combined with private entities that would purchase and bundle mortgages and which, in case of default, would carry U.S. backing.

As to Fannie Mae and Freddie Mac, they announced that they will extend for several more weeks a moratorium on foreclosure sales or evictions for some borrowers. The original moratorium began in November and was planned to expire on January 9. It was aimed to help 6,000 homeowners who are 90 days or more late on their payment to avoid bank repossession and eventually qualify for mortgage modifications. Loan modifications include waived late fees, interest rate reductions, lengthening of term, extension of the loan life, etc. In December, Fannie offered a new policy for renters - National REO Rental Policy, according to which renters are allowed to stay in their homes where the landlords stopped paying the mortgage as long as they have legitimate leases and keep up with their rent payments.

"Freddie Mac is committed to pursuing every responsible opportunity to reduce foreclosures and accelerate the return of stability to the U.S. housing market," declared Freddie Mac CEO David Moffett in his statement. "Today's announcement will provide Freddie Mac and its services additional opportunities to help put more families on the path to stable homeownership."