The Federal Reserve decided to keep its benchmark interest rate at is current 0 to 0.25 percent range for the coming six weeks, and long-term mortgage rates posted little movement this week as well, according to mortgage financier Freddie Mac Thursday.

Average rates on 30-yaer fixed rate loans inched up to 5.42 percent, excluding points, during the week ended June 25, from 5.38 percent the week before.  Freddie’s VP and chief economist Frank Nothaft explained that “mixed economic reports” were the cause for the timid rate movement. He cited an increase in existing home sales contrasted by a dip in new home sales and national median prices.
Meanwhile, during its bi-monthly meeting the Fed held its rate steady as risks of deflation have dropped and many other pieces of the economy seem to be falling back into place.

The Fed is still plan to pump billions of dollars into buying Treasury bonds and toxic mortgage-backed securities, but have started to slow down the rate of their purchases. The immediate result seemed to be a rise in mortgage rates, and some think that could stymie the economy from recovering soon.  From Fed Chairman Ben Bernanke’s recent comments, it sounds like inflation is the bigger issue for the central bankers.

“The key issue here is can we unwind this money creation and low interest rates in time to head off inflation when the economy begins to recover?” Bernanke said in remarks before the House Oversight and Government Reform Committee. “We have all the tools we need to do that. We believe we can do that. We will certainly remove that stimulus in time, and we are committed to price stability and we will make sure that it happens.”

Is now the right time to jump into the housing market? There are certainly some great perks to buying in a down market. But the question always remains: Could I score a better deal by waiting just a few more months?  Right now the answer is ‘possibly’ according to a recent report from the Mortgage Bankers Association.

The MBA reported Monday that it had revised its prediction for total yearly mortgage loan volume downward this month thanks to rising interest rates and Treasury yields. The group now expects mortgage originations in 2009 to amount to $2.03 trillion, more than $700 billion lower than the March forecast.

Mortgage interest rates have jumped up in recent weeks, but with the 30-year fixed rate loan at 5.38 percent last week, according to Freddie Mac, they are still relatively low, historically speaking. So now may be the best time to buy before rates move any higher.

Yet, the MBA also predicted that home prices will continue to fall this year, until they are at least 10 percent lower than the median prices in 2008. So waiting another couple months might mean higher loan rates but lower sales prices. But also on any buyer’s side is the MBA’s forecast that both new and existing home sales will decrease, with existing homes slated to drop by 1.2 percent from last year and new home sales to plunge 27 percent. When sales are down, sellers are always more desperate and willing to negotiate in order to close the deal.

And of course, whether you can even buy now, depends largely on your credit score these days. If your credit isn’t up to snuff, you may want to wait several months anyway to try to improve it and increase your chances of getting approved.

After jumping to a seven-month high, rates on long-term mortgage rates dropped back down in the latest week. According to mortgage giant Freddie Mac, during the week ended June 18, 2009, the average rate dropped to 5.38 percent, excluding points, from 5.59 percent the week before, and down from 6.42 percent one year ago.

Why did rates fall? Freddie Mac credited slowed inflation growth for the declining mortgage rates. Many on Wall Street believed inflation would rise by more than it did in May. Most dramatically, producer prices dropped by 5.0 percent from the previous year, the biggest decrease since 1950.

Based on all the recent reports, Frank Nothaft, Freddie Mac vice president and chief economist commented, “It’s still too early to tell whether the decline in housing market activity has hit bottom yet.”
Meanwhile, in an interview on CNBC today, Forbes CEO Steve Forbes blamed the Federal Reserve for the current housing market troubles. As quoted on the dailyfinance.com blog, Forbes said he thinks the Fed “should announce first they’re not going to buy any more Treasury securities. Cash in the banking system is not the problem, the problem is that parts of the credit economy are still not working.” What the Fed should do, he added, is to aggressively buy up mortgage-backed securities as well as packages of credit car, car, and other consumer credit loans.

Forbes also decried the Obama administration’s decision to give the Fed greater regulatory powers over the country’s financial institutions.

“In terms of regulation,” he said, “it is a bit ironic they’re still going to put new powers in the Federal Reserve, which is an agency that, one, didn’t exercise proper oversight over the banking system that it had already under its purview and [two,] its lousy monetary policy in 2003 and 2004, when it printed all this excess money, made the bubble possible.”
Amen.

After rising for two months, homebuilder confidence sipped down in June as mortgage rates skyrocketed up.
The National Association of Homebuilders’ housing market index, a measure of builder confidence fell to 15 this month, down from 16 in May. Anything below 50 indicates that more builders view the housing market conditions  as poor rather than favorable. So obviously even last month no one was jumping up and down for joy about the market, but they were cautiously increasing in their optimism that the housing bust would be shorter than expected. The latest developments have builders worried that the end is not yet in sight.

“The housing market continues to bump along trying to find a bottom,” NAHB chief economist David Crowe said. “Builders are taking their cue from consumers, who remain uncertain about the economy and their own situation. Builders are also finding it difficult to complete a sale because customers cannot sell their existing homes.”

Mortgage rates have jumped up to 5.59 percent according to recent data from Freddie Mac, a dramatic leap from rates well below 5 percent just a few weeks ago. Rates often move upward as economic conditions improve, and several reports over the past weeks and months have indicated some positive movement. For instance, new-home sales have grown during two of the last three months, and even though prices have dropped, home affordability is on the rise. 

Yet higher mortgage rates have home builders and others worried about a decrease in buyers. Where does the cycle end?

Today Freddie Mac reported another week of dramatic mortgage interest rate hikes. The average rate on a 30-year fixed rate mortgage grew to 5.59 percent during the week ended June 11, 2009, up from 5.29 the previous week. That is the highest rate since the week ended November 26, 2008, and represents almost a point difference from the all-time record low of 4.78 percent in April.

So what is behind another huge jump in rates? According to Freddie Mac’s vice president and chief economist, Frank Nothaft:

“Mortgage rates followed the increase in bond yields this week as the May employment report showed that the economy lost fewer jobs than the market consensus had expected,” …As a result, federal funds futures rose after the report, signaling that the market expects the Federal Reserve may raise its benchmark rate sooner rather than later.”

So as the economy seems to be beating analysts’ expectations, mortgage rates are rising. While rates are still quite low by historical standards, the trouble is there are still plenty of struggling homeowners looking to refinance into lower rates to save their homes. The higher rates go, the less helpful refinancing will be in stemming the tide of foreclosures. And all this in spite of the Federal Reserve’s best efforts to keep mortgage rates low by zeroing out its funds rate and buying up toxic mortgage-based securities from worried lenders.

So the paradoxical cycle continues – the economic outlook starts to look, not good, but at least not as bad, causing mortgage rates to rise, resulting in more foreclosure among those who bought or refinanced during the housing bubble. Apparently even the government cannot keep this cycle from playing out. Maybe this is just the natural re-balancing of the housing market to pre-boom days.

Man! It is a good time to be a “first-time homebuyer!”  Not only are home prices at their lowest in years (at least in many parts of the country) and mortgage interest rates in a very affordable range,  but now, according to an article in the LA Times, the government has even announced that home buyers using the newly instituted tax credits can turn that break into cold, hard cash. That amount, up to $8,000, can be used for things like higher down payments, points paid to lower the loan interest rate, escrow fees or other various closing cost charges.

There are some strings attached. In order to take advantage of this cash offer:

• Borrowers must be “first-time homebuyers,” meaning they have not owned a home for the past three years. 
• Single borrowers must make no more than a gross income of $95,000 and married couples can make no more than $170,000 to qualify.
• Borrowers must buy their homes with FHA loans, in most cases this means providing a down payment of at least 3.5 percent of the home purchase price.
• Homebuyers must close their home sales before November 30 of this year.
• Buyers must stay in their homes for at least three years or they will have to repay the tax credit.

So if you are ready to get into a home, and have even a little bit of money saved up for a down payment, now is the time! Lock in your interest rate today, and start the paper work.  You have less than six months to make use of this free $8,000.

If you were waiting for mortgage interest rates to go even lower, you may have missed the boat. After staying below 5 percent and near record lows for several months, rates on 30-year fixed rate mortgages surged upward during the latest week, according to data from mortgage company Freddie Mac.

During the week ended June 4, 2009, the average rate grew to 5.29 percent, excluding fees, a huge increase from 4.91 percent the week before. That accounts for the highest rate since the week of December 11, 2008, almost six months ago.

“Thirty-year fixed-rate mortgage rates caught up to the recent rise in long-term bond yields this week to reach a 25-week high,” Frank Nothaft, Freddie Mac vice president and chief economist, said in a statement.

According a new report from Jeff Tyler on Marketplace,

“Mortgage rates are closely tied to U.S. Treasury bonds. Investors worried about the ballooning federal deficit are shying away from buying the government’s debt. The Federal Reserve has been pumping money into T-bills to keep rates down. But that may not be enough to bring mortgage rates back to the historic lows seen in March.”

The Associate Press also mentioned that “yields on long-term Treasury debt have since edged back downward following lackluster economic reports.”

So, if bonds yields continue to fall, mortgage rates may also return to that trend. Of course, these things are rather unpredictable, so if you are at all worried about rates continuing to move up, you might want to run to your favorite mortgage lender and lock in the current rate for your upcoming refinance or home purchase.

An index released Tuesday from the National Association shows that pending home sales, based on contracts signed in April, were up again for the third straight month. Is this a sure sign the mortgage and housing markets are headed back up? Not necessarily.

In the past the NAR’s Pending Home Sales Index has been a fairly accurate predictor of how many actual existing-home sales will take place, but in the past several months, that has not been true. There may actually be a lot more people signing contracts these days who are not able to go through with the sale.

Here’s why people want to be buying houses, according to NAR chief economist Lawrence Yun:

 “Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market. Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

Additionally interest rates are incredibly low and prices keep plunging in many parts of the country.

Here’s why pending contracts are not going through as much these days, Yun says:

“Mortgage processing time has increased, it is taking many months to close on those homes requiring short sales with lender approval, and some sales are falling through at the last moment.”

Diana Olick on the CNBC website  writes that in addition to slow moving bank approvals, appraisals are also a factor.

“Many appraisals are now coming in lower than the contract price. Today’s already-iffy buyers aren’t willing to hang in there when they find out the house is worth less.”

So while pending home sales are always a good sign, they may not be the sign yet we are all looking for to indicate the healing of the housing market.

For the first time since the boom of subprime mortgages in the middle of this decade, prime borrowers, or those with good credit, are making up the bulk of new defaults and foreclosures.

According to the Mortgage Bankers Association Thursday, in the first quarter of 2009, about 6 percent of all prime borrowers with fixed rate home loans were either late on their mortgage payments or in foreclosure.  And 9.12 percent of all homeowners with loans of any kind were delinquent, the highest percentage on record in the history of the MBA’s National Delinquency Survey.

While almost half of subprime or poor credit homeowners are behind on payments or about to lose their homes, this new trend with prime borrowers is more worrisome. These are the people who actually have a history of making their payments on time and using financing sensibly.

“In looking at these numbers, it is important to focus on what has changed as well what continue to be the key drivers of foreclosures,” said MBA chief economist Jim Brinkmann.  

“What has changed is the shifting of the problem somewhat away from the subprime and option ARM/Alt-A loans to the prime fixed-rate loans.  The foreclosure rate on prime fixed-rate loans has doubled in the last year, and, for the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures.  In addition, almost half of the overall increase in foreclosure starts we saw in the first quarter was due to the increase in prime fixed-rate loans.  More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults.”

The nationwide economic troubles have meant that plenty of good credit homeowners have been laid off from their jobs and are simply left without the funds to keep current on their mortgages. And even with government programs to help modify mortgages with lower payment and interest rates, it will be hard to qualify without a secure income. The MBA predicts things will get worse before they get better. “Better” will probably happen at the end of 2010, they say.

Lowering monthly mortgage payments for struggling homeowners, without reducing the principal balance, will not significantly reduce the number of defaults, according to a new study from Fitch Ratings as reported in the Wall Street Journal.

In fact, Fitch predicts that up to 75 percent of all modified loans will go back into default within 12 months. Diane Pendley, managing director for Finch, concluded that underwater home loans are to blame.

“Loan modifications hold clear value for many homeowners provided the modified payments are sustainable, but more often than not reducing the home payments to an affordable level may not be enough to rescue borrowers who are overextended on other credit and expenses,” she said. “With continued home value declines in many  markets, there is  growing evidence that some homeowners are voluntarily walking away from their homes even if they can financially afford to stay.”

The government has been vigorously encouraging mortgage lenders both verbally and monetarily to modify loan payments and interest rates for their customers on the brink of default and foreclosure. The Fitch study found that 7 percent of prime residential mortgage-backed securities were modified, 18 percent of which were subprime or poor credit loans.

So are falling home prices really to blame for re-defaults? While Fitch maintains that mortgage loans worth  more than the current home value are too financially depressing for homeowners to deal with, there may be more to the story.

I like what Douglas McIntyre had to say about it on dailyfinance.com :

The more likely reason that the programs do not work is the rise in unemployment and the increase in the business practice of turning full-time workers into part-time workers, sharply cutting many people’s incomes. Even with monthly home payments cut, mortgage holders can’t pay with money that they don’t have.

If the mortgage modification programs are going to work, two things have to happen, both of them unlikely. Unemployment would have to bottom soon and mortgage principals would have to be lowered as part of the loan modification process. Neither of those is likely to change soon.