During the first two weeks of September 2009, mortgage interest rates have trended downward and are considerably lower than August’s averages. According to mortgage company Freddie Mac, the average rate on a 30-year fixed rate loan last week, excluding points, was 5.07 percent, down from the average for all of August which was 5.19 percent.

Is the lower trend likely to stick around for the rest of the month? It’s always hard to say, especially because there are two big factors this month that might try to pull rates in opposite directions. First, the Federal Reserve recently announced that the amount of consumer credit across the nation dropped by $21.6 billion in July, and credit availability dropped even more than reported in June. The Fed said that after six straight months of decreasing consumer credit figures, this is the largest decline since the Fed started its survey in 1943. What this means for interest rates is that when consumer credit shrinks fewer people are borrowing money, and there are fewer mortgage backed securities (MBS) for investors to buy. As the price for those increases because of a shriveled supply, it could push mortgage rates down as lenders try to attract more borrowers back to the mortgage table.

The second factor, however, is that the Fed has also announced its plans to stop purchasing U.S. Treasury bonds. It has been buying these up throughout the year to pump more liquidity into the markets, but as the economy has started to show signs of life again, the Fed has decided to back off in hopes that the market is beginning to correct itself. Some predict that this move will cause bond yields to rise and bring mortgage rates with them.

So far, rates have moved lower this month, so maybe the consumer credit issue is the more influential factor right now. Rates are near historic lows right now - so in the long run, they really only have one direction to go and that is up. For those who can qualify for funding, now is a great time for a mortgage loan.

A recent Washington Post article brings up how deeply involved the Federal government has become in the current housing market. In order to keep the mortgage markets from freezing up during the dire days of the housing crash, the government stepped in and took over Fannie Mae and Freddie Mac, two of the nation’s largest mortgage financiers.

“While this made it possible for many borrowers to keep getting loans and helped protect the housing market from further damage, the government’s newly dominant role - nearly 90 percent of all new home loans are funded or guaranteed by taxpayers - has far-reaching consequences for prospective home buyers and taxpayers,” the article says.

And together with guarantees made by the Federal Housing Administration, “The [government] outlay has already reached about $1 trillion over the past year and is rising. During that time, the government has pumped more money into the mortgage market than has been spent on Medicare or Social Security or the defense budget, more even than Washington has paid to bail out banks and other struggling companies.”

And with Treasury and Federal Reserve programs, “all told, the government now stands behind 86 percent of all new home loans, up from about 30 percent just four years ago, according to Inside Mortgage Finance.”

Among the biggest concerns about the government takeover of all these loan guarantees is that many of the loans are looking ripe for default and foreclosure. Fannie and Freddie have lost more than $150 billion since the beginning of 2008 and FHA loan delinquencies are also rising. So, instead of truly curtailing housing market problems, have we simply shifted the responsibility from individual homeowners, lenders, and companies to the American public (taxpayers) at large? So we all go down together instead of just one industry? Or will the Fed just print up some more money to continue bailing out the housing market if things really go south?

There may be reason to hope that the housing market is starting to show signs of life again. Two recent housing reports have indicated that things are looking up.

First, an article on the USAToday website reported that although demand for almost all consumer and business loans declined in the latest quarter, the Federal Reserve says that demand grew for prime mortgages, or good credit mortgages, marking the first increase since the first part of 2007. We can certainly attribute a great deal of that heightened demand to rock bottom interest rates.

Interestingly, the increase in demand for prime loans came during the same time that roughly 50 percent of banks were tightening their lending standards on those types of mortgages, and 65 percent were toughening up the requirements for non-traditional loans.

Not all parts of that report were entirely hope-inspiring though. The Fed survey found that more than 70 percent of all banks expect to see a decline in the quality of their portfolios. Still, we can take the points of light where we can get them these days.

The second report comes from the National Association of Realtors. Its Pending Home Sales Index showed that pending sales of existing homes climbed upward in March, making two consecutive months of increases.  The NAR said that signed contracts rose 3.2 percent in the latest period largely due to a flood of first-time homebuyers taking advantage of excellent mortgage interest rates.

While the association warns that it may still take several months before sales get real momentum, NAR President Charles McMillan tried to put things in perspective.

“Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment,” he said. “For buyers who’ve been on the sidelines and have good jobs, the market has never looked more favorable. Homeownership has always offered immediate benefits and long-term value, but the advantages in today’s market are unique.”

So if you fit into that segment of society that has good credit, lots of money in the bank for a down payment, and a stable, steady job – now is the time to act! For the rest of us, the waiting game continues…

Although the Obama Administration contends that high interest rates and inflated monthly payments are to blame for the current U.S. foreclosure epidemic, a study released recently from the Boston Federal Reserve suggests that rising unemployment rates may be the bigger cause/

The study named “Reducing Foreclosures,” conducted and authored by Boston Fed economists Christopher Foote and Paul Willen, Atlanta Fed economist Kristopher Gerardi and former Boston Fed economist Lorenz Goette, found that homeowners are more likely to miss mortgage payments because of job loss than because their loan terms are too steep.

While Obama’s mortgage relief plans center on modifying loans for as many as 9 million homeowners, the new study suggests that the government could more effectively stem foreclosures by focusing on solutions for homeowners now out of work.

“An important implication of our analysis is that policies designed to reduce foreclosures should focus on ameliorating the immediate effects of job loss and other adverse life events,” the economists wrote in the study synopsis on the Boston Fed’s website, “rather than modifying loans to make them more ‘affordable’ on a long-term basis.”

Mortgage investors and lenders may suffer more loss from mortgage modifications than from foreclosures as well, the study said.

“It is true that lenders may lose a great deal of money with each individual foreclosure, but the loan modifications might have negative [financial effects] if they are sometimes extended to people who are likely to pay on time anyway,” the study concluded. “And the benefits of modifications are uncertain if borrowers have lost their jobs.” Such homeowners may end up in default again anyway.

Instead of loan modifications, the Fed paper recommends that the government implement programs like  loans and grants to homeowners who have lost their jobs, as well as assisting those who truly cannot afford their mortgages anymore in the transition from homeowning to renting again.

President Barack Obama met Monday at the White House with the nation’s state governors to garner support for his $787 billion economic stimulus plan, promising that $15 billion of those funds would be released Wednesday to bolster state efforts to provide Medicaid coverage for the poor.

Some governors are excitedly supportive of the entire Obama plan and the allocation of more money.
“We are very anxious to see the loan modification program that the president is proposing as we think it will mesh very closely,” New Jersey Governor Jon Corzine, a Democrat, said at a National Governors Association meeting on Sunday, speaking of his own state’s efforts to stave off foreclosures through court-ordered mediations.

Washington state Governor Chris Gregoire was eager to use federal funding for a similar program, saying, “We desperately need this federal solution.”

Yet many Republican governors have said they would refuse a portion of the offered funds, calling the stimulus package wasteful as well as unnecessary.

“If you look at the number of performing loans versus non-performing loans … the overwhelming bulk of folks across this country … are in fact paying down their mortgages,” South Carolina Governor Mark Sanford, a Republican  said. “There’s a real equity question as to when the folks who have been playing by the rules … have the person across the street bailed out.”

Mississippi Governor Haley Barbour, a Republican, worried about supporting parts of the Obama stimulus plan after the federal dollars stop coming. “If we were to take the unemployment reform package that they have, it would cause us to raise taxes on employment when the money runs out — and the money will run out in a couple of years.”

President Obama tried to assuage fears about the federal money being used inappropriately. “This is not a blank check,” Obama said. “We’re going to work with you closely to make sure that this money is spent the way it’s supposed to.”

He appointed Vice President Joe Biden to supervise the disbursement of the funds and to make sure states are using the money for its intended purposes. He also named Earl Devaney, a former Secret Service special agent and uncoverer of the Jack Abramoff scandal to keep a tight watch on the implementation of all stimulus funds.

Average interest rates on U.S. mortgage loans fell for the ninth consecutive week, according to mortgage giant Freddie Mac Wednesday, falling to a new all-time low, making mortgage loans more palatable to borrowers around the country.

The rate on a 30-year fixed rate loan dropped to 5.10 percent, excluding fees, during the week ended December 31, 2008, down from 5.14 percent. One year ago, the average rate was almost an entire point higher at 6.07 percent.

“Interest rates for 30-year fixed-rate mortgages fell for the ninth straight week and represented a third consecutive all time record low since Freddie Mac’s survey began in April 1971,” said Frank Nothaft, Freddie Mac vice president and chief economist. “… As a result, the number of refinance applications for conventional mortgages jumped over 500 percent between the weeks ending on October 31st and December 26th.”

“Lower rates and falling house prices are also making homeownership more affordable to potential homebuyers,” Nothaft added. “For instance, house prices fell 18 percent over the 12-month period ending in October, according to the S&P/Case-Shiller 20-city composite index. Every city posted a second consecutive month of decline in October. From its peak set in July 2006, the composite index is down 23.4 percent.”

Rates also dropped significantly on the 15-year fixed rate mortgage to an average of 4.83 percent from 4.91 percent the previous week, representing a four and a half year low. Last year at this time, the average rate was 5.68 percent.

Short-term loans also experienced interest rate drops as the one-year adjustable rate mortgage carried an average rate of 4.85 percent, down from 4.95 percent one week earlier. During the same week in 2007, the average rate was 5.47 percent.