Government Struggles to Keep Interest Rates Low

Mortgage rates are rising, despite the government’s efforts to hold them down.

 

The government can’t control all the factors that affect mortgage rates. Mortgage interest has climbed because more borrowers refinanced when rates fell and boosted the supply of mortgage bonds.

 

Experts also attribute rising rates to expanded borrowing by the government to pay for stimulus packages, worries about Fannie Mae and Freddie Mac, and concerns about whether the central bank will continue to purchase mortgage bonds after June.The suggestion that the government solve the problem by creating an entity that offers 30-year mortgages at preset rates of 4 percent or 4.5 percent has drawn criticism.

 

“Not a lot of buyers are likely to want to buy a 3.5 percent mortgage-backed security, so the government may end up being a significant holder of these loans,” said Nicholas Strand, a mortgage strategist with Barclays Capital.  “And that number could run up to trillions of dollars.”

 

Source: The Wall Street Journal, Prabha Nataraian (02/03/2009)

Sam Thompson: Opteum Mortgage

I was hoping this might happen.  FHA may be coming to the rescue.  There is a big void out there now for customers with sub-standard credit scores that cannot qualify for conventional loans.  There are others that already own a home and  have a loan but need help with the type of mortgage they used to purchase their current home.  They may have one of those infamous conventional 2/28 loan programs where the rate can jump up to 12% after the first two years of the loan.  The “2” represented the time bomb period and the “28” is the number of days they have until they lose their home.

Seriously, I would like to meet the person that invented the 2/28.  I’m sure it was a Wall Street type, probably someone in their late 20s or early 30s that may have even originated loans for a few months before moving over to the investment world.  Can you imagine maxing out your mortgage payment on an adjustable rate mortgage for $200,000 at 7.5% only to see your rate increase to 12.25% after two years.   “But you can refinance the house after a year or so.”  You have to wonder how many times some loan officer or real estate agent said that to the homebuyer.

But let’s move forward.  The Senate passed an FHA modernization bill by a 93-1 vote today that will raise the FHA loan limit to $417,000 in high-cost areas and lowers the minimum down payment requirement to 1.5% from 3.0%.   The House passed its version of the bill in September.  So it could be law in early 2008.  So help is on the way, along with Santa…. 

 Best regards,
Sam Thompson
Loan Officer

Opteum Mortgage

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email: Sthompson@opteum.com

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Email/call Sam to find our more about his competitive mortgages and weekly rates.