February 25th, 2010 11:20 AM by Preston Ware
(yesterday) as reported on Huliq.com
As Fed chairman Ben Bernanke continues his discussion before Congress today and tomorrow, we hear more of the same talk about slow gradual recovery, keeping interest rates low and the hard to solve situation with unemployment. Mortgage interest rates have been puttering along sideways since the first of the year but now we are nearing the 1.25 trillion dollar target of the Fed’s mortgage backed securities purchase program. Normally if the fed were to stop purchasing this would cause interest rates to go up.
Typically the month of February is where the mortgage world gets back down to business after a little hiatus in late December and early January. This year February has been slow due to few factors. Consumer confidence is down. We have had uncommonly bad weather preventing house hunters and realtors from getting any work done and in my opinion; we are starting to see a lack of qualified borrowers. One third of the country is underwater on their home values ruling out mortgage refinance programs except for the Home Affordable Refinance Program (105% or 125% rate and term financing) or the FHA Streamline Refinance without appraisal.
Unemployment is still around 10%, so there are limited borrowers in a position to take advantage of the $8000 or $6500 tax credit available until 4-30-2010. Many of the customers I speak with assume the credit is used as down payment money which is not the case. Few first time home buyers have substantial savings, so once they hear there are no federal funds available for down payment, the conversation goes on hold.
It will be interesting to see how the Fed reacts as they reach the 1.25 trillion dollar target of their Mortgage Backed Securities purchase program. Bernanke hinted today that the Fed will continue to purchase mortgage backed securities. I suspect this purchasing will continue along with a hint of innovation. Perhaps Fannie Mae and Freddie Mac will once again encourage private investors to start purchasing American mortgage backed securities for their portfolios. Also Fannie/Freddie and the Federal Housing Authority will continue to pursue some aggressive loan programs for homeowners who wish to purchase Fannie Mae owned and Hud owned inventory of homes or any home.
Programs like the HUD foreclosure purchase program which allows for $100 down, to purchase a HUD owned foreclosed home. Fannie Mae still allows 97% financing without mortgage insurance on purchases of Fannie Mae owned foreclosures. USDA still allows 100% financing in rural areas. I suspect more programs like these will emerge because the powers that be still need to keep putting a positive spin on our road to recovery while at the same time making options available for emerging borrowers with little or no savings. Mildly aggressive programs will continue to boost consumer confidence and expansion hopefully without going overboard and back into the madness of stated income programs or the pay select option adjustable.