Good buys in home loans

The Baltimore Sun

Home loan borrowers with good credit could be in for some of the best mortgage rates in months, analysts said yesterday, a day after the Federal Reserve announced intervention designed to make financing less costly and more readily available.

But it will likely take some time to turn around a sluggish housing market amid a deepening economic crisis, where lenders have tightened standards and many sellers are still unwilling to budge on home prices, mortgage experts and brokers said.

Tuesday's action by the Federal Reserve sent mortgage rates down to the lowest levels since February. Rates on 30-year fixed mortgages dropped to a national average of 5.76 percent yesterday, from 6.06 Monday, according HSH Associates. Yesterday's rates were the lowest since Feb. 6, when they were at 5.74 percent, HSH said.

Under the Federal Reserve plan, meant to boost the housing market and spur the economy, the government will invest in mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae as well as debt issued by those government-sponsored corporations. That move helped push mortgage rates lower, analysts said. The federal government is pledging a total of $800 billion for the housing program, as well as for improving loans for credit cards, auto loans and other borrowing.

"It's obvious this is the program the market has been waiting for, some way to support the vast amount of Americans who are not in trouble," said Keith Gumbinger, a vice president at HSH. "This is the first program aimed at those who didn't do anything wrong, folks who didn't screw up the balance sheet, but who have become enmeshed in the credit crisis. Now those borrowers have an avenue to explore for relief."

Gumbinger said the new Fed program should help drive down financing costs for those with good credit histories who are looking to buy a house, and it could help spur demand for home purchases. Once home sales start to pick up, prices will start to stabilize, Gumbinger said.

And lower rates should enable more borrowers with adequate equity in their homes to refinance, giving cash-strapped consumers another avenue for borrowing. More borrowers will be able to refinance to consolidate debt, lower monthly payments or draw out cash, all of which should promote consumer spending and help the economy, Gumbinger said.

"You're going to see an immediate impact on people who can refinance, taking their 6.5 percent interest rate to 5.5 percent or so," said Bob Walters, chief economist of Quicken Loans in Livonia, Michigan. "That will put $200 a month in their pockets."

Almost 20 percent of U.S. mortgage borrowers owed more on their loans than their house was worth in the third quarter as foreclosures depressed prices and the economy weakened, according to an Oct. 31 report by First American CoreLogic. Those owners would have a difficult time refinancing, Walters said.

Local mortgage brokers said they began getting calls immediately from customers once the federal program was announced.

Getting an assurance that the Fed would back Fannie and Freddie securities, "has had that positive effect we all were hoping for," said Hunter Bloch, vice president of Annapolis First Mortgage. He said his office has seen an increase in loan applications.

"Activity was quite rampant yesterday."

Bloch said one of his investors, a bank that buys loans from Annapolis First and other brokers, reported having its biggest day in months Tuesday for locking in interest rates for refinancings.

As of yesterday, Bloch said, rates on 30-year mortgages ranged from 5.25 percent to 5.75 percent.

"If this holds, which we're hoping, I think we'll see an increase in the purchase market," Bloch said. "A lot of people are sitting on the sidelines waiting for the right opportunity."

At Allymac Mortgage in Owings Mills, business for refinancing, which had been almost nonexistent recently, jumped about 500 percent in the last two days, said Neil Sweren, president.

"We've gotten a lot of e-mails and phone calls from people, saying, 'Is this a good time?' " and many are moving ahead with applications, Sweren said. "It seems like everyone that's calling knows that from past experience, the window is usually not open for very long. In this market, people have a heightened sense of how important timing is."

Bloomberg News contributed to this article

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