Mozilo On Housing Reform

It seems the idea of “freezing” interest rates will be implemented after all, despite its flaws and the fact that it will only help a small number of borrowers. Perhaps top economists are spooked, but why do something that is certain to fail? Even Countrywide’s Mozilo noticed how bad the idea is. He said the better solution would be to raise the conforming loan limits and to allow Fannie Mae and Freddie Mac to keep more loans on their books – an idea rejected by the Bush administration recently. There may be some conflict of interest on Mozilo’s part, but his arguments are reasonable. Freezing interest rates will help some homeowners, but it will hurt lenders and investors, and leave the rest of the borrowers to struggle with increasing mortgage payments. He also noted that the industry needs clear lending standards that will create a sense of certainty and lure investors back into the housing sector, pumping liquidity and spurring mortgage lending (Bingo! But maybe we should leave the conforming loan limits alone, cos they’re pretty high right now anyway).

The worst may not be over yet for the mortgage industry: Banc of America and Fannie Mae both predicted significant home price drops in 2008. Fixing the interest rate on a small portion of mortgages will not prevent foreclosures, especially with borrowers willing to walk away from their “upside down” mortgages.

Interest Rates Going Down

Average mortgage rates declined in the week ending Thursday, April 26, according to Freddie Mac. 30-year fixed-rate mortgages carried an interest of 6.16%, a slight drop from last week’s 6.17%. Current rates are approaching the lowest level for the year so far, 6.14%, recorded in early March. 15-year fixed-rate mortgages also decreased to 5.87%, down from 5.89 a week earlier. 1-year adjustable-rate loans had an interest rate of 5.43%, slightly lower than last week’s 5.45%. The 5-year hybrid ARM dropped to 5.88% from 5.92. Freddie Mac’s chief economist Frank Nothaft attributed the decline to weaker existing home sales in March and lower consumer confidence in April.

Rates are way below year-ago levels, when 30-year fixed-rate mortgages carried an average interest of 6.58%, 15-year mortgages were at 6.21%, 1-year adjustable-rate mortgages had a rate of 5.68% and 5-year hybrid ARMs averaged 6.21%.

After the real estate market surge, new rates arrive.

According to Freddie Mac, a leading mortgage agency, the interest rates have risen slightly, after the increased sales and mortgage activity in the first 2 weeks of January.

With home prices and fixed-rate mortgages at near-record lows, the real estate environment benefits home buyers. Refinancing activity has been on the rise as well, with consumers changing from adjustable to fixed rate mortgages and consolidating debt after the holidays. Now, the market reacts with the 30-year fixed-rate mortgages, 15-year mortgages and hybrid ARMs raising a fraction as compared to the previous week.

The increased home buying activity is in part due to high employment numbers and low prices. Contrary to expectations, purchasing activity started going down during the second week of 2007, after the rise in the beginning of January. Home prices are likely to rise soon, with the spring home buying season approaching and the market waking up after last year’s lows.

The rising trend for ARMs may continue in 2007, making fixed-rate mortgages even more attractive for borrowers and stimulating refinancing. However, some researchers predict cuts after last year’s consecutive hikes, so ARMs may yet offer surprises.