Mortgage Rates Lowest In 2 Years

Interest on 30-year fixed-rate mortgages fell to 6.10% this week, the lowest level in 2007, and the lowest since the week of October 13, 2005, said Freddie Mac. 15-year fixed-rate mortgages averaged 5.73%, down from 5.83% last week, which is the lowest since January 2006. I guess now is the perfect time to refinance a mortgage if you can find a lender, but that could be hard, unless you have a perfect credit record. 5-year adjustable-rate mortgages slid to 5.86% from 5.88% last week, not that spectacular but still lower. One-year adjustable mortgages were at 5.43%, up from 5.42% a week ago. Speaking about the housing sector, Freddie Mac’s chief economist Frank Nothaft noted that the “overall picture” looks “glum with no immediate relief in sight”. So it is indeed.

Conforming Loan Limit Unchanged In 2008

The conforming loan limit, currently $417,000, will remain unchanged in 2008, announced OFHEO director James B. Lockhart. OFHEO is the entity that regulates Fannie Mae and Freddie Mac, the government-chartered guarantors of home mortgages. Any loans above the $417,000 limit are considered “jumbo” and cannot be guaranteed by Fannie Mae and Freddie Mac, so lenders usually charge higher interest on them. This limit only applies to one-unit properties; multiple-unit properties have higher limits. Alaska, Hawaii, Guam and the U.S. Virgin Islands have higher upper limits than other states. The maximum conforming loan limit is determined by analyzing October-to-October change in the average house price, which has declined more than 3% this year. The maximum limit hasn’t changed for the last 2 years, and it probably won’t get revised upwards anytime soon. The latest NAR report says the inventory of single-family homes on the market is at the highest level in 22 years (10.8 months’ supply), which can only drive home prices down.

Home Prices Dropped 4.5% In 3Q

According to the S&P/Case-Shiller index, housing prices dropped 4.5% year-over-year in 3Q, the sharpest drop since 1987 when S&P started tracking the data. The index also scored another record – the largest quarter-to-quarter decline, with a drop of 1.7% from Q2. Falling home prices will cause more borrowers to become “upside down” in their homes, meaning they owe more on their mortgages than their houses are worth. After tremendous writedowns on mortgage-backed securities, investors and financial institutions have lost their appetite for risky assets and, according to some publications, credit availability is so low that another crunch similar to the one observed back in August is possible. Opinions, however, vary, and some Fed members even believe a rate hike would be good for the economy, while Wall Street is almost certain that there will be a rate cut in December. I tend to believe that, in this chaotic situation, the Fed is very much likely to reluctantly cut rates another 0.25% to prevent further tightening of credit. They don’t like to be pressured but they will have to take expert opinions into consideration.

Charles Schumer Concerned Over FHLB Lending To Countrywide

After a news story in the Wall Street Journal detailing Countrywide’s increased borrowing from FHLB, Senator Charles Schumer urged the Federal Housing Finance Board to probe the funding. The Federal Home Loan Bank of Atlanta [FHLB] has extended more than $50 billion to Countrywide Financial, and Schumer is concerned that the collateral the loan is secured against is somewhat shaky. The advances made to Countrywide make up 37% of the bank’s total outstanding loans, which makes Countrywide its largest borrower. Schumer considers FHLB’s exposure to Countrywide “an unreasonable risk”, because of the lender’s current weakness. However, FHLB said in a September SEC filing that its exposure to subprime is “minimal”. According to the Wall Street Journal, Countrywide has secured the $51 billion in advances with $62 billion in collateral. Shares of Countrywide dropped more than 10% to $8.64 on Monday.

Freddie Mac Seeks To Raise Capital

Freddie Mac was all over the headlines this morning, as recent news revealed the mortgage giant’s weaknesses. It is believed that the company may have insufficient capital to cover potential home-loan losses and there’s talk that both GSEs may be insolvent at some point in the near future, should more mortgages go bad. Moody’s and Standard & Poor’s downgraded Freddie’s outlook to “negative” from “stable”, though its debt is still rated AAA. Fannie and Freddie are required to hold 30% more capital than the minimum for other companies, and Freddie Mac found itself short of money, so it is now issuing securities to raise capital. Currently the company has $600 million above the minimum reserve level, much less than its $1-2 billion comfort level. It revealed plans to sell $5 billion of preferred stock in the very near term, probably this week. If losses in the fourth quarter are comparable to those in the previous three months, the mortgage giant will need to raise even more capital. James Lockhart, the director of Fannie Mae and Freddie Mac’s regulator, OFHEO (Office of Federal Housing Enterprise Oversight), refused to suspend the extra capital requirement when asked to.

Mortgage Interest Rates At 6-month Low

Freddie Mac’s weekly survey of interest rates shows the 30-year mortgage dropped from 6.24% to 6.20% for this week, the lowest since mid-May. The low for this year was 6.14% in early March, and rates kept climbing pretty steadily for a while, reaching 6.73% back in July. This made many analysts think that interest on 30-year fixed home loans is about to go through the roof topping 7% by the end of the year. Turns out they didn’t foresee the August credit crunch and well, no one counted in the Fed rate cuts. I assume now it’s safe to say interest rates won’t be nearing 7% until the end of the year in any case. With all the mess in the housing market and the two GSEs in trouble as well, the Fed may yet cut again at its meeting on December 11^th – they’ve thrown the dollar stability out the window anyway, so why not prop up the Real Estate sector for a while. Furthermore, oil will most likely hit $100/barrel by the end of 2007, rate cut or not (it’s at $97-$98 right now and forecasters say it will keep growing) due mostly to the dollar’s weakness: China plans to “diversify” its reserves, and OPEC is considering pricing oil in another currency. It may all look like doom & gloom but this is reality. Financial innovation, anyone?

Home Sales Dropped in 3Q

Sales of existing homes declined in 46 states in the third quarter of 2007, according to an NAR [National Association of Realtors] report issued Wednesday. Sales dropped 13.7% on average year-over-year, while Nevada, Florida, Arizona and California were hit hardest, with declines of 35%, 32%, 30.9% and 27.8% respectively. Sales increased in Vermont and North Dakota – the only two states to report positive data. Sales were up 0.8% in Vermont and 2.9% in North Dakota, and no sales figures were available for Idaho and New Hampshire.

As for metropolitan areas, 93 out of 150 surveyed saw price increases. However, median prices in Florida and California dropped more than 10% compared to last year. In his statement, NAR’s chief economist Lawrence Yun emphasized the positive news: “Some metro areas are hot while others are experiencing localized problems”. So all Real Estate is local, and the problems are “localized”. And there’s more of the “all is well” rhetoric: “Home prices … are affordable and, perhaps, even undervalued” – I guess foreclosure properties are indeed undervalued.