Mortgage rates may keep rising

I appreciate you pointing out this fact. I am SICK of realtors suggesting the market is going to rebound thankss to lower mortgage rates since the Fed is lowering rates. Cant stand it anymore.

However, you are dead Wrong about the Fed - They are ***NOT*** printing money! They cant! They are extending huge lines of government-backed securities to banks to bail them out of their reckless lending practices. Of course, the CEOs that banked billions in the good ol days should contribute as well, but instead it all falls on the US taxpayer. ANyways, credit naturally is being destroyed by falling home values. We are in a DEFLATIONARY environment. Homes prices are down. Car prices are down. Boat prices are down. Used clothing is now popular. Wages are sliding. Why dont you get off this inflationary bandwagon? Outside of oil (and cow milk, which is made from corn which made from oil), everything is going down. This is 1930s deflation, folks. The fed is going to try to monetize debts from the banks, and it might work, and if the fed tries real hard we will have really nasty inflation and soaring rates. That is even worse than a little deflation. Please, please try to educate yourself more before telling the public whats happening here

Oh, and one more thing - I have a lot of cash in a high-yeld savings. If the banks need cash so badly, why is the return on this account falling? I'll end the suspense - because the government is giving the banks cheap loans, that eventually will be paid by the taxpayer. Abolish the Fed!.I am a taxpayer that is sick of being taken to the cleaners.

As far as i am concerned this entire financial mess is the doings of the Bush doctrine of coddling the weathy at the expense of the less fortunate be they middle class or lower class, coupled with the unscrupulous financial shenanigans on wall street. Giving tax breaks to the wealthy while borrowing money to fund an unpopular war is idiocy.

I would say that bankers are probably held in less esteem than most any other profession. Who could like a banker when their only goal is PROFITS at any cost and then when things don't work out, the little person gets hurt.

Folks bottom line is mortgage rates are still at historical low's.

More importantly if you have excellent credit , equity and a good debt to income ratio you should shop the rate and all the closing cost - as you would shop for anything else.

So true! My husband and I went to buy our first home in November. We have credit scores in the mid to high 700 and were putting 20% down and had to sweat it out until the day before closing to find out our mortgage was approved. The bank wanted to see so much paperwork of where our down payment was coming from (liquidated investments) that it took a letter from the investment company's accountant to satisfy the mortgage contingency. It was ridiculous!

It will be interesting to see how many of the properties "sold" this month will come back on market. Spring deals are traditionally squirrelly, even according to realtors: in prime home shopping season, buyers' appetites are larger than their purses. This year may be much worse. Going to open houses, I am amazed at the number of buyers who have no idea that loans have become harder to get.

To: Cindy,

Regarding your down payment and proof of such. It is and has been a criteria of mortgage lending for some time now that the bank, mortgage company etc must
document all necessary funds to close including any large deposits that are reflected on your bank statements, retirement, etc.

However for the Bank to wait until the "day before closing to find out your mortgage was approved" was most likely due to an unseasoned Banker or Loan Rep.

This problem goes back to the deregulation of banks back in the 80's, guess who??? Today's problem is compounded by Alfred E. Newman running the the White House.
The middle class always pays, one way or the other.

I am from Canada so bear with me because our system is a bit dfferent here, but aren't there variable rate mortgage products available that tie the rate you pay on your mortgage to the Federal Funds Rate? I can understand that long term fixed rates are not impacted by a reduction in the Fed Funds Rate, but what about short term money?

I don't know much about this sort of thing, but personally I think they should drop it to 3% for six months as a one-time-only deal. This will help people refinance and give potential buyers a chance to get a house and lock it in with a low rate, then raise it back to 5%. I think it would cause a frenzy to buy.

MortgageMensch,

Thanks for the comment. It is true that mortgage loans with shorter terms are becoming a better deal. Rates on 15-year loans, for example, are enjoying a discount over loans with longer terms.

An adjustable-rate mortgage, however, generally is still a 30-year loan. While ARMs carry discounted rates, the baseline is still the 30-year rate.

The better news for people with ARMs is that, when those loans do adjust, the adjustments typically are tied to short-term lending rates, and as a result of the Fed cuts, there will be a smaller increase in monthly payments on many loans.

I agree we have some deflationary issues not inflationary issues and mortgage rates will at best stay steady or continue to rise. The problem is the knee jerk reaction of the lending (banking) industry. They lend you money when you don’t need or make it “possibly impossible” – that is to say they appear poised to lend you money yet make it impossible for you to qualify. This combined with the herd mentality got them into this mess. Unfortunately entrepreneur and banking are not compatible terms. Lending with good practices is what should have continued, but greed won out over qualified buyers.

From what I can tell, real estate stopped being only local when national mortgage companies emerged (and dominated) the scene. Many people in MA obtained mortgages from companies based in NY, CA, etc. So now there are homeowners in MA who are affected by what is going on in CA when their CA based mortgage company goes belly up.

Should we return to the old system, of having to obtain home loans from our local bank? Maybe, but I have to think that will only remove more buyers from the market.

However, it seems the Fed is very interested in keeping this bubble inflated, at the tax payers expense if it back fires.

For people who didn't buy into the house bubble for the past 6 or 7 years like me, I hope the interest rate goes so high, so the housing price finally crash back into a affordable level like before year 2000. People should not worry about the jacking of the mortgage rate, it is the retardly high home price that we should be worry about.
I just don't understand why there are so many peopole still want to buy a house, when the rental income can not even cover half of the mortgage and expenses. This is a lose deal right from the beginning. Don't tell me the "home promote stabilitiy", I see enough of big mortgage uproot families around the us already.

Dana writes: " Folks bottom line is mortgage rates are still at historical low's."

While I agree that mortgage rates are at historical lows, the gap between income and housing prices has widened significantly. Income has not kept up with housing prices, so even if rates are at historical lows, houses now (plus inflation) cost a lot more than they used to.

Folks: As follow up to this conversation.

I have been in the mortgage / banking business for over 20 years.

There is no quick fix......

Such as

Ca noted

"I don't know much about this sort of thing, but personally I think they should drop it to 3% for six months as a one-time-only deal. This will help people refinance and give potential buyers a chance to get a house and lock it in with a low rate, then raise it back to 5%. I think it would cause a frenzy to buy.

Frenzy = extreme mental agitation; wild excitement or derangement

The general consensus on the real estate market here in MA is it is out of line with current incomes. While this statement is relevant is goes back to the old saying
Location - Location - Location.

We are experiencing a correction in the world economy and with that real estate values and prices have dropped ****temporarily****.

We have to look at history to see home values will and have increase in time.
The quick profit in the real estate market "flipping" is currently on hold.

Placing blame on one entity is difficult. However! Wall Street should not have been able to put mortgage products on the Street that were extremely dangerous.

Example: The old banking rule of thumb for qualifying for a mortgage was
28% over 36% . Meaning 28% of ones verifiable income would qualify for PITI=
Prin- Int - Tax & Home Owners Insurance -- 36% Would be for total debt to income = PITI plus any other debt (meaning debt that would be reflected on one's credit report- etc).

Qualifying ratio's have been put on the Street as high as 65% +++ This is dangerous.

Option arm mortgage programs that originally originated from California in which a teaser rate was offered at 1% or there about's was also a very dangerous mortgage product for the Average Joe. The mortgage program may have been good for the very sophisticated client that could invest there monies elsewhere for a profit.

Then there was the 100% to 125% ability of borrowing against ones home. WIth the thought that values would constantly increase and with that one could just refinance and consolidate there debt.

Then there came this temporary correction we are all experiencing and the poop hit the fan!!!!!

Pre Payment penalties also should have probably not been put on the Street nor accepted by an applicant.

Mortgages are like insurance they are risk based. When you take more risk you are treading in unchartered waters and you can sink very quickly.

We need to rethink the whole concept and realize that being somewhat conservative is very wise.... With that fixed rate mortgage's and some ARM's products such as a 5/1 -- 10/1 do not have the risk that a option arm or rate that can adjust a month after you close is way to risky for the Average Joe.

Fixed mortgage rates are still at an all time historical low and should be the the #1
mortgage for the majority of the USA. (conservative)

Real Estate values will go back up in time as history has shown us and with that if you plan on holding on to your property for say an example of 5yrs +.
I have to believe you will see your return in your home / investment.

With regards to prices in Ma and other high demand area's such a Ca they will always be that much more than other parts of the country - due to economics 101 supply & demand.

So with that some will need to move out to Central Mass - Western part of the State or other area's of the Country ---period--...

Kyle - Correct. Incomes havent been going up. Wondering why? Global wage arbitrage - leading to deflation. Wages are set to actually start sliding over the next few years as a lower paying job is better than no job. Home prices will follow suit.

Just today, first time ever, Starbucks is considering lower prices and rebate programs. Never happened til now. Sounds very deflationary to me. Less money out there.

Recently at the NW boat show, new boats were available at 10,000 discounts. That doesnt sound very inflationary to me. In fact, it is deflationary.

Building materials, like lumber and drywall, is down 10-25% in costs. Does that sound like inflation to anybody?

Dudeman - Since nobody will want loans in this deflationary economy, expect rates to actually be very low much like Japan. Nobody wants to rent debt during times of DEFLATION.

Binyamin,
again you are showing your ignorance when it comes to ARM's and fixed rates.
Arms are tied to Prime indirectly while long term, 15 & 30 year notes are not. Yes it is possible to enter into an ARM and have it adjust up OR down at time of adjustment.
In fact, if you took out a 3 yr ARM in the summer of 2005, you would be coming up for adjustment and the interest rate most likely would not be changing this year, it could even be going down. This fundamental lack of knowledge and eduction is the biggest part of the problem we are in.

MortgageManager,

Thanks for your note. There's an important distinction between the way lenders determine the initial interest rate on an ARM, and the way that rate later adjusts.

The initial rate on an ARM is based on the interest rate on a fixed-rate loan of the same duration. In general, the lender offers ARM borrowers a discount on that rate because the adjustable interest rate makes the loan less risky for the lender.

(Without overly confusing matters, it's interesting to note that the market is currently so messed up that rates on some ARMs are higher than comparable fixed rates.)

You are referencing the subsequent adjustments in the interest rate. (ARMs are loans where the interest rate starts adjusting at regular intervals, such as once a year, after a period of time at the initial interest rate.) And as you say, those adjustments are typically determined by taking a short-term interest rate and adding a fixed number of percentage points.

The Fed cuts reduce short-term interest rates, but even for borrowers with ARMs about to adjust, there are two caveats. First, many loans are tied to a European benchmark called LIBOR. And second, the vast majority of ARMs still will go up because lenders still get to add a fixed number of percentage points to the benchmark rate, however low it may drop.

Binyamin,
you are finally stepping up with some accurate info. Thank you.

Yes, ARMs typically are tied to Libor, but Libor is a trailing index to the Fed. So an adjustment by the Fed will typically also hit LIbor. The 6 month & 1 yr Libor which is what most Arms will be tied to is currently around 2.7-2.9 and this is beofre the last Fed adjustment. The typical non-sub-prime ARM would have a margin of 2.25 to 2.75 which would lead to an adjustment today just under 6%. After the Fed reduction catches up with Libor, you could be seeing low 5's on an adjustment. I have clients that I am currently advising to ride out the ARM adjustments as the best course of action from a financial position.

You are correct that most ARMs provided by national banks & mortgage companies are higher than the fixed, but this is due to Wall Street more than anything else. If the Wall Street bond traders dont want to buy something, a premium needs to be placed on it to attract them. To prove the point, compare a 5 year ARM with any national company against any small, local bank or credit union. You will see more than 1% difference on average.

In the end, the lease expensive way to own real estate is the shortest ARM possible. You need a strong stomach, but you will benefit from the downside more often than the upside.

I have asked this question of you before, what other country in the world offers a 30 year fixed rate loan ? How does the rest of the world survive with the ARMs that they have. It always comes back to education and responsibility, something most Americans are lacking.

Really well written!

How is that relevant?

Did you see the horrible news about today's Miami shootings with the masked gunman?