30 Year Mortgage Rates Hit A 27 Year Low

Dec 5th, 2008 @ 5:24 PM by Alden Smith

We are seeing mortgage rates on 30 year fixed mortgages dropping, and this week they hit 5.53%, the largest drop in one week in 27 years. These rates were reported Thursday by Freddie Mac. The rates are down from 5.97% from last week. The lowest we have seen them was on January 24th, when they stood at 5.48%.

We may see further cuts, if the government decides to launch a plan to lower the rate on a 30-year mortgage to 4.5 percent. They would accomplish this by spending hundreds of billions to buy mortgage-backed securities issued by Fannie Mae and Freddie Mac. Last week, the Fed announced that they were planning to purchase up to $600 billion of mortgage-backed securities and other debt issued by Fannie and Freddie and the Federal Home Loan Banks. Although these institutions do not loan directly to the consumer, they provide money to the mortgage market by packaging loans into investments. The real estate industry is banking on rates dropping even further as the government increases efforts to battle the credit crisis.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., said Thursday that brining industry rates down is a positive thing, but it “doesn’t help people that currently have unaffordable mortgages because it doesn’t help them refinance. Low interest rates help some consumers, but the ones that really need help and can’t refinance are not helped.” You only need to watch the evening news and see the number of jobs being lost nationwide to understand what Ms. Bair refers to. Mortgage rates are now at a point where it would be a good idea to refinance. However, if you are in a mortgage that6 is under water, as a great many Americans are, then it does you little good, no matter how low mortgage rates go. Federal Reserve Chairman Ben Bernanke himself said that “the mortgage market is dysfunctional.” If this is the case, coming from a top Fed, then we will not see any relief for troubled homeowners.

Treasury yields, one of the best barometers of investor sentiment, have dropped off to lows this week that ride on dismal economic outlook. With Treasury yields dropping, people saving for retirement or are in retirement take a hit. Those looking to borrow have a much brighter outlook. Riding on the news, new mortgage applications more than doubled last week. Seventy percent of all applications were for refis. Rates on other mortgages are also dropping.

We need to see a bottom before we have any idea of where we really stand. Although it feels good to see rates dropping, it does not show us yet where the consumer really stands. Much controversy surrounds the bailouts still. A lot of unhappy consumers are out there, facing foreclosure and bankruptcy. It will be interesting to see where the Fed takes us next.

Posted in Mortgage Refinancing, Mortgages
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