Tuesday, December 9, 2008


Fence sitting can be painful—don’t wait too long!

I imagine you’ve heard or read about the 4.5% mortgage rate thing being promoted by the government. The Treasury Department is being lobbied hard to consider a plan to purchase mortgage-backed securities with the hopes of driving mortgage rates down to possibly 4.5%, reported an industry source.

Wednesday (12/3): A story is “leaked” regarding the Treasury Department lowering mortgage rates to 4.5%
Thursday (12/4): That headline leads the news
Friday (12/5): 40+ Million American homeowners sit on the fence and Consider “Should I refinance today or wait for
something better?

The most obvious consideration is if the rates are low today, take advantage of it now! Because they may not be low tomorrow, or even 4 hours from now. Mortgage rates could fall a bit tomorrow – or not—so why take a chance? Refinance at today’s low rates, and if rates fall again in the future, you can refinance again. A wise move is to lock up your savings today!

Details of the plan remain vague at this time; each article specifically stated that there were no facts – just speculation. The plan appears to be similar to the move made recently by the Fed, in which securities backed by 30-year fixed rate mortgages would be purchased from Fannie Mae and Freddie Mac. Spokespeople from the Treasury Department and the Federal Housing Finance Agency are declining to comment on the proposed plan.

Mortgage rates dropped sharply, from 6.06% a week earlier to 5.5%, after the Fed’s announcement. The Mortgage Bankers Association said mortgage applications more than doubled as a result, with a majority of the business in the refinance sector.

An increased demand for mortgage-backed securities prompts mortgage rates to drop. In turn, homeowners can then refinance into lower-cost loans and it also makes it cheaper for potential buyers to get into the market. This move would help buyers and current homeowners with good credit, says industry experts, but would not provide much help to troubled borrowers.

Experts weigh the positives and negatives

This potential move by the Treasury has prompted mixed views on how much homeowners and the economy would benefit. Lower rates could help stabilize the housing market by bringing in new buyers, reducing housing inventory; those who refinance could have more money to spend.

Scott Talbot, senior vice president of the Financial Services Roundtable, which is encouraging the move, said “If it gets people buying homes and spending, it will help reverse the economy and get us out of this recession.” A senior financial analyst at Bankrate.com, Greg McBride, said “it is clearly designed to bring buyers into the marketplace and soak the inventory of unsold homes.”

But, rates are volatile, hovering around 5.25% on Friday, Dec.5th (dependent upon credit scores and other factors) and others have pointed out that several government attempts to lower mortgage rates this year have not had a lasting effect. Also, homeowners who have fallen behind on their payments, have little to no equity in their homes, or who have lost jobs would receive minimal benefit. And with tight credit standards, these borrowers would not be able to refinance to take advantage of the lower rates.

Sound financial decisions shouldn’t be made on speculation. So what do we know now:
*Mortgage rates are lower than they’ve been in years
*Mortgage guidelines are tight, even for “prime” borrowers
*Home prices nationally are falling, making qualifications harder

Rates are still volatile and could rise again overnight to price you out. What was that old saying of Mom’s “a bird in the hand …” And if rates fall after closing, maybe even reaching the “projected” 4.5%, we’ll refinance again.

Call me at 913-642-3334 or email me at michele@wantinsight.com with your comments or questions. It’s a great time to review your financial situation and ring in the holiday season on a positive note, and lower interest rate.

I also recently apeared on Pal Van Sickle podcast "The After Show" check out my interview on his site the after show

Michele A. "MAC" Cole



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