September 2, 2010 – Mortgage rates are back to their all-time record low of 4.00 percent with a standard 0.7 to 1.0 point origination for a 30-year fixed rate mortgage and 3.625 percent with similar origination for a 15-year fixed rate mortgage. Last week rates were a tad higher, but the mortgage market didn’t experience a noticeable dip in loan applications. In fact, loan applications increased 2.7 percent for the week ending August 27, 2010. The increase was primarily fueled by generous government programs and the recent refinance boom. Mortgage rates do not affect loan applications as much as borrowers, banks, and bureaucrats would hope.
Regardless of enticing rates, borrowers must qualify to purchase a home. Qualifications involve stellar credit history, high credit score, upfront cash for a down payment, and steady employment. A lender takes into account the borrower’s credit history, which should contain less than two 30-day late payments, and overall credit score, which should be 620 or better. Any bankruptcies should be at least two years old, provided the home borrower has had perfect credit since the bankruptcy discharge, and any foreclosures must be at least three years old with perfect credit since. Most lenders require at least 10 percent down payment. FHA-insured loans could qualify borrowers for 3.5 percent down, however other aspects of the loan application must greatly exceed minimum requirements and the borrower must pay additional fees, such as mortgage insurance. Borrowers must also have a strong employment history of a minimum of two years, preferably with the same employer, and income has remained constant or increased during those two years.
Although some uber optimistic market analysts claim a strong job rebound, particularly in the medical and energy fields, not many Americans are feeling it and for good reason, too. Chicago’s Federal Reserve Bank President, Charles Evans, announced yesterday that unemployment is currently at 9.5 percent nationwide and, “is likely to remain uncomfortably high for the foreseeable future.” As the housing market downturn approaches its three year anniversary, new home construction is less than a quarter of its boom peak and housing prices have drastically dropped nationwide. A majority of the job loss is concentrated in the housing and mortgage market, which affects construction workers, plumbers, carpenters, roofers, painters, handymen, and a plethora of real estate specific jobs, such as brokers, agents, appraisers, inspectors, and escrow companies. These individuals are not likely to transition into health care or energy, at least not without great difficulty.
Increasing unemployment obviously strains the number of loan applications submitted because borrowers cannot afford a mortgage payment without a steady income. Statistics on home purchases proves it. Home purchases fell 12 percent in June. In July, purchases more than doubled the previous month by plunging 27 percent. This is reportedly the weakest data collected since 1963 when the U.S. Commerce Department began collecting data. Moreover, between late April and early July, loan applications fell 43 percent. Vice President, Michael Fratantoni, at the Mortgage Bankers Association concludes that the combined data shows that a market rebound is highly unlikely anytime soon.
Increasing unemployment obviously strains the number of loan applications submitted because borrowers cannot afford a mortgage payment without a steady income. Statistics on home purchases proves it. Home purchases fell 12 percent in June. In July, purchases more than doubled the previous month by plunging 27 percent. This is reportedly the weakest data collected since 1963 when the U.S. Commerce Department began collecting data. Moreover, between late April and early July, loan applications fell 43 percent. Vice President, Michael Fratantoni, at the Mortgage Bankers Association concludes that the combined data shows that a market rebound is highly unlikely anytime soon.
The stark decline in mortgage applications in late April is primarily due to the expiration of the federal homebuyer tax credit. Similar results are expected as other government programs fade out. For example, President Obama’s mortgage-relief program, Making Home Affordable, has a dropout of almost 50 percent. The historic average of all modified mortgages that revert into delinquency is 40 to 60 percent. The U.S. Department of Housing and Urban Development (HUD) just announced that it is expanding its refinance program, which will go into effect September 7, 2010 through June 10, 2011. The new program will allow underwater non-FHA borrowers to refinance into an FHA loan. But, Dean Baker, the co-director of the Center of Economic and Policy Research in Washington DC, observes that many beneficiaries of government programs will lose their homes and the federal funds that helped plant them there will benefit the banks. Any positive results directly attributed to government incentives and programs are short-lived, and many are just waiting for the bottom of the market to fall out.
Mortgage rates could graze even lower levels and still not significantly affect loan applications. The facts remain that borrowers must qualify for a loan, which is difficult with rising unemployment; banks have very strict guidelines for borrowers; and government programs only band-aid an expanding hematoma.
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