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Borrowers Step Up Pace to Obtain Low Mortgage Rates

Recent economic data has been consistently showing signs of improvement, especially in relation to the housing sector. While this is good news, it often leads mortgage rates to move higher. With this in mind, borrowers are stepping up the pace to obtain low mortgage rates while they are still available.

According to the Mortgage Bankers Association’s Market Composite Index for the week ending March 1st, mortgage applications increased 14.8% on a seasonally adjusted basis and 15% on an unadjusted basis. The Refinance Index rose 15%, although the refinance share of total applications remained at 77%. The Purchase Index also rose 15% on a seasonally adjusted basis and 18% on an unadjusted basis. While volume for mortgage applications has its swings, this significant increase can be attributed to the fluctuations occurring with mortgage rates and the rush to get in while the low rate trend is still here.

Last week, the Labor Department reported that the economy added 236,000 in February which was well above economists’ expectations. The unemployment rate unexpectedly fell from 7.9% to 7.7% and is now at the lowest rate since December of 2008. The Feds continued purchases of mortgage backed securities in order to keep mortgage rates low is dependent upon the unemployment rate. Recent Fed meeting minutes has shown mixed support for these purchases, although Fed Chairman Ben Bernanke recently stated that the current monetary policy will continue because the economy is still very fragile.

According to the most recent survey of wholesale and direct lenders done by, conforming 30 year fixed rates remain as low as 3.250%, 15 year fixed mortgage rates are as low as 2.375% and 5/1 adjustable mortgage rates are as low as 2.375%. Obtaining low interest rates requires that borrowers have a history of good credit, as well as, the qualifications that are needed to receive lender approval. As the spring home buying season approaches, potential home buyers should prepare in advance for the mortgage application process. A mortgage pre-approval for a home purchase is the best way to show realtors and home sellers that the intent of home shopping is in fact considered serious.

Before home mortgage rates move any higher, existing homeowners should consider refinancing to a better loan. Many are eligible for a HARP refinance which does not require an appraisal in most cases. Since the elimination of loan to value caps, the HARP program has been able to help many underwater homeowners refinance to better mortgage terms which will eventually lead to gaining back equity in the property at a faster pace. Eligibility for a HARP loan requires that homeowners have a mortgage that was sold to Fannie Mae or Freddie Mac prior to June 1, 2009. Since guidelines are not overwhelming for HARP refinances, no one should hold back from making an inquiry for this program.

Also remaining the same this week, FHA 30 year fixed mortgage interest rates are as low as 3.250%, FHA 15 year fixed mortgage rates are as low as 3.000% and FHA 5/1 adjustable mortgage rates are as low as 2.250%. Time is running out to get in on the current FHA fees which will be going up for case numbers issued beginning on April 1st. With so many changes being made to FHA loans, at least the low down payment of 3.5% is still available for home buyers.

Home buyers can still use other options, such as housing grants or loans, to help with initial mortgage expenses. However, FHA closing costs (APR) are high because of the upfront mortgage insurance premium and other FHA fees that are charged to the home buyer. These fees can often be made cheaper by using allowable seller concessions that meet FHA guidelines. Refinancing an FHA mortgage is still simple with the FHA streamline refinance program which, with no cash out, does not require an appraisal, a credit history or any other documentation to prove creditworthiness. FHA uses the mortgage payment history to determine if a borrower is eligible for the FHA streamline. While this is a very easy and affordable refinance for FHA mortgage holders, it is even better for those who have loans that were endorsed prior to June 1, 2009. For these eligible loans, FHA has drastically reduced the upfront and annual mortgage insurance premiums so that more homeowners will refinance.

Increasing by .375%, jumbo 5/1 adjustable mortgage rates are now as low as 2.500%. Remaining the same, jumbo 30 year fixed interest rates are as low as 3.375% and jumbo 15 year fixed mortgage rates are as low as 2.700%. While FHA continues to change its policies, which include FHA jumbo loans, more borrowers are turning to traditional jumbo mortgage programs for financing. Jumbo loans require that borrowers have excellent credit in order to receive low jumbo rates. The larger amount of financing also warrants that borrowers have strong qualifications for employment, income and assets in order to receive approval for jumbo loans. The jumbo loan market continues to grow which is creating competition amongst lenders who consider this business both risky and profitable. For this reason, jumbo mortgage borrowers need to shop around for the mortgage terms that will fit their own personal needs.

Mortgage backed securities (MBS) have an affect on mortgage rates which move in the opposite direction. Over the week, stocks soared as investors moved to risky assets which hurt MBS prices. This often occurs when positive economic news is reported. Weekly Jobless Claims for the week ending March 1st dropped to 340,000 which was below the consensus of 350,000. The January Trade Deficit increased to $44.4B, which was higher than expected. Productivity for the fourth quarter was revised slightly to -1.9%.

by Ed Ferrara

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