Here’s a good example of how decisions made in Washington D.C. translate to real dollars in homes across America:
As we’ve discussed recently, the two-month payroll extension passed late last year included a new fee that lenders must pay to the government each time Fannie Mae or Freddie Mac buy a loan from them. Already, we’re seeing interest rates increase anywhere from .125 percent to .25 percent on home purchase loans and home refinance loans that are eventually sold to Fannie Mae or Freddie Mac.
How, you might ask, are interest rates and mortgage costs related? It’s actually pretty simple: Fannie and Freddie buy the bulk of home mortgages sold in America. They do this in order to allow lenders to dole out a far higher number of loans than they would if their books were weighed down with a bunch of 30-year-long loans. If a home lender had to wait 15 or 30 years to recoup the money lent out on each loan, they wouldn’t have the capital resources necessary to keep more than a handful of loans open at any one time. By using Fannie and Freddie to buy outstanding loans from lenders and relieving that decades-long burden from their books, the federal government supplies the capital needed to keep home loans available and affordable.
For the most part, this is good for the Texas housing market. But there can be lots of complications, such as this new fee. For the most part, lenders are simply passing the bulk of new cost on to consumers through higher interest rates.
On his weekly radio show, The TexasLending.com Mortgage Hour, (Saturdays on AM 570 KLIF from 1:00 p.m. to 2:00 p.m. across Dallas-Ft. Worth), our CEO Kevin C. Miller put it this way:
“The impact of the Obama Mortgage Tax has been large for those who thought they would get the lowest home loan rates on record only to be surprised by the increase in rates.”
Here at Texas Lending, we’re proud to offer the lowest home interest rates in Texas and just about anywhere, but these increases will still hurt potential home-buyers everywhere.
However, there is a bit of good news on the interest rate front: Fed Chairman Ben Bernanke said in an interview this week that his agency will keep federal interest rates at about the same historic low we’ve seen over the past couple years.
“Policy makers are “prepared to provide further monetary accommodation if employment is not making sufficient progress towards our assessment of its maximum level, or if inflation shows signs of moving further below its mandate-consistent rate,” Bernanke said at a news conference today after a Federal Open Market Committee meeting in Washington. Bond buying is “an option that’s certainly on the table.”
Stocks and Treasuries rose after the Fed extended its previous pledge to keep borrowing costs low at least until the middle of 2013. Fed officials lowered their forecasts for economic growth and price increases this year and in 2013 and set a long-term goal of 2 percent inflation.
We hope to convey to the market the extent to which there is support on the committee for maintaining rates at a low level for a significant time,” he said.”
Home interest rates in the 4 percent range still qualify the current housing market as a solid buyer’s market when you consider all the other factors such as home prices and unsold inventories. In other words, this is an excellent time for a home interest loan, a home refinance loan, or a home equity loan. But when the massive glut of unsold homes begins to finally sell off and when unemployment drops, this historic buying window of opportunity might just close.
If 2012 is the year for your family to buy a home, apply for a home loan online now to get the process started. The tax cut-related interest rate jump shows just how unpredictable housing can be.