Economy Personal Finance Real Estate

Is the 30 Year Fixed Headed to 3 Percent?

Mortgage interest rates hit a new record low last week, and they appear to be on the same trajectory this week.

The yield on the ten-year Treasury note touched a new low Monday, 1.396 percent, before coming up slightly, and mortgage rates track that yield. Money flooded into Treasuries amid new concern surrounding debt in Greece and Spain.

“Now it’s like 1.4 [percent] is commonplace, and we’re probably going to see one and a quarter before too long,” said Holly Liss, ABN Amro’s Global Future’s Director in an interview on CNBC’s “Squawk on the Street.”

Mortgage rates are a full percentage point below where they were one year ago, and that recently sparked yet another spike in mortgage refinance applications, according to the Mortgage Bankers Association. It did not, however, do the same for applications to purchase a home.

“If the 30 year fixed were to drop to 3 percent, that would open up yet another wave of refi’s, perhaps more than the industry can handle,” says mortgage lender Craig Strent of Rockville, Maryland-based Apex Home Loans. “Certainly a 3 percent 30-year fixed would make home buying more affordable for some people that may not qualify at 3.5 percent, but if people are not entering the market at 3.5 percent, which is already insanely low, then they may not enter at 3 percent, as they may simply prefer to rent or may not have the down payment needed to buy.”

Strent is reluctant to predict where the 30-year fixed will end up, but Dan Green, loan officer and mortgage blogger with Waterstone Mortgage in Cincinnati expects the rate to hit 3 percent.

“There’s a case for them to be at 3 percent now. It’s just that lenders are overworked with new applications, so there’s little reason to get price competitive,” says Green. He agrees that 3 percent would just push more borrowers to refinance, even if they already did so recently.

Despite a spring surge in home buying this year, especially in new construction, these lower rates should make the surge bigger and continue it throughout the summer, but that does not appear to be the case. The National Association of Realtors reported a surprise drop in home sales in June, due to low inventory on the low end of the market, which is not as dependent on mortgage rates.

While the housing market needs more home purchases, the overall economy would get a boost from a new surge in refinances, giving more Americans more spending power. Remember, however, those rock-bottom rates don’t apply to homeowners cashing equity out of their homes.

Is the 30 Year Fixed Headed to 3 Percent?
By: Diana Olick
CNBC Real Estate Reporter

Economy Personal Finance Real Estate

Mortgage-debt forgiveness preventing foreclosures

NEW YORK (CNNMoney) — Reducing the amount struggling homeowners owe on their mortgages is proving to be a more effective way to prevent foreclosures than other methods, such as reducing interest rates or postponing payments, a new report finds.
In a report presented this week, Amherst Securities Group said that when principal reductions brought mortgages near the home’s market value, borrowers were substantially less likely to fall behind on payments again and lose their homes.

Only 12% of borrowers who received principal reductions re-defaulted in 2011, Amherst found. That’s compared with 23% of borrowers who received mortgage modifications with interest rate reductions (but no principal reduction) and 30% who received forbearance, which postpones their debt repayment.
“[Modifications] with principal forgiveness are apt to be most effective, as the borrower no longer owes the money — so he is no longer hopelessly underwater,” said Laurie Goodman, Amherst’s housing market analyst and one of the authors of the report.

The success these principal reductions have had in turning delinquent borrowers back into paying clients has led many lenders to step up debt forgiveness on the loans in their own portfolios.

So far this year, principal reductions have accounted for 40% of the modifications done by the banks, up dramatically from 25% in 2011 and 11% in 2010, according to Amherst.

The mortgage servicers cannot forgive debt on loans that are owned or backed by one of the two government-controlled mortgage giants, Fannie Mae (FNMA, Fortune 500) and Freddie Mac (FRE), however, and they are limited in what they can forgive on loans owned by investors.

That means, of the vast majority of loans — 6 million since April 2009, according to the Treasury Department — only a fraction have received debt forgiveness. That may be changing, though.

The Federal Housing Finance Agency, which controls the majority of outstanding mortgages through its oversight of Fannie and Freddie, has thus far prohibited the mortgage giants from including debt forgiveness as part of their mortgage modifications.
See also: Most affordable cities to buy a home

Last month, however, Fannie and Freddie announced they would participate in two programs in California and Nevada that will use part of a $7.6 billion Hardest Hit Fund to pay down loans the companies own or back.

However, the move will not cost Fannie and Freddie anything and is a far cry from the principal reduction that private mortgage servicers are extending to borrowers.

“My guess is that eventually, [Fannie and Freddie will] go down that path, but there’s still a lot of reticence there,” said Mark Zandi, the chief economist for Moody’s Analytics. “People have problems with principal reduction. They think it’s unfair.”

Even if Fannie and Freddie remain on the sidelines, Amherst said it expects to see a continued increase in principal reductions.

Mortgage-debt forgiveness preventing foreclosures