Mortgage Rates

In testimony to the Joint Economic Committee of U.S. Congress today, Federal Chief Bernanke gave mixed signals for the future of low interest rates. According to Bernanke, monetary policy provides significant benefits in the economic environment in place at the current time. He also stated that economic growth has maintained a moderate pace this year and that job market conditions have shown some improvement, but remains weak overall. However, when answering a question, he stated that the central bank could, at one of its next meetings, scale back its $85 billion bond buying each month if it looked like the economy is moving forward.

The recent FOMC meeting minutes were also released and indicated that, although more progress is needed, monthly bond purchases may increase or slow down depending on the changes in the labor market and inflation. They did pledge to keep the target interest rate near zero while unemployment remains higher than 6.5% and the inflation outlook does not exceed 2.5%. A number of Fed officials stated that they would be willing to taper bond purchases as early as the next meeting scheduled for June 17 and 18 as long as reports indicate strong and sustained economic growth.

Current conforming 30 year fixed mortgage rates are as low as 3.250%, 15 year fixed mortgage interest rates are as low as 2.375% and 5/1 ARM loan rates are as low as 2.250%. In other data, the National Association of Realtors reported that Existing Home Sales increased in April 0.6% to a seasonally adjusted rate of 4.97 million in April. Resale activity is 9.7% higher than April 2012. According to the report, sales remain below demand due to limited inventory and tight credit. Borrowers applying for conventional loans must have good credit in order to receive low rates. Purchase loans and regular refinances require full documentation which will be verified by the lender. A complete appraisal is necessary in order to determine the loan to value ratio which is an important part of the loan process. Loan to value is not needed for the HARP refinance program which is available until the end of 2015 for borrowers who have loans that were sold to Fannie Mae and Freddie Mac prior to June 1, 2009. HARP loans continue to give underwater borrowers the chance to refinance to a better mortgage without the need of an appraisal or other detailed documentation. Borrowers who use HARP refinances often see the equity return to their home at a faster pace. With so many lenders to choose from when purchasing a home or refinancing, shopping around is easier when submitting the online form which will return a response almost immediately.

Today’s FHA 30 year fixed mortgage interest rates are as low as 3.000%, FHA 15 year fixed rates are as low as 3.000% and FHA 5/1 ARM loan rates are as low as 2.750%. Even though FHA has become stricter than in the past, first time home buyers still use FHA loans that offer lower down payments and lower credit scores than conventional mortgages. FHA mortgages continue to provide many benefits to home buyers, including multiple mortgage programs, assumability and an easy way to refinance. However, FHA closing costs (APR) are high because of the upfront mortgage insurance premium and other FHA fees. In order to reduce these expenses, FHA loans still allow borrowers to use up to 6% seller concessions for this purpose. FHA offers one of the easiest refinance programs with the FHA streamline refinance. With no cash out, the streamline does not require any documentation, credit history or appraisal. To be eligible, a homeowner must have a good history of on-time mortgage payments. In addition, the FHA streamline has reduced the upfront and annual mortgage insurance fees until the end of 2013 for homeowners who have loans that were endorsed prior to June 1, 2009. A fast way to find an FHA approved lender is by submitting the online form which does not require a social security number.

Current jumbo 30 year fixed interest rates are as low as 3.500%, jumbo 15 year fixed mortgage rates are as low as 2.750% and jumbo 5/1 ARM loan rates are as low as 2.375%. With excellent credit, jumbo loan borrowers can obtain low rates offered by lenders at the time of application. Jumbo loans can be strict and require that borrowers submit full documentation to the lender. Lenders will verify all information, as well as, require an appraisal of the property. In some cases, more than one appraisal may be necessary. Shopping around for a jumbo mortgage is often necessary because guidelines and rates vary from lender to lender. This can be accomplished easily by submitting the online form which will return a response almost instantly.

MBS prices (mortgage backed securities) are down -28/32 (FNMA 30 yr 3.0 at 101.26) which is lower than earlier prices. Mortgage rates are affected by MBS prices and move in the opposite direction. Markets have been volatile after Bernanke’s statements which has hurt MBS prices. There is the risk that mortgage rates will increase.

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