mortgage

Lock time runs short

Wednesday, Feb. 17
Written 10 a.m. EST

LOCK SOON: Today is Bankrate's weekly rate survey. I think our survey of 100 lenders will show a drop in the 30-year fixed by about 3 basis points. Last week the average 30-year fixed was 5.15 percent in Bankrate's survey.

I think we're close to the end of this extremely low-rate environment. If you're dithering about when to refinance or buy a house, this is the time to lock a mortgage rate. I doubt that rates can get much lower, and I expect them to begin to rise within four or five weeks. Possibly sooner than that. The Fed is going to stop buying mortgage-backed securities by the end of March. When they do, I expect rates to rise.

And note that I say "by the end" of March, not "at the end." The Fed could stop buying mortgage-backed securities sooner than March 31. We don't know when they'll stop buying, so we don't know when mortgage rates will begin rising.

UNDERWATER INCENTIVE: Keep paying your mortgage -- even though you're under water -- and get cash back. That's the notion that's being tested by a company called Loan Value Group.

New Jersey-based LVG says two types of borrowers go into default on their mortgages: "affordability defaulters" who can't afford their house payments, and "strategic defaulters" who can afford to make the payments, but don't think it's in their best interests to keep paying. LVG says its mission is to "combat strategic default risk."

According to Bonnie Sinnock, the Street Smarts columnist for National Mortgage News, LVG is testing a program in which money is deposited into an incentive account every month that an underwater borrower makes a timely payment. The money accumulates. Fall a month behind or more on the payments, and the money disappears out of the incentive fund.

Borrowers would be able to collect the money when the loan is paid off.

Sinnock writes in NMN's Feb. 8 issue that the incentive payments would be determined by a number of factors, including the amount of negative equity, the borrower's income, and the location of the property. The investors who own the loan would have final say.

The incentive payments would be separate from the mortgage, so no loan modification is required.

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