mortgage

Rates down for 4th week

Mortgage rates dipped slightly in Bankrate's weekly survey.

The benchmark 30-year, fixed-rate mortgage edged down 2 basis points, to 5.36 percent, according to the Bankrate.com's national survey of large lenders. A basis point is one-hundredth of 1 percentage point. The mortgages in this week's survey had an average total of 0.39 discount and origination points. One year ago, the mortgage index was 5.53 percent; four weeks ago, it was 6.32 percent.

The benchmark 15-year, fixed-rate mortgage rose 2 basis points, to 4.74 percent. The benchmark 5/1 adjustable-rate mortgage sank 9 basis points, to 4.8 percent.

Credit conundrum

First-time homebuyers across the nation are scrambling to close on their purchases before the scheduled Nov. 30 expiration of the government's $8,000 housing tax credit.

"In literally the last 30 days in my area, there is a massive sense of urgency for first-time homebuyers," says Chris Sipe, senior mortgage consultant at Mason Dixon Funding in Frederick, Md. "We're experiencing really high volume."

Weekly national mortgage survey
Results of Bankrate.com's Sept. 23, 2009, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan:
30-year fixed15-year fixed5-year ARM
This week's rate:5.36%4.74%4.8%
Change from last week:-0.02+0.02-0.09
Monthly payment:$922.41$1,282.57$865.70
Change from last week:-$5.15+$1.70-$9.00

Proponents of the credit say it has significantly boosted home sales activity. To date, 1.4 million new homebuyers have claimed the tax credit, according to the Internal Revenue Service.

Right now, there are at least six proposals in Congress to extend -- and possibly expand -- the credit. While a credit continuation seems increasingly likely, it's not a sure thing at a time of heightened concern about ballooning deficits. And how would a decision to let the credit expire in November affect the housing market?

David Kuiper, a mortgage planner at First Place Bank in Holland, Mich., worries that if the credit is allowed to expire, "we will see the door slam shut" on buying activity. The end of the tax credit would eliminate a major catalyst for many first-time shoppers to enter the market, he says. That in turn would dampen move-up buyer activity, he adds.

"Not having the tax credit as an added incentive will cause a lot of first-time buyers to not take action and will be very detrimental to the housing recovery," Kuiper says.

Sipe agrees that the end of the credit would cause sales to dip, at least in the short term.

"There is a motivation for first-time homebuyers to act, and we are seeing that activity big time," he says. "If that motivation goes away in regard to the tax credit, yeah, it's going to have an impact. And I could see it being somewhat significant."

Any slowdown associated with a decision to let the credit expire likely would be felt quickly, as buyers realize they've run out of time to find, bid on and close on a new home before the credit elapses, Sipe says.

"If it's set to expire, I would see a pullback in first-time homebuyer activity as early as mid-October," Sipe says.

Another viewpoint

But not everyone agrees that a disappearing tax credit would result in vanishing sales.

Dan Green, a loan officer with Waterstone Mortgage in Cincinnati, believes the credit has boosted the housing market, and by extension the overall economy.

"The credit was the right mix of stimulus and incentive," says Green, who is also author of TheMortgageReports.com.

However, an expiring tax credit's impact on housing sales "won't be as dire as industry lobbyists would have you believe," he says.

"People aren't buying because of the credit," Green says. "It's a nice bonus, but they are not buying just because the credit exists."

Rather, increased affordability and low mortgage rates are driving people back into the market. The tax break merely "moves up their time frame to purchase, maybe," Green says.

In fact, extending the credit into 2010 could do more harm than good, Green says. He contends a firm deadline was a major factor in the success of the Cash for Clunkers auto incentive.

"If you've got an incentive (and) you know that the ending is just 'out there' with no definite end, then there's no urgency to buy. And I don't think you're going to get the same results," he says.

Mixed feelings

Although Sipe and Kuiper see benefits to extending the life of the credit, they also have misgivings.

As a mortgage professional, Sipe says he would like to see the credit extended so he could "ride this horse a little longer."

"But overall, and from a taxpayer perspective, I think I'd be fine if they didn't expand it," he says.

Despite his prediction that sales initially would dip if the credit is allowed to lapse, Sipe believes housing activity eventually will pick up again -- credit, or no credit --if the economy gathers steam in 2010 and job losses begin to reverse.

"I see 2010 as being a reasonable and realistic time frame and year that we could see a housing recovery," he says.

Kuiper also sees a possible tax credit extension as a mixed blessing.

"For business purposes and seeing the market recover sooner, I would love to see the tax credit extended," he says.

"However, we have to remember that all this money (for the credits) is coming from somewhere -- your and my pockets."

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