mortgage

Mortgage rates fall for 5th week

Mortgage rates sank this week, to their lowest levels since spring. This is as good a time as any to refinance because Uncle Sam will make it more difficult and more expensive to refi in a few months.

The benchmark 30-year fixed-rate mortgage fell 11 basis points to 5.25 percent, according to the Bankrate.com 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 0.31 discount and origination points. One year ago, the mortgage index was 6.41 percent; four weeks ago, it was 5.41 percent.

The benchmark 15-year fixed-rate mortgage fell 10 basis points to 4.64 percent. The benchmark 5/1 adjustable-rate mortgage fell 11 basis points to 4.69 percent.

Weekly national mortgage survey
Results of Bankrate.com's Oct. 1, 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:5.25%4.64%4.69%
Change from last week:-0.11-0.10-0.11
Monthly payment:$911.14$1,274.08$854.76
Change from last week:-$11.27-$8.49-$10.94

The 30-year fixed is low, but has been lower. In Bankrate's weekly survey conducted April 1 this year, it fell to an all-time low of 5.13 percent -- no foolin'. Even though rates have been lower than this in recent history, people are still refinancing. According to the Mortgage Bankers Association, almost two-thirds of applications last week were from homeowners who wanted to refinance.

Not too long from now, it's going to be harder to refinance.

In December, Fannie Mae will raise fees and tighten lending standards on some mortgages bought by the government-controlled financial titan. And at the beginning of 2010, the Federal Housing Administration will make it harder to get a "streamline refinance."

Beginning Dec. 11, Fannie won't buy a loan with a credit score under 620, which means lenders won't underwrite them. For most loans, the minimum credit score will be even higher than that. For example, if you refinance a loan on a single-family house and you have less than 25 percent equity, the minimum credit score is 660. That's also the minimum score if you're buying a house with less than 25 percent down.

Fannie also will boost fees (called "loan level price adjustments") that it charges to compensate for risk. For borrowers with marginal credit scores who get "expanded approval" loans, these fees will increase by $250 for each $100,000 borrowed. This change takes effect Jan. 1.

Fannie's changes will affect buyers and refinancers. The FHA's changes will affect refinancers. In short, the FHA's streamline refinance program won't be quite as streamlined.

FHA's streamline refi program is for homeowners who already have FHA-insured mortgages. Streamline refis haven't required credit checks or employment verification. They haven't required appraisals if the new loan amount doesn't exceed the original loan amount.

Those rules change Nov. 17. Borrowers will have to verify that they have paying jobs, and the FHA will gather credit scores. And more borrowers will have to get appraisals.

Under the old streamline refi guidelines, an appraisal was unnecessary if the new loan didn't exceed the original loan amount. The new standard moves the goal posts a little bit. An appraisal will be necessary if the new loan amount exceeds the old loan's outstanding balance. That's less than the original loan amount.

Here's what this policy means. Let's say you got an FHA-insured loan a few years ago for $100,000. Now you owe $85,000. Under the old streamline refi plan, you could borrow up to the original loan amount of $100,000 without having to pay for an appraisal. Under the new policy, you will have to get an appraisal if you borrow more than $85,000.

The new policy will make it difficult or impossible to avoid getting an appraisal if you want to roll closing costs into the new loan amount. And if you do have to pay closing costs out of pocket, instead of rolling them into the loan amount, you'll have to document that the money is yours and not a loan or gift.

FHA's revised policy leaves mortgage loan officer Dan Green scratching his head in puzzlement. "The FHA is insuring the loan regardless," says Green, of Waterstone Mortgage in Cincinnati. "They should want the lowest payment they possibly can."

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