Mortgage rates drop, for a change |
| By Holden Lewis • Bankrate.com |
|
Mortgage rates fell this week, as bad economic news outweighed the good.
The benchmark 30-year fixed-rate mortgage fell 7 basis points, to 6.7 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 0.41 discount and origination points. One year ago, the mortgage index was 6.71 percent; four weeks ago, it was 6.53 percent.
The benchmark 15-year fixed-rate mortgage fell 10 basis points, to 6.22 percent. The benchmark 5/1 adjustable-rate mortgage fell 13 basis points, to 6.35 percent, and the 30-year, fixed-rate jumbo, for larger mortgages, fell 3 basis points, to 7.65 percent.
Rates fell on the news that unemployment claims and existing home sales were worse than forecast. Those two economic reports came out July 24, and rates bounced back a little in subsequent days, but not all the way back.
The lower rates didn't bring out the borrowers, though. According to the Mortgage Bankers Association, applications were down 30 percent last week, compared with the same week a year ago. About one-third of applicants were applying to refinance existing mortgages, and only one in 14 applicants wanted to get ARMs.
 |
| Weekly
national mortgage survey |
|
| This week's rate: |
6.70% |
6.22%
|
6.35%
|
| Change from last week: |
-0.07 |
-0.10
|
-0.13
|
| Monthly payment: |
$1,064.71 |
$1,412.05
|
$1,026.69
|
| Change from last week: |
-$7.67 |
-$9.00
|
-$14.05
|
New housing law helps first-timers
The biggest news of the week had to do with the passage and signing of the new housing law. Among the most important provisions in the law are a first-time homebuyers' tax credit and a plan to rescue delinquent borrowers by allowing them to refinance into loans insured by the Federal Housing Administration.
First-time homebuyers will get a tax credit of 10 percent of the purchase price, up to $7,500 (or up to $3,750 each for two homeowners who file their taxes separately). The law defines a first-time homebuyer as someone who hasn't owned a home in three years. In the case of couples, if either spouse or partner has owned a home in the past three years, both are ineligible to take the tax credit.
The tax break is not that generous, anyway -- because
the money has to be repaid over a 15-year period. A person who buys
a first home this year will get the credit in the form of a refund
on her 2008 taxes. The bill comes due two years later, when one-fifteenth
of the amount has to be repaid each year for 15 years. For someone
taking the maximum $7,500 credit, that's $500 a year.
The credit applies to any qualifying person who buys a home from April 9 this year through June 30 next year.
Underwater homeowners get help, too
Another provision of the law seeks to help people who overpaid for their houses and the banks that goofed by giving those borrowers unaffordable loans. It's targeted toward people who have fallen behind on their mortgage payments and who owe more than their houses are worth because of declines in property values. Normally, it's impossible for people in this situation to refinance, for two reasons. First, no one will give them a loan for more than the house is worth. Second, it's too risky to give another mortgage to someone who already is behind on their current mortgage.
The law seeks to resolve this problem by encouraging lenders to forgive delinquent borrowers' debt down to 87 percent of the property's current appraised value. In some cases, forgiving the debt might be cheaper than going through with foreclosure. What do the banks get out of forgiving the debt? They get to wipe a problem loan off the books.
The new, refinanced loan under this plan is insured by the FHA. Borrowers will pay higher-than-normal FHA insurance premiums. Ultimately, if those premiums aren't high enough to offset losses, the taxpayers will be on the hook for the difference.
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This week: Oct. 2 - Oct. 8 
