Mortgage Rates Fall, But for How Long and Will it Matter?

September 9, 2008 No Comments »

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Since the Treasury took action Sunday and bailed out Fannie Mae and Freddie Mac, spreads have tightened and interest rates on mortgages have fallen significantly.

While this may have not been the central focus of the takeover, it’s certainly the most important aspect to consumers looking for a better deal on their mortgages.

According to Bankrate.com, the average 30-year fixed-rate mortgage has fallen to 5.88 percent from 6.26 percent last week, while the 15-year fixed has dipped more than a quarter-point to 5.49 percent.

Even jumbo loans have seen improvement, with the average 30-year fixed-rate jumbo falling to 7.08 percent from 7.39 percent last week.

But going forward, will interest rates continue to improve or at least sustain current levels, or is this rally going to be short lived, much like similar scenarios we’ve seen in the past?

While the Treasury has initiated a program to purchase GSE mortgage-backed securities up until December 2009, it’s also known that Fannie and Freddie will begin reducing their mortgage portfolios at a 10 percent annual clip in 2010.

At that point, who will pick up the slack and what will it mean for credit availability and rates going forward?

Unfortunately, slightly lower mortgage rates likely won’t be enough to spark home sales, as most potential borrowers probably can’t qualify to begin with, and those looking to refinance will still face an uphill battle, assuming they’re not already underwater.

Not to mention the fact that Fannie just recently tightened underwriting guidelines, lowered loan-to-value limits, and increased pricing.

Mortgage lenders will field a lot more calls this week, but most borrowers will probably hang up the phone disappointed.

(photo: mikewillis)

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