Week of Jan. 14th, 2011: Mortgage rates were mostly lower this week, except for the benchmark conforming 30-year fixed mortgage rate, which held at 4.94 percent according to Bankrate.com’s weekly national survey.

The average 15-year fixed mortgage retreated to 4.29 percent, while the larger jumbo 30-year fixed rate settled at 5.57 percent. Adjustable rate mortgages were down more notably, with the average 5-year KARM sinking to 3.88 percent and the 7-year ARM plunging to 4.24 percent.

A heavy dose of economic data and ongoing debt issuance by the U. S. Treasury have the potential to introduce some volatility to mortgage rates over the next week.  Mortgage rates are closely related to yields on long-term government bonds, which rise along with the fortunes of the economy.

The last time mortgage rates were above 6 percent was Nov., 2008. At that time, the average rate was 6.33 percent, meaning a $200,000 loan would have carried a monthly payment of $1,241.86. With the average rate now 4.94 percent, the monthly payment for the same size loan would be $1,066.32, a savings of $175 per month.

How will the U. S. government withdraw support of the mortgage market without toppling the nation’s fragile housing recovery in the process?

Last year, the government rescued the mortgage sector by pumping more than $1 trillion into home loans. Now the government has effective control of the housing market, either owning or guaranteeing an estimated 9 out of 10 new mortgages. So pressure is building on the Obama administration to scale back a variety of stimulus efforts, including help with these mortgages.

Last week, Federal Reserve Chairman Ben Bernanke talked only vaguely about when the central bank might act, sprinkling his remakrs with phrases such as “in due course” and “at some point.”

The plan to scale back support carries an inherent risk for the housing market. A pullback could stall the very housing recovery that the government has worked so hard to jump-start.”We understand that the stimulus can’t continue forever, but at the same time, trying to get the housingn market back on track is key to a broader economic recovery,” said Lawrence Yun, chief economist for the National Association of Realtors.

The Fed plans to end a $1.25 trillion mortgage-bond-purchase program that has helped keep mortgage interest rates near a record-low 5%. The Fed has been buying virtually all of the mortgage bonds offered by Fannie Mae and Freddie Mac, replacinigt private investors such as pension funds and mutual funds that have shied away since the subprime kmortgage crisis. That exit is expected to push up rates.

The Mortgage Bankers Association, predicts the end of the Fed mortgage-bond program could push rates up by roughly .5%. Even a moderate rise could push potential buyers out of the market. Higher rates could force many others to recalculate where to live or what to purchase.

This news is one more reason why buyers should consider buying in the next few months while interest rates are still low.

The Treasury Department and the Federal Reserve Board have been purchasing mortgage-backed securities from Fannie Mae and Freddie Mac for a little over a year. These efforts have helped bring down long-term interest rates and provide the housing industry with some price stabilization. Recently, some National Brokers have discussed the likeliness of the Federal Government backing away from this program and what effect that would have on the marketplace.

These brokers believe that even if Federal purchases of these securities were to go away, that interest rates would only rise negligibly — to maybe as high as 6%. That would still be an historically low rate and probably would not be enough of a hardship to slow down sales — especially if job losses continue to fall and employment begins to rise.

So if the economy continues in the right direction, consumers will begin to act and buy more houses, the brokers believe. They also believe that they would rather be selling houses than selling anything else in 2010!

Mortgage experts from Bills.com, are advising consumers to consider beginning a home refinance process now. Ethan Ewing, President of Bills.com, said “Market conditions have aligned to make this a perfect environment for home refinancing.  Low rates and compelling opportunities to refinance into shorter term loans have arrived at the same time as large consumer demand.

The following five factors correspond to favorable market conditions for refinancing:

1. Interest rates continue to hover around all-time lows, making it sensible for anyone carrying a higher rate interest loan to consider refinancing. With some exceptions, a one-half point to a one-point drop in rate will generally make refinancing worthwhile.
2. Low fixed interest rates make converting from an adjustable rate loan into a fixed 15- or 30- year loan a smart move.
3. The current difference between fixed 15-year and 30-year interest rates is significant, making refinancing into a shorter-term loan a great opportunity.
4. FHA efficiency mortgages provide consumers with an opportunity to refinance into a loan that will help pay for home efficiency improvements. These loans are meant to provide consumers with a way to make energy efficient improvements to their homes as part of an origination or refinancing.
5. Those homeowners whose equity situation has steadily deteriorated, leaving them with little no or negative equity in their homes, should ask their lender or broker for help. Most have some flexibility with government programs aimed at reducing rates for homeowners in weak equity positions.

Ethan Ewing continues, “Anyone considering a home refinance should move quickly to lock in rates now.”

The Federal Reserve Bank voted to keep interest rates at near zero for an extended period. Even though there was some discord over approving Chairman Ben Bernanke for a second term, Bernanke was finally approved at the end of the week.

But for the first time in a year, the committee had one dissenting vote, Thomas M. Hoenig, President of the Federal Reserve Bank in Kansas City.  He voted against keeping the rate at near zero claiming that economic and financial conditions had improved enough that to extend the period was unwarranted.

Analysts are interpreting the “extended period” to be at least six months, but of course, no one knows for sure. Most economists are forecasting that the Fed will probably begin to raise the rate late in 2010 at the earliest.

The Fed funds rate is the basis for the prime rate, currently at 3.25%, which is used for setting credit card rates, home equity rates, and rates for auto loans.

In their recent statement, the Fed removed the language which it had retained for some time that economic activity was likely to remain weak, instead replacint it with a note of cautious optimism that “economic recorety is likely to be moderate for a time.”

If you are a buyer in Cardiff, Encinitas, Carlsbad, or Vista, you may want to think about moving fast to look for a property while interest rates are still historically low. According to the California Association of Realtors, mortgage rates in 2010 are expected to rise. Early in 2009, the Federal Reserve announced plans to purchase debt and mortgage-backed securities from Fannie Mae and Freddie Mac to help lower interest rates for consumers and spur homebuying. As a result, rates on 30-year fixed rate mortgages fell to the historic lows we are still seeing today.  However, the Fed’s asset purchase program is scheduled to expire at the end of the first quarter of 2010, and a lack of private demand for mortgage-backed securities could lead to a rise in rates.

Besides the rise in rates, buyers must also be aware  that no-down-payment loans are practically non-existent right now. If not, most lenders require borrowers to put down at least 10 percent, if not more, to secure a loan. These down payments protect the lender and are also beneficial to the buyers. The higher the down payment, the lower the loan amount and the lower the monthly payment.

So, now is the time if you are a buyer who is thinking about buying a property. Interest rates are low, and there is still an $8000 federal tax credit in place for first-time buyers, and a $6500 federal tax credit for move-up buyers. Think about buying now!

The VA will nolonger add condo approvals to their approved list based upon an FHA project approval.  The VA must fully review the entire project to issue an approval. The process to add the condo project to the approved list typically takes 45 days and requires cooperation of the management company/Board of the HOA.

FHA spot condo approvals are still available for case numbers assigned before January 31, 2010.  Approvals for any condos issued more than 2 years ago are no expired.  Starting February 1, 2010, full reviews and approvals are valid for two years.

To issue approval for a condo project, the FHA is looking for the following criteria to be met:

• 50% owner occupancy within the complex
• Enough reserves to fund 10% of the current budget
• No more than 15% of the units are more than 30 days delinquent in paying their fees
• No current/pending litigation

The U.S. Department of Housing and Urban Development (HUD) just implemented new rules that will standardize the way loan information is presented to the consumer and help them make a better decision about the lender who is best for them.

New Federal rules mandate a standard, three-page Good Faith Estimate that urges consumers to shop around for the best loan and helps them compare lenders’ offerings. These rules are an update of the Real Estate Settlement Procedures Act, known as RESPA.

One difficulty of shopping for mortgages is that the lender with the lowest rates often isn’t offering the best deal. High lender fees can wipe out the benefits of low rates.

To address those problems, the new estimate form requires lenders to wrap all the fees they control into one origination charge. That lets you easily compare one lender’s fees with another’s. Experts recommend that borrowers focus on two items as they shop: the interest rate and the adjusted origination charge, which includes any points paid to lower the rate.

Good Faith Estimates have been around for a long time, but there was no standard format. Under the new rules, lenders and mortgage brokers are required to give consumers the standard estimate forms within three days of receiving a loan application. Lenders are not allowed to increase the origination fee from the estimate.

Will all this make a big difference? Experts think the new rules will definitely help, but they may not be a cure-all.