VA Home Loan Mortgage rates at lowest level since January
Average now 5.49 percent — and further cuts could be on the way
by Ezell Johnson
WASHINGTON – Rates on 30-year VA Home Mortgages plunged this week to the lowest level since January after the government launched a sweeping new effort to aid the U.S. housing market.
Average rates on 30-year fixed-rate mortgages dropped to 5.49 percent in the largest one-week drop in 27 years. That was down from 5.97 percent last week, and the lowest since the week of Jan. 24, when it was at 5.48 percent.
Further drops could be on the way if the government launches an industry-backed plan to lower the rate on a 30-year mortgage to 4.5 percent by spending hundreds of billions to buy mortgage-backed securities.
That would follow an effort announced last week by the Federal Reserve, which is planning to purchase up to $600 billion of mortgage-backed securities and other debt issued by Fannie and Freddie and the Federal Home Loan Banks. Those institutions don’t make loans directly to consumers, but provide money to the mortgage market by packaging loans into investments.
The Fed’s move caused rates to immediately drop by about a half-point, and many in the real estate industry hope rates will keep dropping as the government increases efforts to battle the credit crisis.
Rates “are now almost a full percentage point lower since the last week in October,” Freddie Mac Chief Economist Frank Nothaft said in a statement.
Bringing mortgage rates down is positive, but it “doesn’t help people that currently have unaffordable mortgages because it doesn’t help them refinance,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said Thursday. “Low interest rates help some consumers, but the ones that really need help and can’t refinance are not helped.”
“The VA Interest Rate Market is also following the downward path of FHA and Conventional Loan financing” says John P. Allen, VA Loan Specialist at Equity VA Loan. “If this continues, these times will see the lowest rates ever in my lifetime.”
Meanwhile, Federal Reserve Chairman Ben Bernanke said the government can take steps to improve the functioning of the mortgage market, which would allow more people to secure home loans and help stabilize the housing market. Currently, he said, “the mortgage market is dysfunctional.”
Mortgage rates are sinking as Treasury yields, some of the most sensitive barometers of investor sentiment, have dropped to record lows this week as a torrent of bad economic news continues. But as investors send yields down, they’re also influencing the economy — driving interest rates so low that savers get punished and borrowers get a break.
Treasury buying has picked up and sent yields down because the economy is in a recession that investors believe will be long and deep.
Consumers already are taking advantage of the situation. New mortgage applications more than doubled last week, according to the Mortgage Bankers Association’s weekly survey released Wednesday. Refinance volume more than tripled, and made up nearly 70 percent of all applications.
Rates on other types of mortgages also fell, according to Freddie Mac’s survey. For 15-year, fixed-rate mortgages, rates averaged 5.33 percent, down from 5.74 percent last week.
Rates on five-year, adjustable-rate mortgages dipped to 5.77 percent, compared with 5.86 percent last week. Rates on one-year, adjustable-rate mortgages dropped to 5.02 percent, from 5.18 percent last week.
The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year mortgages averaged 0.7 point last week. The fee on five-year, adjustable-rate mortgages averaged 0.6 point, while the fee on one-year adjustable-rate mortgages averaged 0.5 point.
A year ago, the nationwide average rate on 30-year mortgages stood at 5.96 percent, 15-year mortgage rates averaged 5.65 percent, five-year adjustable-rate mortgages were at 5.75 percent, and one-year adjustable-rate mortgages stood at 5.46 percent.
The rate on Fannie Mae 30-year mortgage-backed securities fell to about 4.25 percent Thursday, said Kevin Giddis, managing director of fixed income at Morgan Keegan. That is down from about 5.5 percent in mid-November.
Fears of a protracted recession are slamming Treasury yield, which is good for borrowers with mortgage rates tied to Treasurys, but bad for people invested in money market funds that have been buying up Treasurys for safety.
In the final analysis, the VA Mortgage Market is outstanding now for new borrowers getting in. Combined with low rates, lower housing prices, and the price of gasoline dropping to what some say could be $ 1 per gallon by summer of 2009, well, looks like we are all in for a turnaround and Veterans will be the beneficiaries.