Mortgage Rates: Just How Low Can They Go?


That’s the question everyone is asking today, as the Fed’s announcement Tuesday that it would buy more mortgage-backed securities sent the Fannie and Freddie bond prices soaring and the yields in turn plummeting.

Supposedly that’s what lenders look to in setting interest rates on the 30-year fixed. After the announcement, that rate repriced to around 5 percent. It had already dropped quite a bit after the Fed made its initial Fannie and Freddie MBS purchase plan announcement a few weeks ago.

Mortgage brokers I talked to this morning said the floodgates are open, and it’s mostly refis. In fact, the Mortgage Bankers Association’s weekly applications survey showed that last week, with rates historically low, 77 percent of applications were for refis, not new purchases. One broker I spoke with said he’s got so many refi clients that he’s having a hard time finding the time to speak to potential new home purchase clients, because that takes far longer than current clients who already know him and just want him to lock in a rate.

But another broker cautions, when we’re talking about these low low rates for the 30-year fixed, and this morning it was around 4.875 percent, it’s with no points, and the borrower must have a 740+ FICO score, not to mention at least 20 percent to put down on the home. If it’s a refi, especially cash-out, they want to see at the very highest a 75% loan-to-value ratio. And this is only for old-fashioned $417,000 conforming loans.

No, I didn’t forget about the new conforming loan limit of $625,000 in certain high-end markets, as set by the Housing and Economic Recovery Act last summer. Trouble is that the interest rates on those puppies are a bit higher, not as high as jumbos mind you, but higher than you might thing.

And one more item the brokers are telling me: If a major bank drops its rates in a major way and then gets inundated with applications, it likely won’t be able to handle the onslaught and will be forced to raise rates a tad just to slow the tidal wave. Of course, if they don’t get the kind of response for which they had hoped, they might drop rates even lower. Seriously, stay tuned.

Questions? Comments?