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June 4, 2007
Gaurav Bhola, MSM, managing editor
It seems the housing market can't catch a break. The economic pace is low, existing home sales are down, prices of homes are still in downward spiral, mortgage brokers and lenders are in doldrums, and millions of consumers can't maintain their mortgage payments. So, in the middle of all this high drama mortgage rates rise again.
A nationwide survey conducted last week by Freddie Mac reported that 30-year fixed-rate mortgages averaged 6.42 percent. While the 15-year fixed-rate mortgages climbed to 6.12 percent, an increase from 6.06 percent. Also five-year, adjustable-rate mortgages (ARMs) averaged 6.19 percent, up from 6.02 percent. These mortgage rates do not reflect add-on fees known as points. Nationally, thirty-year and fifteen-year mortgages each carried an average fee of 0.4 point. While five-year ARMs carried a fee of 0.5 point and one-year ARMs had a fee of 0.6 point.
Freddie Mac supports homeownership and rental housing in the U.S. by providing a constant flow of funds to mortgage lenders by purchasing mortgages from lenders and bundling them into securities that are sold to investors. Hence, Freddie Mac provides homeowners and renters opportunities of lower housing costs and easier access to home financing.
The home mortgage rates increased three weeks in a row hitting an eight month high. "Recent reports have indicated that economic growth outside of the housing market remains robust with a healthy consumer sector and improving business spending," said Frank Nothaft, Freddie Mac's chief economist. However, the economic growth last quarter was negligible at 0.6 percent, as measured by Gross Domestic Product (GDP). This is the slowest increase in the last four years. Federal Reserve Bank (Fed) Chairman, Ben Bernanke stated last week that the increasing delinquency in mortgage payments wouldn't seriously affect the economy.
This year regulators are cracking the whip on mortgage lenders and their lending practices, especially sub-prime lending. Bernanke also assured Congress that the Fed would take the necessary measures to curtail the abuses in lending that have placed millions of homeowners in peril of defaulting on their mortgages loans. At a financial convention in Illinois, Bernanke remarked, "We at the Federal Reserve will do all that we can to prevent fraud and abusive lending and to ensure that lenders employ sound underwriting practices and make effective disclosures to consumers." That is good news for lenders and consumers.
He later stated "We believe the effect of the troubles in the sub-prime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system." The Fed chair estimated that there would be further amplification in mortgage defaults and foreclosures this year and in 2008, he did not believe that the problem was tenuous enough to capsize the overall economy. In parallel, Sen. Charles Schumer, D-N.Y commented that he couldn't be certain that the economy wouldn't be negatively affected by the slumping housing market. The Senator has introduced new legislation to aid current homeowners circumvent foreclosures and delinquencies by heightening funds to community groups that provide financial counseling.
However, more than counseling is needed to remedy the disastrous situation we find the market in. It seems for a record ninth consecutive month; existing home sales in April fell more than by 2.6 percent to a seasonally adjusted annual rate of 5.99 million units, signifying further turbulence in the waters of the housing arena. These ripples may subside or they may garner strength into tsunami like proportions as they reach the shores of the national economy. Let us hope for the former scenario.
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