Illinois Mortgage Rates - Mortgage Rates Week in Review

Welcome to Illinois Mortgage Rates and News week in review for the week ending July 11th, my take on the week's financial news and how it affected Illinois mortgage rates.

Back in March our economy barely dodged a bullet when the Fed engineered a bail out of Wall Street giant Bear Stearns. If left to fail on its own, it was feared that this would set off a panic that could shake our financial system to its core. Since then we've been told that the worst was over, and even though the housing market was still a mess, our economic foundations were strong. This week the bullet we missed with Bear Stearns is looking like a pea from a pea shooter, and we have a nuclear missile headed our way (Where is Superman when we need him?) The stock of Fannie Mae and Freddie Mac, the two pillars of our mortgage finance system, dived this week as the loss of liquidity pushed these giants toward insolvency. Both stocks lost about 45% of their value this week and are down about 90% in the last year. With the stock prices this low there is no way they can raise the cash they need to continue operating in the markets. If the worst comes to pass, this means 2 possibilities: a bailout where the government funds the organizations, or a receivership or complete government takeover.

Fannie and Freddie are unique in the way they operate. They are publicly traded corporations but they are backed with the assurance of the federal government. Their mission is to buy up mortgage loans and insure that there is always money available to fund new mortgages. Combined they guarantee about 5 trillion dollars (that's 5,000 billion) worth of mortgage loans - about half the total mortgages outstanding. To say they are the 800 pound gorillas in the mortgage market is an understatement. The panic started this week with rumors that the government was preparing a plan to step in if needed. Fannie and Freddie have lost a lot of money due to bad loans, but they still have a fair amount of money in reserve, though no where near enough to settle all the possible problems. But this isn't news. Over the last years Fannie and Freddie have branched out beyond their core business and have moved farther along the risk curve as they tried to keep profits high while the real estate market was booming. Commentators have been saying for years that the companies were undercapitalized. So this isn't a new thing.

Everyone agrees that Fannie Mae and Freddie Mac are too big to fail. If it gets to that point the government will surely step in and do what is necessary to keep the mortgage market going. But the question then becomes how would they do this? The debt is so huge (even backed by the homes supporting all those mortgages) that it would be equal to almost ½ our current national debt. After the panic first started, Fed officials, Treasury Secretary Paulson and statements from both Fannie and Freddie assured everyone that there was no crisis. But a panic is a panic. The market calmed down a little Friday afternoon, but this will come back as an issue. Maybe this coming week, maybe later. We are still in a severe credit crunch this fear only tightens it another notch. What it means for consumers is that conventional mortgages are likely to continue their trend of becoming harder to qualify for and more expensive for those who can qualify. On the good side, there is almost no chance that the Fed will hike rates any time soon.

The news of the troubles with Fannie and Freddie obscured some other big news. IndyMac, a big California bank which was one of the big players in what was called the Alt A mortgage market, went bust this week. This was the first major bank to fail in years, and the 3^rd largest bank failure in US history. The expectation is that there are other banks teetering on the edge, and more failures will be coming. In other news oil was up again, closing the week at $145 per barrel. Pending home sales came in worse than expected and according to RealtyTrac the number of foreclosed homes nearly tripled June.

Mortgage backed securities, which control the direction of mortgage rates were improving sharply most of the week, but turned around and gave up most of their gains on Friday. Mortgage rates are a little better on some programs, and on others unchanged. FHA is due to change to their risk based pricing model this week, but all in all it is the biggest bargain in the mortgage market. For many borrowers with less than 20% equity, or credit scores under 720, FHA financing is the best option. Here in the Chicago IL. area the maximum loan amount is now $410,000, so it fits what most borrowers need.

Here is what Illinois mortgage rates look like today for an A+, full doc purchase on a 30 day rate lock, with 0 points, and no origination fee.  The conventional loans are based on the highest conforming loan amounts, which give the best pricing. (Again, there are many factors which affect mortgage rates and your ability to be approved for a loan. These rates may not fit your situation and this is just a sample of the programs that are out there. If you would like a quote for your personal situation, or to get pre-approved for a mortgage, give me a call or contact me and I'll take the time to find the rate and program that is best for you.) :

Conventional loans up to $417,000

30 year fixed rate    6.25%   6.364% APR

15 year fixed rate    5.75%   5.922% APR

5-1 A.R.M.               5.50%   5.678% APR      

7-1 A.R.M.               5.875%   5.989% APR

For Jumbo loans over $417,000

30 year fixed rate*   6.75%    6.877% APR - Requires 20% down payment

7-1 A.R.M.*              5.75%    6.062% APR *there is a 1 year pre-payment penalty on this option.

FHA LOANS - 3% down payment

With 1 point origination fee - 60 day lock

30 year fixed rate    6.125%     7.048% APR

With no origination fee -        60 day lock

30 year fixed rate    6.375%     7.056%

FHA APR reflects 3% down payment and the effect of mortgage insurance on the loan.

These are just a few of the programs and mortgage rates available. Which option is best for you depends on your own specific goals and needs. If you have any questions or want to go over your situation in depth, let me know how I can help.

Pete Thompson is an Illinois mortgage banker who provides superior mortgage service and competitive mortgage rates in Chicago, the Chicago area and throughout Illinois. Click here for a Free copy of The Real World Home Buyer's Guide - How to Save Thousands when Buying a Home and Getting a mortgage. For information on the latest mortgage news and current Illinois mortgage rates, please visit http://www.illinoismortgageratesandnews.com