Right off from the start- YES 4% on a 30 yr fixed rate is avaiable today!- but the cost is approx. 2.5points!! (EX: one a $250,000 loan 2.5 points would be $6,250 and then add closing costs!!!)

Let's get realistic here. The recent frenzy has been about mortgage interest rates going to an incredible low fixed 4%- according to the media, they are stirring this out of proportion and they don't really understand the "nuts and bolts" of how the monetary system works.

The Federal Open Market Committee (FOMC) announced yesterday that they would purchase an additional $750 BILLION DOLLARS of agency issued mortgage backed securities (MBS).  This is in addition to the $600 BILLION DOLLARS that they had previously announced to bring the grand total to $1.35 TRILLION DOLLARS by the end of 2009. Their aim is to stimulate demand for mortgage backed securities which lowers mortgage rates as the prices of mortgage backed securities go up. In other words, the more a mortgage backed security trades for, the lower the long term mortgage interest rate.

The all-time lowest 30 year fixed interest rate was 4.5% on December 17, 2008 and many consumers refused to lock in because they believed the media frenzy that rates would go even lower- to the 4% fixed rate. So what happened?  Interest rates increased and those consumers missed out on a great opportunity to refinance or to lock in a low purchase fixed interest rate. We are once again at a very similar situation.

After the FOMC announcement yesterday we gained 144BPS (144 basis points) almost immediately but we didn't get to the all time high of December 17, 2008. I noticed a nice improvement in today's earlier rate sheets (03/19/2009) from yesterday, but it seems that lenders were reluctant to give us the full benefit from yesterday's announcement. As I write this, afternoon time- the mortgage backed securities have been losing ground- thus making mortgage interest rates lose a little ground from earlier today. When we hit our all time high for MBS prices on December 17, 2008 we didn't get close to the 4.0% 30 year fixed interest rate. There's also additional factors now that will make it even more difficult to reach the 4.0% rate.

U.S. Treasuries: Through the multiple stimulus packages and enormous proposed budgets we will have issued an additional $2 TRILLION DOLLARS of Treasuries by the end of 2009.  These are safest investment vehicle for large foreign investors like China and are major competition for investment dollars that 2 years ago would have gone to purchase MBSs but now are going to Treasuries.

Government Sponsored Enterprises:(GSE) new pricing changes: FNMA (Fannie Mae) and FHLMC (Freddie Mac) continue to adjust and increase their pricing adjustments or add-ons for mortgage interest rates  For example: A homebuyer purchasing a condominium after April 1, 2009 would have an additional increase of .75BPS onto their pricing matrix (interest rate) A borrower with a 710 FICO score and a 25% down payment will have an additional 75BPS add on to their pricing matrix compared to the original pricing matrix that existed December 17, 2008.  If a borrower has a score of 680 to 699, the add on is 150BPS! It gets worse from there if their score is lower.  The reason for all the "add-ons" to pricing is a direct reflection of the current market- there's been a lot of risk for lenders loaning money and they have lost billions!

Home Affordable Modification Program - (TARP forced "cram down") This program basically demands that mortgage companies that received new TARP funding to abide by a huge loan modification program. The lenders do have to try to help out the homeowners- but if the "deal" isn't good for their bottom line, then they won't help you. Basically the government gave them a few options to get out of helping their borrowers. The "bad" news is that for homeowners that have been paying their mortgage payments on time and are currently struggling- they can't be more than 105% upside down on their current mortgage. That about eliminates 50% - 75% of homeowners in California, New Jersey, Florida, Nevada, Arizona, etc... because these states have taken massive property value deductions.

There's been some talk about a new House Bill that will force a very similar program on non-TARP companies.  When the lenders reduce principal and interest rates to their borrowers that money doesn't just magically go away. The real bottom line is that we will continue to have nice low mortgage rates for a probably most of this year and I encourage you to lock in and not wait for a 4.0% rate that we may never, ever see.

Gerard Ladalardo, CMPS
www.caloanpros.com