Mortgage rates are easing this week as the yield on the ten year treasury note fell to 3.72% on Tuesday after climbing as high as 4.09% in the past week. The Mortgage Bankers Association of America reported that over the past four weeks, thirty year mortgage rates rose at their fastest pace in 17 years. Not good news for a housing industry looking for any incentives to draw prospective buyers back into the market.
With thirty year rates settling in around the 6% range today, a relatively low rate by historical standards, you would think, combined with low housing prices, that some buyer would be lured back into the market to take advantage of bargain rates and prices. Yet buyers who test the waters these days find a much different mortgage landscape than only six months ago and a dramatically different market from several years ago when credit flowed like keg beer at a fraternity party. Mortgage lenders today find themselves in the same credit crunch as other industries with banks having little or no taste for risk of any kind.
In Florida, the secondary market for mortgage loans over 80% loan to value has almost completely evaporated. With all private mortgage insurers running for the hills or fighting to stave off bankruptcy, there is no vehicle to absorb the default risk for mortgages forcing lenders to require substantial down payments and tighten underwriting guidelines to the point that most borrowers no longer qualify. Of course one can argue that it was the lack of down payments and loose underwiting standards that got us here in the first place. But until the demand side of the housing equation returns, the supply will remain high and prices will remain low.
So like so much of our economy lately, it seems there is good news and bad news. The good news is that mortgage rates are falling after rising sharply during the credit crisis of the past four weeks. The bad news, of course, is that there are simply fewer qualified borrowers out there to take advantage of them. Even government backed loans such as FHA are more difficult to obtain due to higher down payment requirements, higher mortgage insurance premiums and secondary market investors instituting minimum credit scores on most programs. Bottom line is that for a renewed demand for housing to take hold and ultimately drive up home prices, borrowers must save more for a down payment and improve their credit standing in order to better qualify for a home loan. A novel idea.
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