As predicted, the interest rates dropped an unprecedented amount, and by a whole point on Friday, as a result of the Fed agreeing to buy $600,000,000,000.00 of Mortgage-Backed securities and financial institutions deleveraging. However, this fantastic rate isn't what it used to be. Lenders now have tighter restrictions on qualifications of a loan. This is good because the lending institutions are becoming more responsible and lending to those that really can pay it back. This is bad for those with even the slightest blemish in their credit and little no savings.
According to the New York Times, "To qualify for the best rates, borrowers will need to have a credit score of at least 720 and a down payment of at least 10 percent and probably closer to 20 percent. Borrowers seeking to refinance will need to have the same amounts in home equity." With unemployment at record levels since the great depression, there are limited numbers of qualified borrowers. Those looking to refinance must have at least 10% equity in their homes. With dropping real estate values, this is not as easy as it once was.
I have to say, I saw this coming. Part of me is glad about tighter restrictions and part of me is not dancing in the streets. I am glad that lenders are making responsible loans but this will really hurt a lot of people that thought buying a home would be in their reach. Especially disadvantaged are the younger generations of America that are still paying off student loans and haven't been paying on a mortgage for 10 years. Who this is going to help the most is responsible borrowers with a good savings account or decent amount of equity, which I am happy for. Does this mean the subprime market is dead?
I don't know how long these rates will last, but we have to remember what got us here in the first place. Debt. These low rates are tempting for anyone and should be taken advantage of, but if they go away in a week, a month, a year, will there be another 600 billion dollars available to buy them down again?
UPDATE: Forgot to mention FHA financing, which still only requires minimum of 3% down until Jan. 1st and has looser requirements! The only problem I have with FHA is that it is taking significantly longer to close a transaction because it is so popular right now.