Home loan borrowers with good credit could be in for some of the best mortgage rates in months, analysts said yesterday, a day after the Federal Reserve announced intervention designed to make financing less costly and more readily available.
But it will likely take some time to turn around a sluggish housing market amid a deepening economic crisis, where lenders have tightened standards and many sellers are still unwilling to budge on home prices, mortgage experts and brokers said.
Tuesday's action by the Federal Reserve sent mortgage rates down to the lowest levels since February. Rates on 30-year fixed mortgages dropped to a national average of 5.76 percent yesterday, from 6.06 Monday, according HSH Associates. Yesterday's rates were the lowest since Feb. 6, when they were at 5.74 percent, HSH said.
Under the Federal Reserve plan, meant to boost the housing market and spur the economy, the government will invest in mortgage-backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae as well as debt issued by those government-sponsored corporations. That move helped push mortgage rates lower, analysts said. The federal government is pledging a total of $800 billion for the housing program, as well as for improving loans for credit cards, auto loans and other borrowing.
"It's obvious this is the program the market has been waiting for, some way to support the vast amount of Americans who are not in trouble," said Keith Gumbinger, a vice president at HSH. "This is the first program aimed at those who didn't do anything wrong, folks who didn't screw up the balance sheet, but who have become enmeshed in the credit crisis. Now those borrowers have an avenue to explore for relief."
Gumbinger said the new Fed program should help drive down financing costs for those with good credit histories who are looking to buy a house, and it could help spur demand for home purchases. Once home sales start to pick up, prices will start to stabilize, Gumbinger said.
And lower rates should enable more borrowers with adequate equity in their homes to refinance, giving cash-strapped consumers another avenue for borrowing. More borrowers will be able to refinance to consolidate debt, lower monthly payments or draw out cash, all of which should promote consumer spending and help the economy, Gumbinger said.
