Mortgage Rates Spike

by June 10, 2009 • 0 comments

Mortgage rates rose another .25% over the last week and now stand at 5.75% for thirty-year fixed with no points. We are seeing some steadying, however, as the bond market appears to have stabilized and stocks have been flat for the last few days. With no large government bond auctions this week we should not see any further rate deterioration and rates could possibly ease slightly.

Fed Chairman Ben Bernanke has expressed frustration with the rising rates insisting that low rates are critical to a sustained recovery in the housing market. To that end, he and the Fed stand prepared to purchase billions more in mortgage-backed securities to drive rates lower if necessary.

On the economic front, the Commerce Department reported last Friday that new claims for jobless benefits fell in May by a much larger than expected amount though the overall unemployment rate rose to 9.4% – its highest level in twenty six years. While on the surface it may appear that losing 450,000 jobs in one month is a bad thing it indicates a marked drop in the rate of job losses and further evidence the economy is stabilizing.

On Tuesday, however, the government reported that wholesale inventories shrank to $405 billion, the lowest level since September, suggesting companies were adjusting inventories downward to offset further anticipated declines in sales.

One last note I reported on two weeks ago, HUD has now issued its final rule on utilization of the $8,000 homebuyer tax credit in conjunction with FHA insured mortgages. After first indicating they would allow for those funds to be used for repayment of a bridge loan to cover down payment and closing costs, HUD now has backed away from that plan fearing it carried many of the same risks as the now defunct homebuyer’s assistance programs.

HUD ruled that while the tax credit funds may be borrowed against for such things as closing costs, pre-paids and rate buy-downs, the borrower must still bring 3.5% of his or her own funds to the closing table. This is a hugely significant decision as the major hurdle most FHA borrowers and, indeed, most first-time homebuyers is lack of down payment. Many saw the use of the tax credit for down payment as a way of bringing an untapped segment of the population into the housing market and thus stabilizing the sector and overall economy.

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