banktime.com

Mortgage rates are at historic lows, and there is evidence that they will continue to fall in weeks to come. Last week, the national average mortgage rate bottomed out at 4.44%, according to Freddie Mac. Usually in times like these, prospective homeowners and those who already have mortgages would be lined up in snaking queues around the block to attain mortgages and refinancing to get better payments. Strangely, home sale numbers are just not reflecting that trend this time around. There are many reasons that home sales remain almost stagnant in spite of the seductive interest rates – poor home equity, insanely tight loan approval standards, the great number of struggling incomes, and the high cost of refinancing, just to name a few. And, of course, some people who might otherwise like to buy a home are choosing to avoid mortgages altogether due to the perceived risks of owning in this shaky market.

It’s believed that mortgage origination levels this year will come in around just half of what was seen in 2003. Seven years ago, mortgage rates were considered exceedingly low at around 5.21 percent. That year, Freddie Mac logged over four trillion dollars in new loans. Interest rates have plummeted to unforeseen lows due to paranoia about the U.S. economic recovery stalling and Federal Reserve actions, as well as ridiculous lending standards and poor home equity. Just as the banks made it far too easy for consumers to get loans a few years ago, now it is way too hard for most people to bother buying a home.

Nowadays, even borrowers with the most magnificent FICO scores – we’re talking over eight hundred here – are having trouble obtaining financing on a new home. Banks want buyers to jump through incredible hoops to get a mortgage, including a debt-to-income ratio of less than forty percent and a substantial down payment that many people can’t come up with due to plunging home equity and insufficient incomes as the result of job losses and lowered salaries. It’s believed that as many as forty percent of all would-be homeowners are being barred from the market due to insufficient credit scores, insufficient income, or failure to meet other qualifications. Lenders are now accused of tightening requirements far too much to be realistic. The Denver Post article that I read quoted Lou Barnes, with Premier Mortgage Group in Boulder, as indicting Freddie Mac and Fannie Mae “for loosening their standards when the market was overheated and tightening them too much when the markets needed credit, rather than maintaining consistent underwriting like the Federal Housing Administration.”

There is hope that credit standards may be relaxing somewhat, thanks in joint part to the gradual re-emergence of no-cost refinancing for existing homeowners or expanded access to private mortgage insurance that almost completely dried up in the recession’s darkest days. Still, home sales are very unlikely to come close this year to 2003’s numbers, due in the greatest part to the latter day’s reliance on cash in the home buying process. Historically, only five to ten percent of home sales have been conducted as cash transactions. Nowadays, that number has swelled to a quarter of all home sales. This is due to investors buying up cheap foreclosures with cash and flipping them to rentals. Many second-mortgage lenders are also barring borrowers who might reasonably qualify for refinancing.