Mortgage Rate Cut?

December 4, 2008 12:43:39 AM PST
A recent drop in interest rates has led to a surge in mortgage applications. And the fed may be close to making a $50 billion dollar move that would lower mortgage rates even more.One plan calls for the treasury department to spend a lot of money to push mortgage interest rates down another point. Another calls for encouraging homebuyers by giving them a big tax credit. They are welcome ideas to local bankers and builders.

Supporters of the plans in Washington say lowering interest rates and giving homebuyers a big tax credit would help the housing market rebound. Local Mortgage Banker Larry Korth agrees.

Larry Korth said, "Oh, it would be a definite boost to the local economy. I think there would be a lot of people refinancing and looking at new purchases."

Under the plan being pushed by the National Association of Realtors the Treasury would spend $50 billion to buy up mortgage backed securities from Fannie Mae and Freddie Mac. The goal, to push mortgage interest rates down to about four and a half per cent for a 30 year fixed mortgage.

With current rates down to about five and a half per cent, a one per cent drop would lower monthly payments on a $250 thousand dollar home by more than $2 hundred dollars a month.

Korth said, "I think it will really help. It will bring a lot of people to refinance again and it will help the people buying, they could afford a lot more house than they normally could."

The other part of the plan backed by the National Association of Home Builders calls for giving homebuyers a more than $20 thousand dollar tax credit. Mike Prandini of the Building Industry Association of Fresno County thinks if done right, the tax credit could really help.

Mike Prandini said, "And be able to use that credit up front to make the down payment because that's the big obstacle for new homebuyers, is coming up with that initial down payment."

The Treasury Department is giving serious consideration to the interest lowering plan, and could make a decision by next week. Congress and the incoming Obama administration are being pressured to take fast action on the proposal to offer tax credits to homebuyers.

Prandini said, "I think if they can qualify at the interest rate and get the down payment out of the way with a tax credit that would go a long way to jump start the industry."

Homebuilder's definitely need a jump start at the market peak, they built 75 hundred homes in Fresno County.

Three years later, it's two thousand. Next years forecast, just one thousand. Existing home sales are rebounding, thanks to cheap foreclosure sales, but home values continue to drop.

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