Mortgage interest rates to remain low, but proposed lending rules too restrictive Reply

A combination of the stagnant state of the economy and the European debt crisis will keep mortgage interest rates low through 2013, according to a recent news article.  According to Freddie Mac, as of the end of August, the mortgage rates for a 30-year fixed-rate mortgage (FRM) averaged 3.59% with an average of .6 points. In August 2011, the interest rate for a 30 year FRM was 4.22% with an average of .7 points.

While low interest rates are good news to borrowers, lending standards are still too restrictive for the low rates to have a positive impact on the real estate market. Further, the National Association of REALTORS® (NAR) advised Federal Reserve Chairman Ben Bernanke that the latest round of bond purchases to keep interest rates down won’t have as much of a positive impact on the real estate market, and subsequently the economy, unless proposed rules regulating lending standards ease.

NAR President Maurice Veissi stated in the letter that three lending rules make affordable credit available to the wealthy and those with “pristine credit”, but not to those that need affordable credit. Veissi is referring to the QM Rule, the QRM rule, and Basell III.

The proposed Qualified Mortgage (QM) rule, currently being considered by the Consumer Protection Financial Bureau (CPFB), could set the debt to income ratio at 43% and would exclude nearly 20% of today’s buyers, according to NAR; the proposed Qualified Residential Mortgage (QRM) rule requires banks to hold 5% of loans that will be packaged and sold as securities or require a 20% down payment further increasing the cost of credit; and the proposed Basell III is a set of reforms for the international banking industry that will reduce risk by requiring that they hold twice the capital that was previously required.

Veissi pointed to an NAR survey to make her point, the results of which were published in an NAR press release. “Respondents to the NAR survey report that 53 percent of loans in August went to borrowers with credit scores above 740. In comparison, only 41 percent of loans backed by Fannie Mae had FICO scores above 740 during the 2001 to 2004 time period, while 43 percent of Freddie Mac-backed loans were above 740.”

In the same release, NAR chief economist Lawrence Yun said that easing up on lending standards would result in more home sales and, subsequently more jobs.

“Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” he said. “The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact.”

If you are planning on buying or selling a home in the Pioneer Valley, make your first call to Michael Seward at 413-531-7129.

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