Freddie Mac also reports that rates on 15-year mortgages declined to 4.95 percent from 5.21 percent, rates on five-year adjustable-rate mortgages dropped to 5.13 percent from 5.4 percent, and rates on one-year ARMs slipped to 4.99 percent from 5.26 percent.
]]>One member of the committee, Eric Rosengren -- the president of the Federal Reserve Bank of Boston – today argued in favor of lowering the target for the federal funds rate by 50 basis points.
The federal funds rate is the rate banks charge each other for overnight loans. The Fed can influence the rate be easing or constricting the supply of money. The discount rate is what the Federal Reserve charges banks for short-term loans.
In slashing short-term rates at its last three meetings, the Fed is gradually reversing increases to the federal funds rate made during 17 consecutive meetings between 2004 and 2006. Those increases, instituted to cool the pace of economic growth, left the federal funds rate at 5.25 percent. Mortgage and Home Loans
]]>Borrowing costs on 15-year fixed products fell to 5.65 percent from 5.73 percent over the week and five-year adjustable-rate mortgages were down to 5.75 percent from 5.86 percent, but one-year ARMs bucked the southward trend by bumping up to 5.46 percent from 5.43 percent.
]]>The rate of foreclosure starts increased for all loan types, however -- including prime fixed-rate and adjustable-rate loans -- as falling house prices and a credit crunch in mortgage lending made it more difficult for homeowners to sell or refinance their way out of foreclosure.
Delinquency rates were also up across all loan types, suggesting that the foreclosure picture will continue to worsen before it gets better, MBA Chief Economist Doug Duncan said.
Duncan expects that on a nationwide basis, housing markets will bottom out no later than the third quarter of 2008, with "substantial inventories" creating full-year price declines for 2007 and 2008. Markets in states like California and Florida which have large inventories to work off may take longer to recover, he said.
A number of factors are driving the rise in delinquencies and foreclosures, Duncan said -- some national, some regional.
On a national basis, the "seizure" in the market for securitized loans in August cut off a major source of funding for subprime and "jumbo" loans above the $417,000 conforming loan limit, Duncan said. The MBA's third quarter National Delinquency Survey, which tracks more than 80 percent of outstanding first lien mortgage loans, is the first to reflect the impact of the collapse of the secondary market for subprime and nonconforming loans on delinquencies and defaults.
The survey revealed the delinquency rate on all loans was up 47 basis points from the previous quarter, to 5.59 percent, a level not seen since 1986, when falling oil prices wreaked economic havoc on southern "oil patch" states like Texas and Louisiana.
The delinquency rate on subprime loans increased 149 basis points in the third quarter, to 16.31 percent. But the delinquency rate on prime loans also rose 39 basis points, to 3.12 percent. Some 11.38 percent of subprime loans were "seriously delinquent" -- 90 days or more behind -- up 211 basis points. That compares to 1.31 percent of prime loans, up 33 basis points from the previous quarter.
The seasonally adjusted rate of loans entering the foreclosure process hit 0.78 percent during the third quarter, up 13 basis points from the previous quarter and 32 basis points from the same time a year ago. The percentage of loans in the foreclosure process at the end of the quarter was 1.69 percent, an increase of 29 basis points from the second quarter of 2007 and 64 basis points from a year ago. Those are both all-time records since the MBA began taking the survey in 1972.
"Since Aug. 1 there has been no issue of securities backed by subprime loans or jumbo loans," Duncan said. While banks can still fund such loans using customer deposits, they are constrained by available capital and the need to keep their investments diversified. So while the subprime and jumbo loan markets have not entirely ground to a halt, there has been a "significant slowdown" in lending in those categories, Duncan said.
Although it was subprime loans that triggered the credit crunch, the effects of the housing downturn are starting to show up in other loans.
The delinquency survey revealed that foreclosure starts on prime, fixed-rate mortgages -- which rose 10 basis points, to 0.37 percent -- was the highest in 10 years. In most states, the MBA said the increase was because borrowers who will fall behind on payments for traditional reasons like the loss of a job, illness or divorce, can no longer sell their homes to avoid foreclosure because of the slowdown in home sales and falling prices.
On a regional basis, foreclosures in states in the upper Midwest including Michigan, Ohio and Indiana are largely a result of economic factors, such as job losses and out migration, reducing demand for housing, Duncan said.
In states with healthy economies like California, Florida, Arizona and Nevada, developers went on building sprees during the housing boom, to the point that supply outstripped demand.
In its last delinquency report, at the request of the Federal Reserve, the MBA looked into the effect speculators had on those markets. It found that about one in three loans 90 days past due or in foreclosure in Nevada were connected with non-owner occupied properties. One in four defaulted purchase loans in Florida and one in five in California were on investment properties or second homes, compared with 13 percent nationwide, the MBA said at the time. Duncan said today the MBA is working on updating those numbers.
The latest survey showed California and Florida had 28.1 percent of the subprime ARMs but 33.7 percent of foreclosure starts for subprime ARMs during the third quarter. The number of subprime ARM foreclosure starts in California alone equaled the combined number of foreclosure starts in that category in 35 states.
The trends revealed in the third quarter survey lead the MBA to project 1.5 million homes will enter the foreclosure process in 2007, up from 960,000 in 2006 and 704,000 in 2005.
Subprime ARM loans are expected to generate the largest share of foreclosure starts -- 660,000 -- followed by 275,000 foreclosure starts among prime, fixed-rate loans; 264,000 prime ARM loans; 186,000 subprime fixed-rate loans; 140,000 FHA-backed loans, and 21,000 VA loans.
Not all of the homes that enter the foreclosure process will actually complete it, Duncan noted. Depending on the cause of a foreclosure start, some may able to avoid it by arranging workouts with lenders or conducting short sale.
Duncan said that forecast assumes continued economic growth averts a recession, and does not take into account proposed foreclosure prevention measures, such as an agreement announced today by lenders to freeze interest rates on some subprime ARM loans
]]>The Refinance Index increased 31.9 percent to 2761.3 from 2093.0 the previous week. The refinance share of mortgage activity increased to 56.0 percent of total applications from 51.4 percent the previous week.
These numbers reflect a correction made to the Thanksgiving Week numbers released by the association. The previously reported numbers were too high, making the Thanksgiving week fall off more dramatic than was reported last week.
This week’s rising numbers appear to be at least partially in response to falling interest rates.
* 30-year fixed-rate mortgages decreased to 5.82 percent from 6.09 percent
* 15-year fixed-rate mortgages decreased to 5.38 percent from 5.69 percent
* 1-year ARMs increased to 6.28 percent from 6.24 percent
The reduction in the target for the federal funds rate, to 4.75 percent, marked the first time the Fed had cut the overnight rate since June 25, 2003. At the time, the Fed was capping a series of reductions intended to encourage borrowing and stave off a recession after the dot-com stock market bust and the Sept. 11, 2001, terrorist attacks.
]]> Lowering the federal funds rate "is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."The Federal Reserve's Board of Governors also unanimously approved a 50-basis-point reduction in the discount rate, to 5.25 percent.
The Fed slashed the discount rate from 6.25 percent to 5.75 percent on Aug. 17, in part because mortgage lenders have been having trouble obtaining short-term funding.
]]>While borrowers know the amount, they are often hazy about how it is calculated and what it includes. I will illustrate the possibilities related to a $100,000 loan at 6 percent.
]]> In the simplest possible case, the scheduled payment includes only interest until the final payment, when it includes repayment of the balance. The interest payment each month is .06/12, or .005, multiplied by $100,000, which equals $500. The final payment, assuming the borrower paid only interest throughout, would be $100,500.]]>Let's start with credit. With the current mortgage mess, lenders have raised the minimum credit score you need to get a Grade A or Grade A- loan. If you previously need a 720 on your FICO credit score to get a great rate, you now need 760 or even 780.
You also need to have some equity in the property in order to refinance. In some places, homes have fallen in value. If that's the case in your neighborhood and you bought the property with a 100 percent loan two years ago, you may not have enough equity in the property to refinance. So unless you're prepared to come to the closing with a check, you may not be able to refinance.
]]>The cuts could be a mixed blessing for homebuyers, pushing fixed-rate mortgages higher if inflation worries grow, economists say. But relief could come in other ways. Consumers should start feeling the impact quickly in the form of reduced payments on home-equity lines of credit, credit cards and some car loans.
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]]>More than two dozen subprime lenders have shut down in recent months and others are scrambling to stay in business.
New Century said it has agreed to sell its loan servicing business to Carrington Capital Management LLC and its affiliate for about $139 million, subject to the approval of the bankruptcy court.
"The decision to pursue the sale of the company's assets and operations through the bankruptcy process was a difficult but appropriate decision for our board to make," president and chief executive Brad A. Morrice said in a statement.
"This was a very hard step for me personally and clearly not the outcome I would have preferred," Morrice said.
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