Mortgage Interest Rates Hit 5-Month Low, Subprime Loans Still Hard to Come By

Mortgage giant Freddie Mac reported Thursday that interest rates on 30-year fixed rate mortgages made their largest week-to-week decrease this week in almost 28 years , falling 0.42 percentage point.

On news of the Federal Government’s bailout of Freddie Mac and sister corporation Fannie Mae, the national average rate dropped to a five-month low of 5.93 percent, with an average 0.7 discount point, during the week ended Sept. 11 from 6.35 percent the previous week and from 6.31 percent on year earlier.

“Interest rates for 30-year fixed-rate mortgages are down almost 0.6 percentage points over the past 4 weeks, which will help to spur home purchases and loan refinancing in coming weeks,” said Frank Nothaft, Freddie Mac’s vice president and chief economist. “This means that the monthly principal and interest payment on a new $200,000 loan is over $76 lower than a month ago.”

Fifteen-year fixed rate home loans also experienced an interest rate decrease to 5.54 percent from 5.90 percent last week. One year ago, the average rate was 5.97 percent.  Rates on one-year adjustable rate mortgages (ARMs) rose in the latest week, however, to 5.21percent, from 5.15 percent. Last year at this time the average was 5.66 percent.

Another report released Thursday showed that America’s riskiest home buyers are largely being shut out of the mortgage market. The Federal Reserve’s Home Mortgage Disclosure Act report revealed that as mortgage delinquencies and failures rose in 2007, home loan financing for sub-prime or poor credit borrowers decreased dramatically.

“One consequence of deteriorating loan performance and widespread declines in home values was a sharp contraction in 2007 in the willingness of lenders and investors to offer loans to higher-risk borrowers or, in some cases to offer to certain loan products that entailed features associated with elevated credit risk,” the Federal Financial Institutions Examination Council said in the report.

Total mortgage applications last year fell to 21.4 million, down 22 percent from 2006, and loan originations slipped to 10.4 million in 2007, a decrease of 25 percent from the previous year.

The riskiest of loans were also by and large taken off the market. Undocumented income loans fell 69 percent from 2006, a sign that lenders had been badly burned by mass failure of these “liar loans.”

These trends have certainly continued into 2008, with analysts expecting little change in strict mortgage requirements and home loan credit availability through the end of next year.

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