With Rates This Low...

The Treasury Department is considering a plan to push down 30-year fixed-rate rates for home purchases to as low as 4.5%, in the hopes that it will stimulate sales, stop the freefall of prices, and allow homeowners to afford bigger loans.
But the proposed plan only helps those who buy homes, not those who want to refinance. Furthermore, you must have a steady job and good credit to qualify -- and you must not owe more on the house than it's worth.
Assuming the plan comes to fruition and you're in the market for a new home, should you take the bait?
Let's look at the pros and cons:
Pros: Unless a seller or builder bought down your rate, it's likely that you've never had the chance to buy a home with a 4.5% fixed-rate mortgage (see 30 Year FRM 1971-2008 graph at (mortgage-x.com). It's so tempting a rate that it may entice fence-sitters who have been waiting for home prices to hit bottom to jump anyway, since it (and other stimulus measures like it) are likely to evaporate once the economy starts to improve.
If the government succeeds in cutting rates to these levels, it will boost buying power considerably. If you bought a resale home at the current median price of $183,300 and took out a loan for 80% of the purchase price, you'd pay $879 a month at a 6% rate, but only $743 a month at 4.5%. Assuming that you don't try to buy more house than you can afford, presumably you will have more money to buy other goods, like a car or washing machine. Boosting the bottom line of retailers will help save jobs, which must happen before the economy can get back on track.
Cons: If, tempted by low rates, you take on a bigger loan than you can afford, at a time when jobs are being erased, you're not just putting your financial future at risk -- you're reaffirming the whole free-spending, McMansion-loving culture that created this mess in the first place.
Employers have cut 1.2 million jobs this year, sending the unemployment rate to a 14-year high of 6.5%, and economists expect that the rate will be higher when the Labor Department announces November's numbers on Friday.

The bottom line: If you can get a lower fixed-rate loan than you have now, either for a new purchase or a refinance, you'd be foolish not to take it. But there's no reason that you have to use the money for a bigger house, or a bigger loan. Downsize your expectations, your home and your debt, and you'll be better prepared if you yourself are downsized...more

Investors Not Happy With 4-Loan Limit...

Some real estate investors are up in arms over a new Fannie Mae-Freddie Mac policy that limits to four the number of real estate loans that can be held by a single person.
The rule, which took effect Dec. 1, prohibits an investor from obtaining even a fifth mortgage no matter how much money he puts down or how much income documentation he provides. It offers no exceptions for assets or history of success as a real estate investor.
“The four-house rule is going to keep us in a recession longer,” said Tom Hutchens, an Atlanta-area investor. “It’s going to keep qualified buyers out of the market.”

Some investors are trying to work around the rule by partnering with other investors to either buy in cash or use their eligibility to borrow.

Source: The Atlanta Journal-Constitution, D.L. Bennett (12/05/08)

Mortgage Rates Take a Big Dip

For the week ended Dec. 3, Freddie Mac reported the lowest interest on 30-year fixed home loans since late January.
The rate came in at an average of 5.53 percent, down from 5.97 percent the previous week and 5.96 percent a year ago; while 15-year fixed mortgages settled at 5.33 percent compared to 5.74 percent last week and 5.65 percent in the year-earlier period.

Borrowing costs for short-term loans also were lower, with one-year adjustable-rate mortgages dipping to 5.02 percent from 5.18 percent a week ago and 5.46 percent a year ago.
Five-year hybrid ARMs, meanwhile, fell to 5.77 percent from 5.86 percent last week and 5.75 percent during the same period of last year.

Source: Realty Times (12/05/08)