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Mortgage rates drop below 4% again

A flurry of refinancing follows, but vast numbers of 'underwater' loans continue to weigh down the housing market.

By MSN Money Partner Nov 10, 2011 2:33PM

This post comes from Marilyn Lewis at MSN Money.


Mortgage rates dropped just a smidgeon this week, falling below 4% and breaking an important and historic psychological barrier for the second time this year.


The average 30-year, fixed-rate mortgage now sells for an average 3.99%, according to the Freddie Mac's Weekly Primary Mortgage Market Survey. To get that rate, homebuyers and refinancers are paying an average 0.7 point (a point is a fee, about 1% of the loan amount.)


In reality, this is a wee drop from last week's 4% average. Likewise, the 15-year fixed-rate mortgage dropped a hair, from 3.31% to 3.30% with a 0.8 point paid.


It was the second time this year that rates breached the historic 4% barrier. On Oct. 6, Freddie's survey reported rates had fallen to 3.94%, the lowest recorded by the survey, which began in 1971. At this time last year, 30-year fixed rates were 4.17%, which seemed impossibly low at the time.


The Christian Science Monitor's Paper Economy blog has an inpressive chart illustrating the trajectory of rates since 2007.


Little help
But with access to credit still tight and 28.6% of American homes with negative equity or "underwater," and therefore ineligible for most lenders' refinancing programs, the low rates are doing the economy little good, if any.


Bloomberg Businessweek writes:

The drop in borrowing costs has done little to spur home sales as as tighter lending standards, an unemployment rate around 9% and declining property values erode buyer confidence.

The article continues:

 "Low interest rates are having hardly any effect," said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. "They might help a little, but so little it doesn’t show up in the data. Maybe the data would be worse if mortgage rates were 5%."

USA Today says:

The low rates have caused a modest boom in refinancing, but that trend also might be waning. Most people who are creditworthy enough to refinance have already locked in rates below 5%.

Still, the low rates moved the needle of the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. In the week ending Nov. 4, purchase applications increased 10.3% from the week before. Refinancings, which were 78.6% of all the mortgage sales, increased 12.1% from the week before. Post continues below.

Mike Fratantoni, an MBA spokesman, attributed the ultra-low rates to demand for U.S. Treasurys sparked by economic turmoil in Europe and a "flight to quality" of investment capital. Demand for Treasurys is linked to low mortgage interest rates. ( describes the link here.)


Home sales in September dropped 3% from August (October data will be out Nov. 21). But they're up 11.3% over this time last year, according to the National Association of Realtors. The market for resale homes has stabilized, but at a low level, according to Lawrence Yun, the NAR's chief economist:

“The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable – this speaks to an unfulfilled demand.”

"Many Americans don't want to sink money into a home that could possibly lose value the next three to four years," USA Today writes.

The negative-equity trap
CNBC's Diana Olick said, "The lower those prices go, the more American borrowers fall into an negative equity position; that is, they owe more on their mortgages than their homes are worth."


Olick quotes mortgage analyst Mark Hanson, who says the problem is even worse than it appears:

Over 50% of all mortgaged households in the U.S. are effectively underwater -- unable to sell for enough to pay a Realtor and put a down payment on a new purchase without coming out of pocket. Because repeat buyers have always carried the market as the foundation, this is why demand has not come back. It's as if half the potential buyers in America died over a two-year period of time.

Hopes now are pinned on an upcoming revamp of the government Home Affordable Refinance Program (HARP) to include mortgages that are underwater by any amount. Details are expected later this month.


The HARP changes could help a good number of underwater borrowers refinance, bringing their monthly payments more in line with the true value of their homes which at least could discourage them from walking away from the mortgages. Borrowers whose loans have negative equity are most at-risk for strategically defaulting.


Here's a Washington Post article outlining the eligibility requirements. Your loan has to be owned by Fannie Mae (find out if Fannie owns your mortgage) or Freddie Mac (see if Freddie owns your loan.)


More on MSN Money

Nov 10, 2011 5:55PM
This doesn't mean squat to me.  I live week to week and make sure that I pay my mortgage on time every month.  However, I have a WHEDA loan and am under water.  I will never be able to refinance and take advantage of a rate that can help me put money into the economy in other ways.  This is BS...
Nov 10, 2011 7:34PM
My mortgage company called me up and said they would like to refinance my loan at a lower interest rate.  I said great, lower interest rate means a lower monthly mortgage payment which would help me greatly.  So I said what do I have to do?  They said I would have to requalify and be approved.  I said you already qualified me at a higher interest rate and payment and I've  never missed a payment or even been late so why wouldn't I already be qualified?  That's when I realized it was because they only wanted the $6000 closing costs it would cost me to refinance.  Now my credit score has been lowered (though I've never been late on any bills)because of the crappy economy and I no longer qualify.  I said if you were serious and really wanted to help me you could just lower my interest rate as I've been a loyal and on time mortgage payer.  I heard laughter and the click sound of them hanging up on me.  So I'm stuck with my 6.75% rate.  Did they call me just to piss me off?  Thanks for nothing Suntrust.
Nov 10, 2011 6:38PM

Trolls and logic-leaches: it has been said that the best way to keep your foot out of your mouth is to not open it.


urlemmings, what's your point? Kill capitalism so that the wealthy, ruling class becomes the government instead of big business?  Or disassemble the entire monetary system, leaving us back in the stone ages, when you bartered skill for skill?  In either scenario, there will still be poor people and rich people.  There is only ONE way to create true equality, and that is for everyone to have a pure heart and desire to serve rather than take.  You can't FORCE people to become equitable - it can only come from inside.  Communism, socialism, etc, etc are all equally or more flawed than capitalism, since they prevent the determined from crossing classes and rising out of their circumstances.

as for "...preferred display name..." you have made some unfavorable assumptions.  Generally, a household can afford a 30-year mortgage that is approximately 2X bigger than the amount of income they bring home annually.  Any household earning a mere 16,000 annually simply should NOT be buying a house.  That kind of income is paid out to underskilled people.  and when times get hard - as we have seen 2X in this decade - the lowest-skilled workers are the 1st to get cut.  Minimum wage earners simply should not be eligible for home loans except through special circumstances - like the specialty loans from Habitat for Humanity.  The US average income is about $30K, possibly a bit more.  In many parts of the US, homes can be purchased for $60-$80K - which is exactly the right price point for a starter home.  But don't forget, most households are comprised of 2 earners, so that means they can pool $60-$80K together, and can shop for $120-$160K in mortgage loans, making current home prices entirely within reach - especially at these ridiculously low interest rates.  Of course, this is for most of the geographic US.  Understandably, most of the US population lives where home values are much higher - but so are their earnings. 

Nov 10, 2011 6:21PM
Try paying savings accounts 3.99% interest & watch the economy grow!
Nov 10, 2011 6:15PM
Isn't it funny how the banks in two out of the past three years have set the rate for adjustable rate mortgages higher once again. Most ARM's are set 60 days prior to Jan. 1 for the coming year. It is based on the 1 yr. Libor rate posted in the WSJ on that day. For some strange reason once again it has spiked, meanwhile for most of the year it has remained lower or flat. Tell me the fix is not in. No wonder people are protesting on Wall St.  This article states that mortgages are lower, not those who have ARM's, they should be lower. 
Nov 10, 2011 7:50PM
You can't FORCE people to become equitable - it can only come from inside.  Communism, socialism, etc, etc are all equally or more flawed than capitalism, since they prevent the determined from crossing classes and rising out of their circumstances.

Yeah but September, politicians can't work with that when dealing with their mindless, emotion driven constituency. It's that class warfare thingie. The "rich" and the "poor" and the "middle class" and all the other classifications they keep everyone separated and grouped by. One has to wonder how much they really care about the common man when they draw up and pass idiotic bills like the Frank/Dodd bill that caused banks to raise fees on their customers (some have backed off however). Lenin had a term for his communist constituency: Useful Idiots.

Nov 10, 2011 8:30PM
These lower interest rates are only going to help the 1st time buyer make up his mind to pay more and buy a more expensive house that he can't afford and will go into forclosure in 4 or 5 years depending on how much unemployment insurance he still has.  It's a sad thing but so true.
Nov 10, 2011 8:44PM
The negative-equity trap

Isn't that like the death spiral of deflation?  How long is it going to be before Congress and the Fed to understands that inflation isn't the problem.  The housing bubble bust of 2008 is only getting worse.  And it is going to take down the rest of the economy .. if nothing is done to correct the problems. 

Nov 10, 2011 8:01PM
Wonderful, rates are super low. But still many can't get loans in the first place. The low rates are only helping those that were lucky enough to be able to avoid lay-off, divorce, spousal death or other financial misfortunes. Many have had to take lower paying jobs thus increase thier debt to income. If you have been discharged from bankruptcy your on the three year wait before banks will even look at matter your income or what you have managed to save. So, I feel that those who have benefited the most from the mortage bust are those in the upper class or just lucky.
Nov 10, 2011 11:28PM
This is a perfect example of how the middle class has been squeezed so hard, they have nothing else to give.  Even in the face of good deals.  The Government and the rich havn't figured it out.  They used up all their money making resources.  There are none left but the shirts on our backs, and frankly I don't feel like getting a sunburn.
Nov 10, 2011 8:34PM
The whole deal is top end costs go up x100 every 40 years while your wages maybe x25.  So you see you go in the hole throughout your lifetime and your kids fall even down deeper as they witness the X100 increase in price of top end stuff.  Meanwhile the Billionairs increase and continue to make many more Billions on the top end stuff, while purchasing ever more top end stuff.  Meanwhile you plan to retire, end up going to a low end thing and hope for your kids to do better.
Nov 11, 2011 1:41AM
No mention of any way for unemployed homeowners to refinance at these lower rates?  I'm  current on payments and have positive equity, but without a job, my bank will not consider refinancing my mortgage.  It's not like it will make the loan any riskier.  And I could use the extra $400 a month.
Nov 10, 2011 8:53PM
The Politicians are playing the odds that the tax breaks / tax encentives will bring back enough jobs to bring it all around before it all melts.  All the costs are going up incrementally and shipping is killing the importers.  China wants Buicks and We want jobs.
Nov 10, 2011 11:49PM
OMG........That is soooo funny! Who cares! The banks are not lending so they can actually lower it to zilch. Get over yourself already, No one cares because that just means that our retirement investments will drop some more too for those who still have anything left. 
Nov 10, 2011 7:55PM

Guys, here in New Zealand we are paying about 5.7% floating and 1 year fixed is 5.79% and 2 years fixed is 6.09% , there are no such things as 30 year fixed term mortgages...


So our $350,000 mtge costs alot each month...


Credit cards are around 22% per annum.


Nov 11, 2011 1:05AM
I remember in 1980 when rates were about 14% and houses were selling very well in Florida.  I don't understand. When the rates fell before the housing "crisis" it supposedly made homes cheaper. I can't believe the people who say they were duped. A $50,000 house is never worth $160,000, I don't care if the interest rates are zero.
Nov 11, 2011 3:00AM
This is a good start.  Now lets get houses down to their proper values. Then maybe people will be willing to sign on again. Im not going to pay more then its worth. Too many have gotten bitten on that already.
Nov 11, 2011 2:32AM
avatar are so right on the money...same thing happen to me 'WELLS FARGO' but they wanted close to 9,000 in closing cost. I'm at 5.75 wanted to get to 4.25, Total ****s running this banking **** 'again', they plead for your business and then they say -No loan for you!
'lucky i saw the light before the ruined my credit'.  Its really amazing how fiance works in this country and how the banks want to work against you constantly (Now that they ruined the country along with the people that drew up the loan applications a few years back and approved everyone who didn't have a pot to piss in). I wish I had a solution or at least a direction without me knowingly drowning in one bad decision after another...I am not a pessimist, I'm more of an opportunist BUT I know when the cards are against fold...which is EXACTLY what I'm doing.
Nov 11, 2011 1:38AM

With the country being in such deep debt the government can't afford to increase the interest rates. It would just cost them way too much. With the USA debt up to 12-13 Trillion, an increase of 2% interest rate costs the US tax payers more than 240 billion per year.


If we hit Jimmy Carter interest rates in the USA we would add 1.8 Trillion a year in interest alone to our debt, That is more than our entire federal payroll. Just sayin

Nov 11, 2011 12:39AM
Ohhh I am refinincing...think it is time to lock that rate!  Whoo Hooo
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