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New record mortgage rate lows

What the Fed gives in low rates, though, Congress is taking away by raising fees to fund recent payroll tax reduction.

By MSN Money Partner Jan 12, 2012 7:55PM

This post comes from Marilyn Lewis at MSN Money.


Just when it seemed that mortgage rates couldn't go any lower, they set another record low this week. In fact, rates on 30-year, fixed-rate loans have stayed below 4% for six straight weeks.


However, financing fees are going up, sapping some of the sweetness from low rates.


First, the rates. Freddie Mac says its weekly Primary Mortgage Market Survey found that consumers this week paid an average of:

  • 3.89% (with an average 0.7 point) for 30-year, fixed-rate mortgages. Last week was the previous record, at 3.91%. Last year at this time, people were paying 4.71%.
  • 3.16% (an average 0.8 point) for 15-year, fixed-rate mortgages. Last week, 15-year loans averaged 3.23%, and a year ago at this time they were at 4.08%. This week's average broke a record low of 3.21%, set during the week of Dec. 22.

Mortgage applications rose 4.5% for the week, with 81% due to refinancing, says HousingWire.


"The Fed says it will keep the key federal funds rate near zero until mid-2013 and continues to reinvest in long-term securities to help keep rates low," writes Bankrate.


Rising fees

Rising fees, however, are taking away some of the benefit. You'll see an increase in the "guarantee fee" charged on loans eligible for sale to Fannie Mae and Freddie Mac.


The bottom line: Roughly $300 more per year on a $300,000 mortgage, says this blog post at Total Mortgage Services.


Mortgage blogger Dan Green puts the increased fees at about $10 per month per $100,000 borrowed. He wrote, "In places like San Francisco or Arlington, Virginia, where local jumbo loan limits reach as high as $625,500 and $729,750 for conventional and FHA mortgages, respectively, mortgagors should expect to pay as much as $73 more each month." 


The source of the increase: Congress.


Remember the two-month payroll tax reduction that Congress passed before Christmas, along with a two-month extension of unemployment benefits? That money -- nearly $36 billion -- has to come from somewhere. Explains National Mortgage Servicing News:

The lawmakers relied on a 10-year increase in Fannie and Freddie g-fees to cover most of the costs of the legislation that extended the payroll tax reduction along with unemployment benefits for two months.
... additional g-fee increases may be coming, according to FHFA acting director Edward DeMarco.

Mortgage experts predict increases in loan prices of 20 to 80 basis points -- about 0.125% to 0.25% in added interest charges -- from the fee hike.


"Low rates don't matter if high costs wipe them out," writes blogger Green, who lists four other government-mandated mortgage fee hikes since 2008.


A Wall Street Journal writer says of the payroll tax move, "My guess is Congress eventually will extend this law to apply to all of 2012." Post continues below.

Timing, and other new roadblocks

Bankrate says:

The hike doesn't take effect until April 1, but lenders have already started to pass the extra cost on to borrowers.
Lenders want to make sure they are not stuck with the bill if there are delays selling mortgages to Fannie or Freddie that push the transfers past April 1.

Worried about timing? Bankrate source John Walsh, president of Total Mortgage in Milford, Conn., figures borrowers still have "a couple weeks" to get a 30-day rate lock before the new costs take hold. In other words, get moving.

Although the Federal Reserve is holding mortgage rates down in order to stimulate the economy, other obstacles to home borrowing are cropping up:

  • FHA premiums. Congress told the Federal Housing Administration to hike mortgage insurance premiums on FHA loans. "Mortgage experts say they expect (that) to happen by April," Bankrate says.
  • Roadblock for vets. Veterans are having a hard time qualifying to buy new homes because of stringent VA loan requirements, reports John Burns Real Estate Consulting:
More builders are shying away from selling homes to Vets because VA appraisers have become so conservative that the homes rarely close. In addition, the low appraisals impact the value of future community sales, costing the builders significant money. Particularly disturbing are some of the VA procedures that make it difficult to challenge mistakes, as well as the impact the appraisals are having on other homes available for sale in the community.

The point of the rules was to protect vets from overpaying, but Burns vice president Jody Kahn says the process has become "broken."


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