Wednesday, September 08, 2010

Manhattan Beach-Beach Cities: Interest Rates... How low will they go?

Manhattan Beach- South Bay Beach Cities... How low will interest rates go?

Interest rate chart... courtesy Chryste Fisher

I was talking some first time  buyers at an open house last week in Manhattan Beach who wanted to know how low I thought rates would go. I'm sure I disappointed them when I said that I didn't think rates would drop much more.  I think they will bounce around over the next few months, up/down a 1/4 point here and there,  but that for the most part they will be fairly stable until the end of the year.  However come Spring it could well be a different story as I expect rates may be on the rise next year.

In today's market interest rates are not nearly as big an issue as obtaining a loan.  Stories are rampant about buyers who were told they qualified and then were denied a loan at the last moment.  These are not flaky buyers with low 600 FICO scores and small down payments.  These are folks with scores in mid 700's and higher  with 20% down that for one reason or another wind up rejected in underwriting.  One major lender is notorious for dumping buyers at the last minute.

Sometimes it's not a buyer issue.  I have a property in escrow where the buyer is very strong, the appraisal came in at full price but..... the existing home had some deferred maintenance that should not have been an issue as the property was sold for land value.  The new buyer plans to tear down the existing home and build a new one.  The lender is aware of his plans and has checked to be sure he has the assets to rebuild. However the appraiser checked a box that the home was in poor condition.  That meant the loan could not be sold to the secondary market.  The seller wound up having to make repairs to the home to get it in average condition even though the home will be torn down and has no value.  This was a needless expense because the appraiser decided the home was not to neighborhood standards even though it was being torn down and a home at or above neighborhood standards will be built. 

To be fair the pressure is on lenders by Fannie Mae and Freddie Mac.  If a lender makes a loan and Freddie or Fannie decide that the loan is going to be problematic they will make the lender buy the home back and often at a premium over the loan value.  That can be very pricey for the lender and cause real problems with investors.  In order to avoid any possible problems lenders are being overly cautious and making issues about things that are really non-issues.

At the same time the FEDS are considering making loans to folks without jobs so they can make payments to lenders on their mortgages.  Even the boys in DC ought to realize this is a really stupid move in an economy where unemployment continues to be high with few new jobs  being created in the private sector as folks continue to worry about the economy. 

If a refinance is in your future now would be the time.  We haven't seen rates this low since the 50's and there is no guarantee how long they will remain at this level.

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