How does the government takeover of Fannie Mae and Freddie Mac affect mortgage rates?
Rates for 30-year fixed mortgages fell immediately after the announcement of the takeover. "The 30-year conforming rate dropped from 6.25% to 6% on Monday morning and was down to 5.875% on Tuesday," says Chris Smith, president of Capstone Mortgage in Lexington, Mass. "It's a great time for people to refinance out of an adjustable-rate mortgage into a fixed loan."
New rates for ARMs, however, didn't improve much after the announcement. They're still in the high-5% range, which is almost the same as the 30-year fixed loans. "The ARMs are up significantly since the beginning of the year, and we haven't seen them come down like the fixed rates," says Brad Sherman, vice-president of residential lending for Nationwide Mortgage Services in Rockville, Md.
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These rates, however, only apply to "conforming" loans -- loans below the $417,000 cutoff at which Fannie Mae and Freddie Mac are willing to purchase loans from lenders. Until December 31, in high-cost metro areas, Fannie and Freddie will buy "conforming jumbos" with loan amounts of up to 125% of the local median home price, to a maximum of $729,750 for the highest-cost areas (starting in January, the maximum will be $625,500). Rates on these "conforming jumbos" tend to be about .125% higher than they are for standard conforming loans, says Smith.
And the rates continue to be significantly higher for full-fledged jumbo loans -- which is anything above $523,000 in Smith's county, or above $729,500 in Sherman's area. "Due to the ongoing credit crisis, there is still no secondary market for jumbo loans," says Smith. With jumbo 30-year fixed rates in the 7% range, Smith says that jumbo borrowers who need to make a change are looking at longer-term adjustable rates right now -- paying about 6.125% to borrow up to $1.5 million in a 7/1 ARM. "Their thought process is that they will take a rate that is locked in for seven years and refinance or move within that time, once the credit markets normalize," she says.
Many people with jumbo mortgages are staying put. "Most of the people who bought homes in that amount in the past year have rates that are excellent compared with what is available now," says Sherman.
Deciding whether to refinance a jumbo mortgage is "totally on a case-by-case basis," says Sherman. "It depends on when the loan was originated and when the home was purchased or refinanced and what their note says."
And these rates apply only to people with good credit records. You generally need a score above 740 to qualify for the best rates and can get good rates with a score of at least 660, says Sherman. People whose credit isn't quite as good could still get a good deal if they qualify for an FHA loan (see the Federal Housing Administration's Web site for more information).
For more information about taking out a new mortgage or refinancing an old one, see What it Takes to Get a Mortgage Now.
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