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By TARA SIEGEL BERNARD, www.nytimes.com
The housing market may finally be getting some relief, with lower mortgage rates already encouraging refinancing and Treasury officials considering ways to entice new buyers.
Last week, the Federal Reserve announced that it would buy $500 billion in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Mortgage rates immediately dropped, and that led to a surge in mortgage refinancing activity for the week — even with the Thanksgiving holiday.
People close to the discussions said that the Treasury had been talking with Fannie Mae and Freddie Mac about ways to drive down mortgage rates to as low as 4.5 percent. That rate is about a percentage point lower than the going rates for such loans.
Any government efforts to jump-start the housing market have a number of obstacles, the biggest being borrowers’ worries that the economic downturn will affect them. Meanwhile the best interest rates will go only to borrowers in sound financial shape.
Still, the jump in refinancing activity showed that there was an appetite that could be whetted by lower rates. The Mortgage Bankers Association said its refinance index, which measures refinancing activity, tripled to 3,802.8 last week from the week before. The index was also 37.7 percent higher than in the same week a year ago. It was the largest increase in refinance applications in the survey’s 18-year history, though it does not measure how many applications become loans.
The Treasury’s consideration of additional efforts to breathe life into the housing market was first reported on The Wall Street Journal’s Web site. People familiar with the Treasury’s plans said that Treasury officials had met with top executives at Fannie and Freddie last week but that neither had been notified that any steps were taken toward putting such a plan into effect. By one account, the new program would be available only to home buyers, not to people who simply want to refinance their existing loan at a lower rate.
But those looking to refinance are already eyeing the lower rates. “Borrowers with reasonably good credit and a home that hasn’t lost too much value are going to find mortgage money plentiful and readily available,” said Brad Blackwell, national sales manager at Wells Fargo Home Mortgage.
As rates drop, more people, in theory, qualify for loans because their monthly principal and interest payments will be lower. But to qualify for the best rates, borrowers need to have impeccable credit — or a credit score of 720 or higher — as well as at least 10 to 20 percent of equity in their homes.
Edmund L. Andrews and Charles Duhigg contributed reporting.
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