Mortgage rates have fallen to 5.19% on 30-yr mortgages, according to Freddie Mac’s December 18 Weekly Primary Mortgage Survey. This is fallen from a high of 6.46% in their October 30 Survey.

HSH Associates has slightly higher rates. They show a 30-yr fixed rate at 6.1%*, but the trend is still down. Adjustable Rate Mortgages are also down, and the amount above the index is also down. 5/1 ARMs were down to 5.60%, one year ARMs were down to 4.94%. lists some mortgages for below 5% as of Monday, Dec 22. Commerce Bank has a 3/1 ARM with an APR of 3.76%. Be sure to check the difference between the APR and the rate, which is the index plus a margin. The rate for this loan is 5%. HSBC Bank is advertising a 30-yr fixed rate mortgage with an APR of 4.76%. You can check out the most recent rates at’s mortgage section.

The government has been trying to push down mortgage rates since before Thanksgiving. The steepest drop started before Thanksgiving when the Federal Reserve announced it would buy $600 billion in mortgage backed securities from Fannie Mae and Freddie Mac. In early December, there were reports the Treasury Department would try to reduce mortgage rates to 4.5%. The most recent move was the Federal Reserve cut their benchmark short-term rate to 0% Cutting this rate encourages spending by making all interest rates lower.

Lower mortgage rates will help people buy up some of the backlog of foreclosed homes, and also help some people refinance. If people refinance into a lower rate, they will have more money to spend on other things. But people will need to have money for a down payment to buy a house, and people who owe more than their home is worth will not be able to refinance.
There are still other actions the government could take to push mortgage rates down further. The Fed could still buy mortgage-backed securities. On Dec 15th, the National Association of Realtors put a press release on their web site favoring a plan where TARP funds would be used to buy down mortgage rates by paying points for individuals. Fannie Mae and Freddie Mac would buy mortgages at 4.5%, but pay lenders the full market rate. The Federal Home Loan Banks would sell bonds at below market rates to the Treasury Department, to get money to make loans. Announcing a target like 4.5% could have the inadvertent effect of making people wait for rates to drop instead of getting a new mortgage now. But it is not certain how far rates will actually drop. Banks will not want to commit to low mortgage rates, especially low fixed 30-yr rates. They will probably favor ARMs, which can be low to stimulate the economy now, but will be raised back to around 5% eventually. They want to insure they will make a profit and not need future bail outs, and will be cautious in case inflation reappears.

*Content Correction

HSH Associates national FRMI for December 19, 2008, was 5.85% and not 6.1% as originally published in this article. We apologize to HSH Associates and our viewers for this error and any inconvenience.

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