The drama of the nation’s financial markets continues. Three weeks ago, Congress came up with a compromise that allowed the national debt ceiling to be raised and thus avoided a default of the nation’s debt.
Subsequently, the credit-rating agency Standard & Poor’s downgraded the quality of U.S. debt from the highest AAA level to AA+. This caused quite a stir, especially within the Obama administration, which vehemently objected to the downgrade. Treasury Secretary Timothy F. Geithner said the move showed “terrible judgment” and a “stunning lack of knowledge” of U.S. budget policy.
The market’s reaction was not so predictable: It purchased more U.S. debt in droves, driving interest rates down even more. A few days later, Federal Reserve Chairman Ben S. Bernanke surprised the world by announcing that the Fed plans to keep interest rates at extraordinarily low levels until mid-2013.
Such a specific statement by the Fed chairman is unusual, and the markets reacted by purchasing even more U.S. debt.
As of this writing, the stock market has been on a roller-coaster ride. Long-term interest rates, including mortgage rates, have had some volatility but generally have continued to fall despite some mildly disappointing inflation news. Inflation erodes the value of long-term debt and typically causes rates to rise.
It appears that other economic news is holding rates down. Consumer confidence is low, consumer spending is low, the housing market remains in the hole, and perhaps the biggest problem is this: The rest of the world is in worse shape, driving international investors to buy U.S. debt.
Obviously, this is a good time to be in the mortgage business. Low appraisals and overtightened underwriting standards have, in my view, unfairly locked out many homeowners who would be able to save a lot of money by refinancing. Still, there are plenty of eligible homeowners taking advantage of these low rates, if my loan pipeline is any indicator.
While these rates should provide some support to the stagnant housing market, it probably won’t be significant.
For eligible borrowers, the refi rates are great.
I recently locked in a well-qualified applicant whose loan balance is $685,000. He has great credit and income, and his property is worth well more than $1,200,000.
I secured a 4.25 percent, 30-year fixed-rate loan with a closing-cost credit of $6,850. Because the actual closing costs only amounted to about $3,500, the balance of the credit will go toward interim interest and escrow deposits. Effectively, the lender is paying the borrower $3,350 to refinance to 4.25 percent. Not a bad deal at all.
Fifteen-year fixed-rate loans are at rock-bottom; the same deal would be in the mid 3 percent range.
Be prepared, however, to provide a little bit of paperwork if you refinance. The required documentation often is silly and unnecessary. I think my assistant hit the nail on the head when describing her job on a social networking site: “I dig imaginary holes and fill them back up again to get loans cleared to close.”
Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.
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