The government takeover of Fannie Mae and Freddie Mac has sent mortgage rates tumbling, prompting homeowners and would-be buyers to flood loan offices with phone calls.
But there's a catch: Although the lower interest rates make it easier to get a mortgage, many lenders this week also raised the minimum down payment they'll allow on a loan -- making it impossible for some people to qualify for a mortgage.
For The Record
Los Angeles Times Saturday, September 13, 2008 Home Edition Main News Part A Page 2 National Desk 3 inches; 118 words Type of Material: Correction
Mortgage rates: An article in Section A on Thursday incorrectly reported that guidelines being implemented by Fannie Mae next year require home buyers to put down at least 15% of the purchase price. For homes that will be occupied by the buyer, the guidelines leave the minimum down payment unchanged at 5%. The article also said the maximum loan amount on a "cash-out" refinancing of a mortgage on a rental home fell to 75% of the property's value. In fact, the guidelines set the maximum loan amount for cash-out refinancings at 85% of the property value, down from 90%. Finally, the article described First Mortgage Corp. in Diamond Bar as a loan broker. It is a mortgage bank.
And the decline in rates doesn't apply to you if you're borrowing more than $730,000.
But for the traditional 30-year fixed-rate mortgages that Fannie Mae and Freddie Mac acquire from lenders, interest rates have fallen to about 6% this week after hovering above 6.5% most of the summer, said data tracker HSH Associates.
As a result, many people with pending loan applications who were waiting to lock in their rates have decided to take the plunge this week.
"People are locking in rates now at a pace we haven't seen in years," said Scott Lehrer, senior vice president at loan broker First Mortgage Corp. of Diamond Bar.
Jerry Wilk, an Irvine financial planner, locked in a 6.125% rate Tuesday on a mortgage to refinance his current one, on which he has been paying 6.75%.
He said the move would reduce his monthly payment by $200.
"I just don't see another big drop in interest rates coming," Wilk said. And with the market value of homes in Southern California still dropping, he said, "it could be much tougher to get a mortgage a year from now."
The federal government's seizure of Fannie and Freddie over the weekend reassured financial markets about the health of the mortgage giants.
That made investors worldwide willing to swallow lower interest rates on bonds issued by Fannie and Freddie. And because the companies -- in the wake of the subprime mortgage meltdown -- are now buying or otherwise financing the vast majority of new mortgages in the U.S., lower rates on their bonds translate into lower home-loan rates generally.
In certain parts of the high desert, where home prices have fallen as much as 45%, lower rates are helping to drive buyer interest in foreclosed properties, said Clem Ziroli, First Mortgage's chairman. September is usually a so-so month for home sales, he said, "but it may be our best month this year in fundings," including refinancings as well as purchase loans.
On the downside, Lehrer said, lenders spooked by free-falling home prices and surging foreclosures have imposed tougher lending standards.
