Mortgage Rates Drop, Difficulties Loom for Potential Buyers

On Wednesday, the Mortgage Bankers Association had some good news for prospective home buyers: the average rate for 30-year-fixed mortgages dropped to 3.53 percent.

However, The Wall Street Journal reported today on mortgage “put-backs,” and how that policy is hurting the overall housing market and providing a barrier to entry for many prospective home buyers.

Put backs are a policy in which Fannie Mae and Freddie Mac are forcing banks to take back or, “put back,” mortgages that were made during the housing (and credit) boom. The report noted that Fannie and Freddie asked banks to repurchase $66 billion in mortgages made between 2006 and 2008, and that most of these loans have defaulted making banks assume losses.

Starting Nov. 1, Fannie Mae and Freddie Mac will also raise fees charged to loan originators. This will translate to a raise of about a quarter of one percentage point in interest.

The screening process especially for those employed by small businesses is very difficult. It now requires bank statements, evaluation of any deposit over $100, credit histories, work histories, pay stubs, tax documents.

This falls in line with the first annual report of the Financial Stability Oversight Council (FSOC) that was announced almost a year ago today. Among the FSOC's recommendations were that bank and other financial institutions be more “disciplined” in evaluating the credit of borrowers.

In addition to the FSOC's report, the passage of the Dodd-Frank Act of 2010 recommended favoring standard, “qualified mortgages,” with better terms. However, according to the presidential debate Wednesday evening between Republican presidential candidate Mitt Romney and President Barack Obama, there was clearly confusion about any progress this bill has made toward helping home buyers.

Romney argued that the language is too vague around what a qualified mortgage was, and it has not been effective in giving borrowers the lift they need to obtain a mortgage.

Democratic representative from Massachusetss Barney Frank, who co-authored the bill said in an interview after the debate, "The housing market has been getting better, not worse."

To his credit, home prices were up 5.9 percent through July, and new home starts were up 2.3 percent.

Another policy by the government aimed to improve the housing market was the announcement by the Federal Reserve also last month it would buy back $40 billion in mortgage-backed securities, which some analysts were correct in saying the program would have little effect on interest rates because they were already so low.