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Frozen credit and the inability of homebuyers to qualify for mortgage loans or refinance at cheaper rates has been at the heart of the U.S. housing crisis, leaving a glut of foreclosed and unsold homes and pushing home prices ever lower.
On Tuesday, November 25th, the Federal Reserve announced that it would initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSE’s) Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, as well as mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac and Ginnie Mae.
Spreads of rates on FNMA, FHLMC, and GNMA debt, and on their guaranteed mortgages have widened appreciably of late. According to the Central Bank, the action by the Fed is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets generally.
Mortgage rates started falling within hours of the Fed announcement. Rates on 30-year, fixed-rate, conforming mortgages fell well below 6 percent after the Fed announced that it would buy up to a half-trillion dollars’ worth of mortgage-backed securities over the next year to year-and-a-half. Bankers and brokers say rates will fall as low as 5.25 percent, at least for a while. A lower rate reduces the monthly mortgage payment, so there will be more people who can qualify based on the critical debt-to-income ratio.
“We are finally seeing a break in mortgage rates from prevailing rates in the 6 ½ percent range; this past week we began to see 30-year fixed rate mortgages in the 5 ½ percent range,” said Al Levine, President of the Gold Coast Builders Association (GCBA).
Mr. Levine expressed hope that the Fed action, and other actions being taken by the Fed, will finally stimulate the housing industry, spelling the end to reduced demand and the downward spiraling prices of homes in Palm Beach County.
GCBA headquarters are located at 2101 Corporate Drive in Boynton Beach, Florida. Telephone 561-732-5959, or visit the website at www.gcbaonline.com for additional information.
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