Capstone Mtg Co. Blog

The Treasury Department is considering a plan to purchase a substantial amount of mortgage-backed securities (MBS). The details of this plan are still sketchy, but if implemented the Treasury would begin buying the mortgage-backed-securities (MBS) that are backed by the 30 Year fixed-rate mortgages from Fannie Mae and Freddie Mac. Why? Advocates of the plan believe the increased demand for these mortgage-backed securities (MBS) will prompt mortgage rates to drop. Which in theory, would help homeowners refinance into lower-cost loans (i.e. increase consumer spending) and also enable potential homebuyers to get into the market.

Sounds like a good plan. So, what at are the potential pitfalls?
1. Due to shattered equity values, free-falling credit scores, and depressed household incomes only a limited number of borrowers would benefit
2. If the governenment enters the MBS market, then private investors would probably be pushed out, forcing the government to remain the primary buyer of such investments. At sometime, this will create inflationary pressures.

At the end of the day, the government will probably straddle the fence and allocate a trillion dollars toward the plan. How low could rates go? Experts have speculated that rates could go as low as 4.5% with no points. The key words here are "speculated" and "could go as low". Will this happen? Maybe. Recent goverment purchasing activity has pushed the 30 Year Fixed Conforming Rate to 4.875% + 0 pts (with a 30 day rate lock period). Of course, most lenders will not accept a 30 day rate lock period, unless the Borrower has already submitted a completed application.

Capstone Mortgage Company does not charge the Borrower an application fee. My recommendation is to submit your application ASAP (note - the rates listed on our website www.Capstone1993.com usually reflect a 30 day rate lock period). I don't know if we will reach 4.50% + 0 pts but anything below 5.00% + 0 points would be considered a home run for a 30 Year Fixed Rate Conforming mortgage. 

A conforming loan amount usually has a lower interest rate than a jumbo loan amount. Why? Conforming residential loans are backed by the U.S. Government; whereas jumbo residential loans are not backed by the U.S. Government. Investors of jumbo mortgage loans consider these loans to be riskier and therefore require a higher rate of return (i.e. a higher interest rate).

Fannie Mae and Freddie Mac have recently announced their 2009 conforming residential loan limits. The new limits vary according to populous geographic areas or Metropolitan Statistical Area (MSA). FYI - in the U.S.A. there are 280 MSA's. 

In Connecticut, the MSA that covers most of Fairfield County was assigned a 2009 conforming loan limit of $511K. The remainder of Connecticut continues to have the $417K conforming loan limit; in these areas, anything above $417K is considered a jumbo loan.

On the surface, it looks like Fairfield County residents may benefit from the new 2009 loan limit. However, Fannie and Freddie may throw us a curve ball like they did in 2008. Last year, the conforming loan limit for Fairfield County was $708K; but anything above $417K had "rate add-ons". At the end of the day, these "rate add-ons" created a rate that was equal to the regular jumbo rate. Preliminary indications are that Fannie and Freddie, will not implement "rate add-ons" for 2009. 

FYI - as of early December 2008, Fannie and Freddie are not yet accepting rate locks for the new loan limits (i.e. $417K to $511K). 

What's my advice for Connecticut homeowners thinking of refinancing? 

1. If I lived in Fairfield County and my loan amount was between $417K and $511K, then I would wait to refinance until I'm able to lock in a rate.
2. If I lived outside Fairfield County, then I would apply for a refinance (assuming it made economic sense)
3. If I lived in Fairfield County and my loan amount was less than $417K OR greater than $511K, then I would apply for a refinance (assuming it made economic sense)

If you have any questions, please contact Tim Malburg, President, Capstone Mortgage Company at 203-834-6293 or TWM41@aol.com