Mortgage rates hit record lows this week, Freddie Mac’s chief economist said Thursday.
Rates on 30-year fixed-rate mortgages averaged 4.12% for the week ending Sept. 8, down from 4.22% last week and 4.35% a year ago. The mortgage’s previous low was set the week ended Aug. 18, when the rate averaged 4.15%.
Mortgage rates haven’t been above 6% since November 2008, according to Bankrate.com. When the 30-year fixed-rate mortgage was 6.33%, a $200,000 mortgage would have had a monthly payment of $1,241.86. A mortgage rate of 4.35% on the same size loan would mean a monthly payment of $995.62.
If we want to stimulate the economy, leaders need to figure out a way to utilize these lower rates. If we could refinance those who own homes at these low rates, it would keep money moving and slow the foreclosure bleed. Most Americans would like to refinance now and take advantage of the lower rates but cannot due to little or no value in their homes. Most of this has occurred due to the huge market drop we have all experienced throughout the country.
A homeowner has to go through hoops, let their payment fall behind in order to get a loan modification and usually ends up with a higher mortgage in the end. If you want to refinance your mortgage you must have equity of usually at least 20% to do so. That kind of equity is non-existent in 70% of our country with some communities dropping 50% or more in value. Yes, lenders would take losses on the previous note values they own, however, they can write off those losses and our government can enhance these write offs to allow them to do so. It’s certainly better than a foreclosure loss. No one wins in a foreclosure loss, not the homeowner or the lender.
But what if the primary lender could perform a rate reduction refinance, no cash out, for those who are making their payments on time? You know, reward good behavior! It would start a huge stream of refinances, and keep people in homes. It would also get money moving in our country and create jobs. If people can lower their payments, it will keep them in their homes, get them spending again and move us out of this recession.
The alternative if we do nothing is people feeling trapped by their higher rates and higher mortgage balances, as they watch their neighbors who are walking away from their homes and say, “Well, why don’t we do it too, we will never get caught up with what we owe, what do we have to lose.”
We must figure out a way to reward those who are doing the right thing and staying in their homes and making their payments on time or this economy may never get back to a norm. Our government can move mountains and if our leaders can figure out a way to let the primary lenders allow rate reduction refinances without the current value requirements for refinances, we just may be able to pull out of this recession and start our recovery!
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