SANTA CRUZ (August 21, 2010) - At the beginning of this year no one expected rates to go down any lower. The government’s efforts to stimulate the housing sector by buying mortgage backed securities were, by most measures, an outstanding success. When the end of this purchase program (March, 2010) was in sight everyone in the industry thought rates would be marching up into the 6 percent range. Not so, as it turns out. Mortgage rates have been on a slide since the beginning of 2010 and at the beginning of this week stood within a whisker of 4.00% for the 30 year fixed rate for loan amounts under $417,000. Rates are up a bit from Monday’s lows.

Unfortunately, there is a popular belief that the mortgage industry has tightened up so much that it is difficult to obtain financing and, to top it off, there is a shortage of monies available. This is simply not the case on either front. Sure, we have to document income and assets and employment for our borrowers but we are still allowing them to spend up to 50 percent of their gross income on their house payments! In most cases, that is more than anyone wants to spend anyway. Also, mortgages are not restricted to that subset of the population with perfect credit. While a perfect credit score is 850, anyone with a credit score above 740 is considered golden; however, we are approving borrowers with credit scores down to 640.

For nearly three years now, there has been a lot of press given to the concept that there is a lack of funds and a lack of willingness of the banks to lend to businesses and individuals alike. This has undoubtedly been the case for businesses, for real estate loans on commercial properties and to some extent for larger mortgages but certainly is not the case the ‘rank and file’. Due to the government’s efforts to keep mortgage money flowing for mortgages, Freddie Mac, Fannie Mae and HUD have all raised their maximum loan amounts to $729,750 to encourage more lending. (Loan amounts above that are referred to as jumbo loans and have higher rates and much stricter underwriting standards but at least they are now available.)

Low rates and money availability have provided an amazing opportunity for both homebuyers and refinancing homeowners that no one foresaw just a few months ago. Those wishing to explore their options are well advised to do some shopping. Do not assume that the best rates are available from the big banks. Being more nimble with less overhead, independent mortgage bankers and mortgage brokers are getting their share of the mortgage market business by offering competitive rates and personalized service.

Despite the fact that rates are unbelievably low right now, we should not take it for granted. Rates are being held artificially low by a combination of the government’s efforts to stimulate the economy and the market’s perception of how our economy is doing right now and where it is expected to be heading. Once our economy is on solid ground with significant job creation and increased consumer spending, we can expect the 30 year fixed rates to head north, perhaps to the 6 – 7 percent range. Low mortgage rates are one of the few bright spots in today’s economy.

This column is written every Saturday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 of email him at Peter@SantaCruzHomeFinance.com.