Inevitably at this time of the year I am asked what my expectations are for the upcoming year in for the mortgage industry. My gut or initial reaction is that 2012 will remain a historically opportune time to refinance a mortgage and or buy new real estate. I temper this excitement because the industry is changing so quickly and in so many different ways that it is nearly impossible to make accurate predictions. However, I do think there are signs as to what the future may hold for the mortgage industry, interest rates, loan programs and underwriting criteria.
Long term interest rates, including mortgage interest rates, are mainly dependent upon external or open market variables. Short term rates on the other hand are not. Short term interest rates, such as the Federal Funds rate and the prime lending rate are controlled directly by the Federal Reserve Board. Technically speaking the federal funds rate is the rate at which banks lend each other money on an overnight basis to keep in accordance with overnight depository reserve requirements. The current federal funds rate of interest is .25%.
The better known prime lending rate is derived by adding 3% to the Federal Funds Rate. “Prime” is the rate upon which many home equity lines of credit, car loans and student loans are based. Rates set by the government such as these do factor in to mortgage interest rates in subtle ways and mainly with adjustable rate or shorter term mortgage. With the current economic status and core inflationary rates still being somewhat in check, the Federal Reserve Board and its chairman Ben Bernanke have made it pretty evident that there should not be any adjustments to the federal funds rate for most of 2012.
This in theory should assist in keeping most mortgage rates at their current low levels. Of perhaps more importance is that the rates set and controlled by the government determine the rate of adjustment for adjustable rate mortgages. Thus, those mortgages that are adjusting in 2012 should be pleasantly surprised with a low level of adjustment. As far as where interest rates are headed, I believe such indications for short term rates coupled with global uncertainties, should help keep rates low for at least the large part of 2012.
In regards to loan programs coming forth in 2012, new HARP (home affordable refinance program) loan programs are set to be released in their entirety from Fannie Mae and Freddie Mac in March of 2012. The loan programs promise to unveil opportunities for more borrowers to refinance their existing loans in to lower interest rates and more affordable overhead. Mention of such loan programs were first made in the fall of 2011, and updates to the programs have been slowly trickling out to borrowers with final details yet to be revealed. Unfortunately I think getting approved for these new loan programs will be more difficult than advertised, but only time will tell here.
Past these known and established government lending programs, I think there will continue to emerge portfolio types of loan programs from various sources which is absolutely encouraging. Loan programs and options are out there and available, but navigating through the process remains a specialized and often difficult process from both Government and portfolio type sources. For example: condominium financing is available; foreign national borrowers are buying real estate with mortgage financing, and more jumbo loan options are emerging with low rates and various loan programs.
I do believe 2012 will remain a once in a life time opportunity to buy real estate and or secure historically low mortgage interest rates. But in the midst of much economic and political uncertainty, successfully closing such transactions continues to require guidance from seasoned, experienced and educated mortgage professionals.
William A DesPortes
Central Rockies Mortgage Corp
970-845-7000 Ext 103 Ph
MLO # 100010490 / NMLS ID# 720421