The following are excerpts from the 2 month Mortgage Rate forecast and newsletter published by HSH Associates :
“Mortgage markets were abuzz with the prospect of Fannie Mae’s and Freddie Mac’s new ability to purchase as much as an additional $200 billion worth of mortgages, due to OFHEO’s 30% reduction in the amount of reserves the GSEs were required to hold against loans.As the possibility of more and faster loan purchases (by FNMA) came into light, conforming mortgage rates fell sharply, running below 6% for the first time in about five weeks and closing HSH’s weekly survey at 5.91%. Jumbo markets, still impaired, saw little change in pricing, with the average Jumbo 30 year FRM landing at 7.22%.” The spread between loans below the old conforming loan limit of $417,000 and the new jumbo loan cutoff of $729,750 is now approx. 1.3%, a large jump from the spread of approx. .84% just a month ago, and is primarily due to a drop in conforming loan rates. This large spread is amazing considering that prior to the mortgage loan melt down, spreads between conforming and jumbo loans were only approx. .2%.
“There is no doubt that mortgage markets will remain challenged, or that the former subprime and Alt-A markets will continue to remain “former.” True jumbo rates will likely remain elevated relative to their conforming counterparts, and the gap between them may widen more (as a result of a decline in conforming rates, not necessarily a rise in jumbo ones). The new “expanded conforming” loans (now for loans generally less than $729,750) should provide at least some new liquidity to parched jumbo markets, while FHA-backed lending should help those more on the fringes of traditional lending. ” Pricing for the new increased conforming loans are expected to be somewhere between the previous conforming loan rates and the jumbo loan rates.
“For the rest of the world, we think that mortgage money may become available at lower rates — perhaps much lower rates — as Fannie Mae’s and Freddie Mac’s newfound purchasing power begins to hit the markets. We don’t usually forecast conforming or jumbo loan price ranges, but if we’re correct in that rates will decline, and if much of the decline is in conforming rates, we could see conforming 30-year FRMs with average rates close to 5.50% — low enough to spark a fair refinance boomlet. Pricing for the new “expanded conforming” loans are just starting to make it to market, while short-term rates are low enough as to obviate the ARM reset problem for many homeowners.”