Mortgage Applications Jump 37%!

Last week the Mortgage Bankers Association's national survey registered a record 37 percent jump in applications for new conventional loans to buy houses, and a 39 percent increase for home purchases using FHA mortgages.

The reason for the sudden surge? A half point drop in 30 year fixed mortgage interest rates to 5.47 percent -- which was down from 6 percent the previous week -- and to just 5.13 percent for fifteen year loans.

The rate drop happened almost overnight, after the Federal Reserve announced plans to pump up the housing sector by buying $100 billion worth of bonds issued by Fannie Mae and Freddie Mac.

The Fed also said it plans to buy about half a trillion dollars of mortgage-backed securities issued by Fannie, Freddie and Ginnie Mae beginning this month. Ginnie backs the FHA side of the market, just as Fannie and Freddie do on the conventional side.

So why did the Fed's moves mean so much? Because mortgage rates have been higher than they should recently due to bond investors' uncertainty about the safety of Fannie and Freddie.
Both companies racked up multi-billion dollar losses last quarter, causing investors to demand extra-high premium returns before they'd buy Fannie or Freddie debt.

But now that's over. The government's backing of Fannie and Freddie is explicit and big. Investors are reassured. They'll take lower premiums, allowing consumers to get lower mortgage rates.

Although lenders report their phones were jammed with applications from people who want to refinance, the big surprise was the huge jump in applications from consumers who plan to buy houses.

With prices down in the majority of markets, more and more people are finding that the equation now works: Fixed rates in the mid-fives combined with pricing at 2003 and 2004 levels make a compelling case that this is an excellent time to buy - provided you've got a downpayment and reasonable credit.

Would you like more information about available home financing? Contact bill.swanson@cbshome.com today to arrange for a free consultation.