Weekly Mortgage Roundup March 5, 2009

Mortgage rates stayed flat from last week to this week based on Freddie Mac’s market survey numbers. The benchmark 30 year rate climbed slightly to 5.07& from 5.04% with .7 points. The 15 Year rate stayed constant, while 5/1 and 1 Year ARMs went up by .02% and .01% respectively.

Analysts had predicted that rate would rise or fall based on President Obama’s revealing of the new national budget and his mortgage bailout policy, but surprisingly rates have essentially remained unchanged. Even a brutal week in the stock market didn’t result in mortgage rate fluctuations. Normally a downturn in the Dow Jones will result in a drop in mortgage rates, which just didn’t happen. That leads me to believe that the Fed is satisfied with the current level of mortgage rates and is going to keep the rates around this level unless something drastic occurs which would force rate changes.

The recently unveiled Making Home Affordable plan is a $75 billion loan modification program, intended to keep struggling homeowners in their homes. There are two main components to this plan. The first option is allowing borrowers who have not missed mortgage payments to refinance into a lower fixed-rate loan; the second option will encourage lenders to modify loans for those borrowers who have had some late payments.

These modifications will be based on the income earned by each borrower. The plan calls for a maximum debt ratio of 31% of the borrower’s income. The plan allows for a reduction of the interest rate to as low as 2% for a 5 year window, on a 40 year payment schedule.

Some of the most important facts:

• There is no minimum or maximum loan to value (LTV) ratio to be eligible
• Borrowers must sign a IRS 4506-T form, which allows the government to audit your tax returns as well as provide income documentation
• Only Fannie/Freddie backed loans are eligible for modification

There are other restrictions on the terms, based on loan size, owner occupancy, and other factors, you can read the full details here.

This plan has already been adopted by both Wells Fargo and Bank of America. This sets the standard for mortgage modification moving forward and will provide needed relief for homeowners. This will slow the stream of foreclosures, and ultimately provide help for nearly 3 million homeowners at risk.