The Arizona Republic - December 2008
Home builders and industry analysts say a proposal to offer federally subsidized mortgage rates as low as 4.5 percent could go a long way toward reviving the Valley's decimated housing market.
Mortgage rates have not been that low for more than a generation.
RL Brown, publisher of the Phoenix Housing Market Letter, said the projected low rates could bring in more buyers and help slow falling housing values. More stable values, in turn, could help slow rising foreclosures.
The lower rates would be available only for purchases, according to the proposal, which is under consideration by the Treasury Department. They could not be used to refinance higher-interest loans.
The mortgage-rate program could get prospective buyers off the fence by offering a rate almost 1.5 percentage points lower than the 5.92 percent that large lenders are offering for 30-year, fixed-rate mortgages, according to a Dec. 3 Bankrate.com survey.
Buyers would have to document income, be able to afford the payments and qualify for guarantees from Freddie Mac, Fannie Mae or the Federal Housing Administration.
Thus, the initiative would be geared toward boosting the housing market to stem future foreclosures rather than helping people whose homes now are in the process of being taken back by lenders.
Besides stimulating sales, Brown said, the low rates could send a message that there may never be a better time to buy.
"Right now, buyers are sitting on the sidelines waiting for prices to go even lower," Brown said
Stephanie Dunbar of Phoenix said she has been looking to buy a house to take advantage of the "incredibly low prices." Dunbar, a property manager, said she would jump at a 4.5 percent mortgage rate.
"I've been waiting for interest rates to fall," she said, adding that the lower rates would enable her to buy a better house.
Dunbar, who has been looking at mortgages in the $125,000 range, said that a 1 percentage-point decrease in the interest rate would reduce her monthly payments by about $100.
At a fixed-interest rate of 6 percent over 30 years, a $250,000 mortgage would cost $1,498.88 a month. At 4.5 percent, a $250,000 mortgage would have a $1,266.71 monthly payment.
Prospective buyers, paralyzed by the credit issues or the economy, as well as mounting foreclosures, are keeping Valley home prices in a free fall, which is further feeding the downward cycle.
Under the plan, the Treasury would offer to buy securities that finance newly issued loans for home purchases. But to sell the securities to the government, mortgage lenders would have to charge interest rates of no more than 4.5 percent.
Further intervention in the housing market appears likely as serious troubles persist.
Federal Reserve Chairman Ben Bernanke estimates that U.S. lenders could initiate 2.25 million foreclosure proceedings this year and that as many as 20 percent of mortgage-holders could be "underwater," meaning they owe more than their homes are worth.
In September, metro Phoenix led the nation in falling home prices, logging a 32 percent decline in a year and 38 percent over two years, according to the S&P/Case-Shiller Home Price Indices.
RealtyTrac, a service that follows foreclosure filings, counted 17,507 Arizona foreclosure notices in October, up 35 percent from the previous month and 176 percent from October 2007.
Jay Butler, director of realty studies at Arizona State University's Morrison School of Management and Agribusiness, believes lower interest rates could slow foreclosures. But he is worried that the stimulus could be offset by mounting job losses and worsening economic conditions.
Traditionally, he said, the primary reason for a home falling into foreclosure has been loss of employment by the owner.
"We're just starting to see than now," he said.
Many of the recent foreclosures have been the result of investors walking away from houses that have declined in value and homeowners getting in over their heads.
The plan to offer low-interest loans, would work through quasi-government mortgage giants Fannie Mae and Freddie Mac. Longtime Valley home builder Garth Wieger believes the program could help stem the persistent slide in home values and growing foreclosures that are the underpinning of the current financial crisis.
"It would certainly go a long way to bring in more people to take the inventory off the market," he said.
Brian Esquivel, a loan officer with Security Mortgage in Scottsdale, said 4.5 percent interest rates definitely would stimulate sales.
"It would move a lot of the Valley's inventory of unsold houses," he said. "Rates are low, prices are low and Arizona is a great place to live."
Meanwhile, government agencies continue to work on other plans to jump-start the nation's ailing housing industry.
• On Thursday, Bernanke suggested sweeping moves are needed to halt falling home prices, including a plan for the government to buy troubled mortgages and refinance them under more favorable terms.
• Last week, the Federal Reserve and Treasury Department announced a plan to cut mortgage rates by purchasing up to $600 billion in debt issued or backed by federal agencies. The announcement briefly helped push mortgage rates down almost a point to about 5.5 percent.
• A third plan, offered by Federal Deposit Insurance Corp. Chairman Sheila Bair would use $24 billion from the government's $700 billion financial-rescue fund to stave off 2 million foreclosures by modifying loans and providing government guarantees.
