Mortgage Rates Are Down But Not Helping The Housing Market

There is a strange phenomenon occurring at the mortgage broker offices these days. Mortgage rates have sunk to levels not seen in more than a half-century, for example 4.58 percent for an average 30-year fixed loan. Yet brokers and lenders report not a flood but a trickle of customers. So What is Happening? Lending standards prevent many from refinancing, qualifying for mortgage; the famous tale of the haves and have-nots. The haves are those who stand to save money from refinancing and have the financial standing to do so. Since mortgage rates have been low for so long, most of them already have refinanced in the past 18 months. Doing so again wouldn't be worth the cost for most. For many of the homeowners who refinanced over the past two years, rates would need to drop to around 4 percent for refinancing to be financially worthwhile.

The have-nots? Those are the millions of Americans pummeled by the housing collapse. They have little or no home equity or no money for down payments. Or they lack the credit or steady income to get or refinance a mortgage. The 4.58 percent average for a 30-year fixed-rate loan last week was the lowest on records that mortgage company Freddie Mac has kept since 1971. The last time rates were lower was the 1950s, when most long-term home loans lasted just 20 or 25 years. However, mortgage lending standards have tightened so much since the financial crisis that many people with decent but not-stellar credit can't qualify. Lenders are demanding stronger credit scores and higher down payments or home equity. In other words, the pendulum has swung too far the other way. Most people in the lending industry acknowledge that lending standards were far too lax during the boom. May be the goal is to have tighter qualifications to prevent the mortgage crisis we just lived, but allowing the market to flow, in other words, the pendulum needs to come back to the middle.

Another factor that seems to affect the slower demand for new loans, is that some borrowers who do have good credit and solid jobs are still being rejected for refinanced loans. It's because their homes are worth less than they owe on their mortgage. About a quarter of American households with a mortgage are in this predicament. Blame the housing bust. It shrank home values and depleted home equity.