As mortgage Rates Come Down The Barriers Go Up

According to data that was compiled by, 'McLean, Virginia-based Freddie Mac', the average rate for a thirty year fixed-mortgage dropped to 5.07% for the week ending Feb. 26th, from 6.63% for the one ending July 24, 2008.

At the same time however, the 'Mortgage Bankers Association' reported that the percentage of mortgage applications that led to closings, fell nationwide to 59 % in the first half of 2008, from 66.3% in 2006, which is the most recent period for which data is available.

Bankers from all around the country say that the major reason that the housing market hasn't stabilized yet is that although mortgage rates have come down, the barriers have gone up.

Bank losses and rising default rates have made lenders more cautious, which in turn has led to higher fees, increased insurance rates and greater difficulties in refinancing loans.

Lawrence Yun, who is the chief economist at the Chicago-based 'National Association of Realtors' said, "Underwriting standards have changed from lax to too tight and the pendulum is swinging too far the other way. We can't stabilize the housing market if buyers can't get a reasonable mortgage".

Brian Wickert, who is the president of 'Accunet Mortgage' said, "The business has gotten tougher than I've seen it. The person who has decided he wants to give himself his own personal economic stimulus package by refinancing at low rates is being stymied by the rules and the fees. Too many people are being excluded".

Obama's housing plan, which was announced on February. 18th, is intended to help as many as four million homebuyers who are on the verge of foreclosure, and the lucky ones will become eligible to have their loans modified in order to reduce their monthly payments, and an additional five million homebuyers whose homes are worth less than the principal of their mortgages, might also be able to refinance.

There is a gaping hole in the program however, and that is that it only covers borrowers whose mortgages are owned or insured by either Washington- based Fannie Mae or Freddie Mac, and they only represent about 40% of the total.

So How About The Other 60% That Want To Refinance?

The other 60% will have to come to terms with the new FICO scores which are now making loan qualification much more difficult.

Gwen Muse Evans, who is the vice president of credit policy at 'Fannie Mae' explained, "A score of 700 was once near perfect. Today, a 700 performs more like a 660 did. We have updated our policy to take into account the drift in credit scores".

What this all means in essence is that would-be borrowers with a FICO score of 660, which would previously have qualified them for a loan of $200,000, with no upfront fees in the past, will now have to pay a 2.8% fee, or $5,600, and even someone with a score of 719 will now have to pay $1,750 in cash.

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