Washington, DC (PressExposure) February 28, 2009 -- According to data compiled by 'McLean, Virginia-based Freddie Mac', the average rate on a 30-year fixed mortgage dropped to 5.07% for the week ending Feb. 26 from 6.63% for the one ending July 24, 2008.
At the same time 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 around the country say that the major reason that the housing market hasn't stabilized yet is that whilst mortgage rates have come down, barriers have gone up. Bank losses and rising default rates have made lenders more risk-averse 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. The pendulum is swinging too far the other way. We can't stabilize the housing market if buyers can't get reasonable mortgage".
Brian Wickert, who is a 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 Feb. 18th, is intended to help as many as 4 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 monthly payments and another 5 million homebuyers whose homes are worth less than the principal of their mortgages may also be able to refinance.
The gaping hole in the program however is that it only covers borrowers whose mortgages are owned or insured by Washington- based Fannie Mae or Freddie Mac and they only represent about 40 % of the total.
So What About The Other 60% Who Need A Mortgage?
The other 60% will have to contend with the new FICO scores which are now making loan qualification much more difficult.
Gwen Muse Evans, who is 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".
A FICO score of 660 FICO which would have qualified most borrowers 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 would have to pay $1,750 in cash.