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Sunday, April 8, 2007

Mortgage rates were up this week

The benchmark 30-year fixed-rate mortgage rose 3 basis points to 6.25 percent this week, according to the Bankrate.com national survey of large lenders. The mortgages in this week's survey had an average total of 0.27 discount and origination points. One year ago, the mortgage index was 6.51 percent; four weeks ago, it was 6.19 percent.

The 15-year fixed-rate mortgage crept up 5 basis points, to 5.97 percent. The 5/1 adjustable-rate mortgage saw the biggest gain with a jump of 7 basis points to 6.12 percent.

This is the third week in a row that the 30-year fixed has risen. It'll take a while to know whether it's the start of a trend or just more minor jostling within this somewhat range-bound scenario my colleague Holden Lewis has mentioned previously in this space.

One thing is for certain, there's little chance of not mentioning this week the subprime debacle. While politicians in state legislatures and in Washington, D.C., point fingers and try to figure a way to fix it, others are hoping any bailout schemes don't soak taxpayers.

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Results of Bankrate.com's April 4, 2007, weekly national survey of large lenders and the effect on monthly payments for a $165,000 loan for a 30-yr fixed, 15-yr fixed and 5-year ARM :

This week's rate: 6.25% 5.97% 6.12%
Change from last week: +0.03 +0.05 +0.07
Monthly payment: $1,015.93 $1,389.69 $1,002.02
Change from last week: +$3.21 +$4.45 +$7.45

Help for distressed homeowners:
Ohio has been hit hard by foreclosures in the housing meltdown. The state's foreclosure rate led the nation last year with 3.38 percent of all loans and more than 11 percent of subprime loans going under. It's a problem that's been haunting Ohio for a number of years, and officials have decided it's time to intervene and help some people hold onto their homes.

This week Ohio began its "Opportunity Loan Refinance Program". Homeowners at risk of not being able to manage high monthly mortgage payments due to an adjustable-rate mortgage resetting, or hardship such as divorce or unemployment, can apply for a 30-year, 6.75 percent fixed-rate loan. A 20-year, fixed-rate second mortgage is also available to help pay closing costs, fees and the like.

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The program is geared toward moderate- and low-income residents. There are income limits that vary by county but generally don't exceed an annual income of $80,000, and applicants must live in the home. At least four hours of one-on-one HUD-approved counseling is required.

It won't solve the overall problem by a long shot. Initially, the Ohio Housing Finance Agency, or OFHA, will issue $100 million in taxable municipal bonds. The state is assuming some 1,000 families will be helped, since the average loan is expected to be about $100,000. If the program is successful, OFHA officials say they hope up to $500 million could be available each year for similar financing.

"No matter how you want to dice the blame, there are thousands of people who are going to lose their home to this problem, and we can't, as an agency involved in housing policy, ignore that," says Blaine Brockman, assistant executive director of OFHA.

"This isn't taxpayer money. We'll issue the taxable bond and then the mortgage is collateral for the bond. These are collateralized by the mortgages themselves so there's no taxpayer involvement at all."

But not everyone is convinced of that. Economist Ken Mayland, president of ClearView Economics in Pepper Pike, Ohio, is well-versed in the problem facing many homeowners in his state. But he's not giving the state's plan his 100 percent seal of approval.

"If things work out OK then there will be no burden on the taxpayer; but the devil is in the details. What if the market deteriorates? What if the (borrower) doesn't perform and you have to foreclose and home prices decline? Of course, part of this is to circumvent that, but what if it happens anyway? Then there isn't enough collateral to back up the bond. Who's holding the bag then?"

Not all in favor of a bailout
The thought of taxpayers having to bail out homeowners who got in over their heads irritates the heck out of Patrick Killelea, who's been blogging about the housing situation for four years.

"If you're a responsible saver and you want to buy a house, you're bidding against these crazy people who are either gambling or lying (about income on their mortgage application) or just not understanding that they shouldn't be borrowing ten times their income. So, the thing that bothers me is I have to bid against them for a house. And now Congress is saying let's bail out these irresponsible people. No! It's another way of propping up an ultimately unsustainable housing market. Let the market work."

To be sure, Killelea places plenty of blame on mortgage lenders who, he says, loosened lending standards because they could shift the risk to institutions that bought mortgages and sold them to investors as mortgage-backed securities. And additional blame is lobbed at the Federal Reserve, which, Killelea claims, looked the other way in an effort to keep the economy moving.

While some politicians are chatting up plans for tackling the problem on a nationwide scale, none seem geared at this point -- with an election in the distance -- to having taxpayers foot the bill. But as economist Mayland points out, perhaps taxpayers shouldn't feel safely insulated from the problem. The devil could be in the details.

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