How Low Can They Go?

This from Mary Umberger’s Column in the Tribune: A foreclosed home in Detroit has been sold for $1—that’s one dollar. Last summer, the home went into foreclosure and the owners moved out, whereupon thieves stripped the house of its siding, fencing, copper plumbing and furnace. And after the home
was boarded up, somebody took the boards for another property nearby.

After the place was pillaged, the bank that owned the place listed it for $1,100, eventually dropping the price to $1, after which it sold in 19 days. (Wow, 19 days to sell a house priced less than a bag of Twizzlers! Did the bank offer to pay closing costs to lure
the buyer in?)

How bad are things, really? With the latest news about Fannie Mae and Freddie Mac, most home buyers are probably skeptical about getting a loan at the moment. The goal of Fannie Mae and Freddie Mac is/was to maintain a market for mortgages – buying loans from banks, repackaging them as bonds, and selling those securities to investors with guarantees. Unfortunately, this same quasi-governmental standing (along with those guarantees and a complete lack of oversight), which led to their ability to offer so many unsecured loans, probably led to this week’s government take over.

Although mortgage rates have dropped in some areas as low as 5.375 on a 30-year fixed home loan, the average still hovers in the 5.63 to 5.75 percent range.  The “official” average rate is 5.93%, which means loans in this category are below 6% for the first time since April.

On the surface, it appears this is a bad time to be a seller and a good time to be a buyer, but actually it makes it difficult for both parties: Buyers are finding it increasingly difficult to obtain loans from leery bankers, while homeowners continue to watch their equity diminish, if not vanish altogether.

Economists seem to be in favor of the bailout, because if Freddie Mac and Fannie Mae had been allowed to collapse it would have meant certain disaster in an already turbulent housing market. But as it stands, nobody is exactly certain how this is going to play out. Certainly mortgage brokers are somewhat encouraged by the news and would like nothing more than to see a bump in prospective buyers. Maybe they should offer a bag of Twizzlers to go along with those closing costs.