In the universe of mortgages and home purchases, interest rates are scraping bottom these days. Hovering around 3.4 to 3.6 percent for a 30-year mortgage, with no origination fee, and 2.6 percent on a 15-year fixed mortgage, rates are the lowest since 1971.
“There are reasons for that” said Diane Beaumont, loan originator and branch manager with Benchmark Mortgage in Woodland Park. “Rates are driven by the world economy and the fact that it's an election year. The Fed will force rates to continue to be low. Happens every election year.”
According to Inman News, an online source for real-estate professionals, mortgage rates are determined largely by investor demand for mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
“Mortgage-loan applications are down over the past few months. I think it's because it's still so hard to qualify, harder than it was,” Beaumont said. “But not impossible. I think people are afraid but we're closing 30 loans a month.”
QUALIFYING FOR A LOAN
To qualify for a conventional home loan, applicants must verify their income. If employed by others the applicant must present pay stubs and W2 information; if self-employed, two years' worth of tax returns and proof of investments, said Dave Paul, mortgage broker who owns Service Funding, Inc. and Farm Bureau Insurance in Woodland Park.
“If you have less than 41 percent of your income going out in monthly payments, credit card, car payments, utilities and housing expense, you will qualify,” Paul said. “If you have more than that you probably won't. They'll make exceptions up to 45 percent, but you gotta wiggle.”
Paul is concerned about the regulations attached to the Dodd-Frank legislation which he feels penalize small business owners as well as homeowners current on their payments.
“I can't even rewrite my own mortgage from more than 5 percent to 3.5 percent because I don't make enough money to be able to afford a lower payment and I've never missed a payment on anything,” he said. “And that's the way a lot of small business people are.”
DAVE PAUL'S PLAN TO FIX THE MORTGAGE CRISIS
While he might be whistling in the wind, Paul has sent his fix-it plan to Mitt Romney, Scott Tipton, Doug Lamborn and Barack Obama. “They could fix the mortgage crisis tomorrow with my Rewarding Responsibility and Refinance Program, or RRRP,” Paul said.
Regardless of how much the home is worth, under Paul's plan, the homeowner could rewrite the amount of the current mortgage at the prevailing rate, while verifying income, credit and home value based on a recent appraisal.
“The lender would have all that information and you'd be rewarding the responsibility people are taking for making their payments, even when they're upside down, instead of the opposite which is what we're rewarding now, which is a subset of moral hazard.”
With a revised loan, Paul and other self-employed small-business owners who are still making mortgage payments would reap the benefits of the RRRP, he said. “I could lower my monthly payments by $700 or $800 dollars with two full interest rate percentages which would make my staying in business much more likely,” Paul said. “It would also give Fannie and Freddie new files so they could really gauge the value of their portfolios.”
INTEREST RATES SPUR THE MARKET
Nonetheless, for area real-estate agents, times are good. “Our market is certainly on the upswing from late 2008 to 2010,” said Jennifer Erdley, Realtor with Remax Performance, Inc. in Woodland Park.
When it comes to real estate, Teller County has a marketing edge. “People want to live here, they don't have to live here,” Erdley said.
Low interest rates are definitely driving traffic in Teller County. “I've had clients who weren't going to buy for two years but then asked if I'd work with them now,” she said, adding that rates at that time were in the 5-percent range.
As interest rates energize the market, the accompanying increase in home prices is influencing the market. “Another factor is that money sitting in the bank is not earning much so why not invest in real estate?” Erdley said.
Homes in the mid-range, $200,000 to $300,000 are moving well, Erdley said, while those priced higher stay on the market longer. “We're catching up, though, and I've got some under contract in the $500,000 to $600,000.”
DOWNSIDE OF LOW-INTEREST RATES
While rates might be a bonus for potential homeowners, for the Teller County budget, the windfall becomes a crater. “In the environment I work in, what we call the `low-risk world,' we buy AAA-rated government bonds and CDs,” said Bob Campbell, Teller County's treasurer and public trustee.
Trolling around for a decent interest rate, Campbell is coming up with .4, maybe .5 of 1 percent. Limited to an investment time frame of 1 to 3 years, the county is aced out of investments paying higher interest rates.
If the time frame weren't bad enough, any attempt to seek investment opportunities in Colorado is a no-go. “Colorado banks don't want to accept government money because they can't use it,” Campbell said.
In the attempt to stimulate the economy with low interest rates, Ben Bernanke and the Federal Reserve have created uncertainty for business owners, Campbell said. “Bernanke says rates will stay low through 2015,” he said.
In an uncertain time, with tax policies up in the air, business owners, counties and investors are stymied, he said. “Businesses are hesitant to hire because they don't know what Congress is going to do,” Campbell said. “They need something to depend on. It's a terrible environment right now.”
Instead of earning up to $50,000 a year or more, the county's investments are earning around $18,000.
“I'm bummed,” Campbell said.
In addition to conventional loans, other types of loans could initiate a round of home-buying, said Diane Beaumont, branch manager of Benchmark Mortgage in Woodland Park.
●Federal Housing Authority. “The Feds passed a ruling that, for all FHA loans originated prior to June 2009, the mortgage insurance premium is lower,” Beaumont said. “Potential recipients can streamline without verifying income or getting an appraisal to lower the rates.”
●Rural Development loans insured by USDA. “Rural Development is available in Teller County to homeowners who do not own other property. It is 100 percent financing at around 3.75 percent interest,” Beaumont said, adding the loans are available in Teller, Park and eastern El Paso counties. “It's a great incentive for somebody wanting to buy a new home as well as to refinance if they currently have an existing rural-development loan.”
● Veterans' Administration loans. “We can streamline the loans with no income qualification,” Beaumont said.