O.C. mortgage rates return to historic low, 4.875%

December 10th, 2008, 4:27 pm · 24 Comments · posted by Mathew Padilla

(Update: private mortgage insurance reference added.)

Rates on some home loans in Orange County fell today to the lowest since 2003, some mortgage brokers said. And rates in 2003 were the lowest in more than 30 years.

But at least one broker questioned whether the low rates will last.

Borrowers with good credit and a down payment of 20% to 25% of a home’s value can get a 30-year fixed rate loan for 4.875% with a one-point fee, said Jeff Lazerson, president of Mortgage Grader in Laguna Niguel. That’s down from 5% on Wednesday and the first time the rate is below 5% since 2003, he said.

He said a homebuyer might be able to get the best rate with 5% to 10% down, but would have to pay for mortgage insurance.

It’s not clear why rates dropped today, Lazerson said. In any case, the yield on a 10-year Treasury, an indicator of mortgage rates, has been under 3% all month.

Not all banks are offering 4.875% on certain mortgages, Lazerson said. Some lenders are still around 5% or higher. But he said generally consumers can get the best rate offered by a bank for loans up to the 2009 conforming limit for Orange County of $625,500.

Previously lenders offered the best rates on loans up to the old conforming limit of $417,000 and charged a little more for loans up to the temporary 2008 loan limit of $729,750. Loans above $729,750, known as jumbos, had rates all over the map from 7% to 10%. Lazerson said as of last week many lenders stopped offering lower rates on loans up to $729,750 even though the limit expires Dec. 31.

Loan limits refer to the maximum size loan that can be sold to government-sponsored buyers Fannie Mae and Freddie Mac. Rates are lowest on loans they purchase.

Now rates vary widely on loans above $625,500, Lazerson said.

Lazerson said rates around 5% and lower have spurred many calls from folks seeking to refinance, but some 70% of callers don’t qualify. That’s because they owe the same or more than their home is worth, or they don’t earn enough money, or their credit score is too low, he said.

And Lazerson slammed the plan reportedly being considered by Treasury Secretary Henry Paulson to set purchase loan rates at 4.5% by buying mortgage-backed securities. Some folks are sitting on the fence, as they wait to see if the plan is enacted. If the plan does not happen, then borrowers could miss out on a chance to get a rate under 5%, he said.

Lazerson said Paulson doesn’t think things through. “He doesn’t realize the impact of the things he is doing,” Lazerson said.

Perhaps, but it is not clear who leaked the story on Paulson’s 4.5% plan. Maybe somebody in the industry found out and leaked it.

Jeff Altman of WestCal Mortgage Corp. in Orange also said some banks offered loans at 4.875% today. But he said that low rate may not last.

Altman said the yield on U.S. Treasury bonds rose a bit late today, possibly as investors began to worry about massive government borrowing to fund bailouts, a possible stimulus next year and the ongoing federal deficit.

All that could translate into higher consumer rates.

Consumers are confused and it’s hard for brokers to explain or predict anything these days, Altman said.

“It’s hard to answer anybody because we are in uncharted waters,” Altman said.

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