Lower Fed rate could help ARMs, subprime mortgages

<p class=”byline lastline”>INQUIRER REAL ESTATE WRITER</p> <div class=”body-content”> <p>The Federal Reserve’s decision to lower its benchmark federal funds rate by one-half of a percentage point, to 3 percent, could have a positive effect on subprime and adjustable-rate mortgages, economists said today. </p><p>Rates for adjustable-rate subprime loans are typically based on other short-term indexes, especially the LIBOR (London Interbank Offered Rates) or the 12-month Treasury average (MTA). But those rates also have dropped in the last two months. </p><p>”It will help those whose adjustable loans are about to reset big time,” said Brian Bethune of Global Insight Inc., of Lexington, Mass. “The LIBORs have come down dramatically since December, with the one-month rate falling to 3 percent from 5.5 percent.” </p><p>The more the Fed lowers rates, “the lower the reset rates,” said Joel Naroff, chief economist of Commerce Bancorp Inc., of Cherry Hill. What happens “depends upon what the original mortgage contract says about the reset rate. Still, this has to help, at least to some degree.” </p><p>The Fed decision pushed more investors into the stock market from the bond market, however, affecting yields on long-term Treasury bills and pushing up the 30-year fixed-interest rate yesterday, said <span style=”font-weight: bold;”>Fred Glick</span>, a Center City mortgage broker. </p><p>The 30-year fixed climbed to 5.47 percent, according to Bankrate.com, a Web site that monitors interest rates. It had been as low as 5.125 percent a week ago. </p><p>”I made sure everyone who could refinance did it last week,” said Peter Buchsbaum of Arlington Capital Mortgage Corp. in Abington </p><p>Yet Bethune said long-term fixed rates likely would not see much of an increase soon. “They’ll stay fairly low, probably around 5.5 percent, well into the third quarter.” </p><p>While Fed rate cuts could be good news for current subprime borrowers, guidelines are getting tighter, “so there will be zero new subprime loans for at least the next two years,” <span style=”font-weight: bold;”>Glick said</span>. Fannie Mae is getting rid of “level pricing,” which is its version of subprime, he added. </p><p>”Subprime scores are being raised, but there are other programs to pick from, most through FHA,” Buchsbaum said. “I’m still lending money like a madman.”</p></div>

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