According to Bankrate.com surveys, conventional 30-year and 15-year fixed mortgage loan rates remain near all time lows since average rate data was first collected (1985).  This week’s average 30-year fixed loan rate is 5.8%, virtually steady from last week, while the popular refinance loan, the 15-year fixed rate dropped three basis points from the prior week to around 5.36% currently.

These low borrowing rates come as many are hoping the Fed has only begun to reduce the national Fed rate, which is currently at 4.25%.  Following three successive rate drops and hope for more, banks are fighting for position while the government attempts to establish regulations to help sub-prime casualties avoid manipulative loan scams.

Along with the recent rate freeze plan on sub-prime loans, the government has tightened disclosure requirements for lenders in an effort to dissuade brokers and investors from attempting to manipulate or take advantage of vulnerable borrowers.  While the Bush administration has communicated accountability to borrowers who took on more than they could handle in terms of monthly mortgage payments, they are also aggressively working to stop creditors from lending to borrowers when they have no proof of income or ability to repay.

Lower conventional loan rates provide a great refinancing opportunity for adjustable rate mortgage borrowers who have been able to consistently make on time monthly payments and establish better credit.  Many are paying refinance fees or points in order to switch to the lower rate, 15 or 30 year fixed loans with lower monthly payments.  The move from an ARM rate of seven to nine percent to the current conventional rate could save borrowers hundreds of thousands over the life of the loan if they have a lengthy term remaining.

While it is way to early to tell if the recent government intervention efforts in the mortgage and housing markets are paying dividends, the financial markets were surprised today (December 20) by an announcement that foreclosures fell 10% during November, according to data from RealtyTrac Inc.  While financial experts are not ready to suggest the housing market trouble is over, many are commenting that it is definitely a significant, positive sign.

Lower loan rates create greater borrowing potential for businesses along with individuals and home owners.  Businesses can borrow less expensively for investment in research, new products, acquisitions, human resources and more.

The Philadelphia Federal Reserve regional business index showed sharp drops today in sentiment about business activity.  Although most of the US finance news has centered on housing and mortgages of late, many investors are watching earnings and business indicators for potential signs of recession.  It is important for the US economy that the marketplace holds steady to support the desired upswing in home values and prices.

Financial and economic experts are pondering the potential for a dramatic move in the US economy.  Some believe that the stock market, dollar, housing and mortgage markets, and businesses may see a simultaneous fall if the necessary trigger occurs.  Perhaps a well-timed, devastating housing market report could spark a stock collapse and a dramatic reaction from housing and mortgage markets.  Or, significant business or consumer indicators with a negative tone could enhance the concern that already exists with the housing struggles.

While the US housing market has been the focal point for most economists, some wonder if recent infusion of cash into the markets by European central banks is a sign of concern over a global slump.  Historically, European and US economies have often rotated cyclically with regard to various financial markets such as housing, currency, and equities.

Market Recap

US stocks bounced around on Wednesday before closing in nearly the same position as they opened.  The Dow was down 25 points on the day while the NASDAQ and S & P were virtually flat.  Positive earnings news from the likes of Oracle and Nike essentially offset ongoing credit worries for the day.  The markets opened strong on Tuesday as the carry over from positive earnings stirred buyers.  Additionally, while Bear Stearns posted its first ever loss for a quarter, it gave a more positive outlook on the financial sector than investors were expecting.  A rise in jobless benefit claims softened the euphoria a bit, but news that November foreclosures declined by 10% inspired hope that the housing turmoil may be calming.  The Dow (13,246.70) and NASDAQ (2,640.86) both closed up 39 points on the day, with the NASDAQ’s 1.5% gain sparked by the positive technology earnings reports.

Neil Kokemuller
Thurday, December 20, 2007
4:36 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA.  He has a MBA from Iowa State University with a specialization in marketing.

Please note:  The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments.  Actions taken on the basis of the information shared is at the sole risk and discretion of the individual.