the feds talf program and its impact on upcoming mortgage rates

The Federal Reserve's plan to spend $600 billion buying mortgages is driving down lending rates and boosting home affordability, which combined with decreasing inventories may signal a 2009 recovery for the battered home-building sector, some Wall Street analysts said.
My comment --- The Fed's announcement last week pushed rates on 30-year fixed-rate mortgages down - and they are now about 5.5%. I expect they will have to go into the 4's or less - and if I may be radical - perhaps even the 3's to get things really moving again - to counter the glut of foreclosures and tighter lending standards. So - if you are a buyer - now is probably the best time to buy in the history of the US. (You just have to have good credit, a job (fancy that), and a nice downpayment now...)

Many people who had short sales or foreclosures will be out of the market for a number of years....unable to buy. Also - though
lower rates can help borrowers seeking to refinance - many of those may have been "no doc" in the first place - and they won
t have an opportunity to do a "no doc" refinance. So - they are stuck with the loans they have.


The Term Asset-Backed Securities Loan Facility (TALF), may lead to a significant improvement in affordability.
A one percentage-point decline in mortgage rates has the same impact on affordability as a 10% decline in housing prices. However - changes in affordability often take nine months to a year to result in improving home sales.

Under TALF, the Fed plans to buy up to $500 billion of mortgage-backed securities issued by Fannie Mae and
Freddie Mac
and other government-sponsored enterprises, as well as $100 billion of debt.


Credit Suisse estimated that the mortgage payment on the median-price home now represents 16.7% of median household income, down from 21% this past summer, with most of the decline taking place last week after TALF was unveiled.
That's well below the long-term average of 23% from 1981 to 2007, and housing is the most affordable it's been since February 1994 when the mortgage on the median-price home equated to 18% of the median income.

"Importantly, affordability is also returning to attractive levels in key building markets," the analysts said.
"We do not expect a snap-back in sales activity given the negative consumer sentiment toward housing as of late, as consumers are nervous about spending money on what is now generally viewed as a depreciating asset," they wrote. "However, we expect that this improved affordability will help and will likely lead to at least a bottoming of sales in 2009."

After a historic boom in home prices fueled in large part by easy credit, the U.S. residential housing market is caught in the grips of one of the worst downturns in recent memory. There is an enormous overhang of unsold homes on the market that could rise further if foreclosures spike.
Buyers lacking pristine credit scores have had difficulty getting loans, while worries about the health of the overall economy have dampened sentiment. However, falling home prices and lower mortgage rates could finally entice wary buyers.
With some foreclosures selling at rock-bottom prices, Credit Suisse had anticipated an incremental 15% further decline in home prices over the next year, but said the drop-off in mortgage rates could make this figure less.