Falling mortgage rates may lure more home buyers

ByABC News
September 10, 2008, 5:55 AM

— -- A drop in mortgage rates that's accelerated since the government said it would take over Fannie Mae and Freddie Mac has raised hopes that more buyers might be drawn into the housing market and help reverse the worst slump in decades.

Analysts caution, however, that the benefits of lower rates will be tempered by stricter mortgage-lending rules and a stubbornly weak economy. The average rate on a 30-year fixed-rate mortgage fell to 5.88% on Tuesday, according to Bankrate.com.

"The job market is a real problem, overwhelming even the lower rates," says Mark Zandi, chief economist of Moody's Economy.com. "When we combine the low rates with improvements in the job market, hopefully at the beginning of next year, then there will be some real benefit."

As Greg McBride, senior financial analyst at Bankrate.com, notes: "It still takes good credit, proof of income and money for a down payment. With the government taking over Freddie and Fannie, due to the bad loans on their books, the last thing Uncle Sam is going to do is loosen the lending standards now that the taxpayer is on the hook."

Some mortgage brokers and bankers have seen a modest increase in calls from potential customers in the past two days. Alan Trachtman of Trachtman & Bach, a New York brokerage, says his firm has seen more inquiries from clients. But he says he's not confident that the lower rates will motivate home buyers the way low rates normally do, given the uncertain economy.

Still, he's hopeful. "If rates stay down and nothing else happens to oppose it, I think you'll see a little snowballing for the housing market just not as big and fast as it (typically is)."

Brian Koss of Mortgage Network, mortgage bankers serving the East Coast and based in Danvers, Mass., says, "We got a huge increase of calls over the past two days." But Koss adds, "It was pretty much a given five years ago that you'd get the loan. Now, you have all these hurdles you have to go through."

Should you act now for fear a limited offer will run out?