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Mortgage rates down, but bank profits up

Here’s a fact you may not have realized – interest rates on home mortgages have been coming down, but the profit margins for lenders on those mortgages have been going up.

What that means is that mortgages could come down even further, and lenders could still make a nice profit on them.

In January, the average rate on 30-year fixed mortgages fell below five percent. It was the first time that rates had dipped so low since Freddie Mac started keeping track of rates in 1971, 38 years ago.

In spite of that, bank profits on 30-year fixed mortgages have been going up. The gap between mortgage rates and 10-year U.S. Treasury yields (2.5 percent) hasn’t been so great in the past 27 years.

Enlightened home buyers aren’t very happy about that. Some officials in the federal government aren’t pleased, either. California Congresswoman Maxine Waters serves on the House Banking Committee. She believes lenders should drop their rates to benefit homebuyers.

“If the government is making sure that cost is dropping for the banks, it should be dropping just as much for consumers,” she said. “But they’re not. Banks could make loans at 4.5 percent, or even lower, and it would still be profitable.”

Some experts believe banks are reluctant to drop rates for consumers any further because of the losses they have experienced through foreclosures and a more than sluggish real estate market.

It will be interesting to see what the Obama Administration will do about home lending rates as a condition of the bailout.

Tags: interest rates

This entry was posted on Thursday, February 5th, 2009 at 7:52 am and is filed under Dunedin, North Pinellas County, Palm Harbor, real estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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