Mortgage Rates Will Rise in 2016, According to These Experts

Mortgage rates will rise gradually in 2016, ending the year higher than where they are now. That’s the forecast being offered by a growing number of analysts and economists in the United States. And they recently got more ammunition to support their predictions, courtesy of the Federal Reserve.

On Wednesday, Fed officials announced they were going to increase the federal funds rate for the first time in seven years. They’ve kept the funds rate (which banks use when transferring money among themselves) near zero for years, as part of an economic stimulus policy. But now they feel the economy has improved enough to warrant an increase.

In a related statement, Fed officials said: “Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.”

This is one reason why some analysts feel mortgage rates will rise in 2016. Granted, there is no direct connection between the interest rate controlled by the Fed and those used for consumer loans. But the Fed’s policy changes do have an indirect effect on home loan borrowing costs.

Simply stated, there’s a good chance we could see mortgage rates rise over the coming weeks and months, as a result of the Fed’s recent announcement.

Related: 3 housing forecasts and a top 10 list

Economist: Mortgage Rates Will Rise Gradually in 2016

Sean Becketti, the chief economist for Freddie Mac, discussed this indirect relationship in a recent statement: “We take the Fed at its word that monetary tightening in 2016 will be gradual, and we expect only a modest increase in longer-term rates. Mortgage rates will tick higher but remain at historically low levels in 2016.”

The word “gradual” came up in many of the forecasts and predictions we reviewed for this story. The general consensus seems to be this: It is highly likely that mortgage rates will rise in 2016 from where they are right now, but they will probably rise gradually.

Translation: We probably shouldn’t expect any major “spikes” as a result of the Fed’s actions, or other causes. A slow rise over time seems more likely.

MBA: 30-Year Loan Rates to Average 4.8% by End of Next Year

The Mortgage Bankers Association (MBA) recently issued a forecast through the end of 2017. Their prediction is similar to some of the others we’ve encountered, in that it calls for a gradual rise in mortgage rates throughout 2016.

In a statement issued last month, MBA officials stated: “we expect that the 10‐Year Treasury rate will stay below three percent through the end of 2016, and 30‐year mortgage rates will stay below 5 percent until early 2017.”

The group expects the 30-year average to rise to 4.8% by the end of 2016. (It’s currently at 3.97%, according to the latest weekly survey by Freddie Mac.)

And speaking of Freddie Mac, they’ve also issued a forecast for rising interest costs in 2016…

Freddie Mac Forecast: 4.6% by the End of 2016

Freddie Mac, the government-controlled buyer of mortgage securities, recently predicted that the average rate for a 30-year fixed mortgage loan would rise to 4.6% by the end of 2016. Their outlook closely resembles the MBA projection mentioned above, in that it calls for a gradual (there’s that word again) rise in borrowing costs over the coming months.

Of course, they’ve been wrong before. This time last year, Freddie Mac’s economists were predicting roughly the same thing — a slow but steady rise during 2015. But that didn’t happen. In fact, 30-year mortgage rates are ending 2015 only slightly higher than where they were at the beginning of the year. The 30-year average was at 3.73% on January 3, 2015, and it was 3.97% when measured this week. So you have to take these forecasts with a grain of salt.

The big difference this time around is the Federal Reserve. The Fed kept short-term rates near zero all through 2015. But now they’ve announced the first increase in years, and that could throw a wrench into economists’ forecasting models. It’s a whole new ball game in this regard.

Disclaimers: This story contains forward-looking statements about the mortgage industry and the broader economy. Such statements were provided by third parties not associated with the Home Buying Institute. The publishers of this website make no claims or assertions that mortgage rates will (or won’t) rise in 2016. Such predictions are the equivalent of an educated guess and should not be viewed as fact.

San Diego Gets Higher Conforming Loan Limits for 2016

Home prices in San Diego County rose significantly in 2015, enough to prompt the Federal Housing Finance Agency (FHFA) to increase the county’s conforming loan limits. In 2016, mortgage borrowers will be able to finance up to $580,750 without crossing into “jumbo” loan territory.

San Diego Conforming Loan Limits for 2016

A conforming loan limit is the maximum size for mortgages that can be acquired by Freddie Mac and Fannie Mae. Anything larger is considered a jumbo loan and usually comes with stricter underwriting criteria. Most of the mortgage loans originated in the San Diego real estate market fall into the conforming category, though jumbos are still widely available as well.

The current (2015) conforming loan limit for San Diego County is $562,350. But that number will go up next year. San Diego is one of only 39 counties in the U.S. where the conforming loan limits will rise in 2016. For the rest of the country, the 2015 caps will simply “roll over” without any changes.

The 2016 conforming loan limit for San Diego County is $580,750, which marks an increase of $18,400 over the current limit. That’s for a single-family home. There are higher caps for multi-family units, as shown below.

Here are the 2016 limits for all property types:

One-Unit Two-Unit Three-Unit Four-Unit
$580,750 $743,450 $898,700 $1,116,850

Note: In this context, a “one-unit” property is a regular single-family home. A “two-unit” property is a duplex-style home with two separate residents living in it, and so on.

Conforming loan limits are applied countywide. So the maximum mortgage amounts shown above apply to all cities within San Diego County, including (but not limited to) Carlsbad, Del Mar, El Cajon, Escondido, La Mesa, Oceanside and San Marcos.

Aside from San Diego, only three other counties in California will receive loan limit increases for 2016. They are Monterey, Napa and Sonoma. For the rest of the Golden State, the current caps will be carried over into next year with no changes whatsoever.

Conforming loan limits are set by the Federal Housing Finance Agency (FHFA). They vary by county and are based on median home prices within the local area. The limits are reviewed annually and sometimes adjusted to keep pace with rising house values.

According to the FHFA:

“The latest year showed strong home price gains throughout the country and in some locations [including San Diego] those gains were sufficiently large to elevate loan limits above levels in any prior year.”

To be clear, house values have risen in many cities across the U.S. But there were only 39 counties where the annual gains were significant enough to warrant higher loan limits.

Jumbo Mortgages Still Widely Used

San Diego home buyers who need financing above conforming loan limits still have options. The “jumbo” mortgage is one such option.

By definition, a jumbo home loan is one that exceeds the conforming caps for Freddie Mac and Fannie Mae (shown above). These products are usually limited to borrowers with excellent credit and borrowing histories. Down payment requirements tend to be higher for jumbo loans as well. Lenders often require at least 20% down for these “non-conforming” products.

Jumbo loans typically have higher interest rates than their conforming counterparts, all other things being equal. The underwriting process can be stricter as well. This is due to the larger investment, and higher level of risk, on the lender’s part.

To learn more about conforming loan limits in 2016, you can visit our resource website at www.LoanLimits.org.

Conforming Loan Limits for 2016: Same as Last Year for Most Areas

For most U.S. cities, the conforming loan limit for a single-family property will remain at $417,000. Only nine metro areas, including Denver, Boston and Nashville, will get higher limits for 2016.

Last week, the maximum conforming loan limits for 2016 were announced. According to the Federal Housing Finance Agency (FHFA), the maximum conforming size for mortgage loans purchased by Freddie Mac and Fannie will stay at current levels — except for in 39 “high-cost” counties where they’ll increase.

In-depth: How conforming loans work

So, for most cities across the U.S., the 2016 conforming loan limits will be identical to those used in 2015. They’ll simply “roll over” unchanged.

This came as a surprise to many housing analysts. Home prices rose significantly in many U.S. cities over the last year, and such trends usually prompt the FHFA to increase the conforming loan limits. After all, higher price tags require larger loans for home buyers. But that didn’t happen. Instead, FHFA officials decided the current baseline loan limit of $417,000 will suffice in 2016.

Baseline Conforming Loan Limit for 2016: $417,000

As mentioned earlier, the baseline conforming loan limit for is set at $417,000. But these caps vary from one county to the next. To find next year’s limits for your area, you can download the complete PDF or Excel files available on LoanLimits.org. (The publishers of the Home Buying Institute created this website as a tool of convenience for mortgage shoppers.) The full PDF is also available at FHFA.gov.

Here are the “floor” or baseline conforming loan limits for 2016:

  • One-unit home: $417,000
  • Two-unit home: $533,850
  • Three-unit home: $645,300
  • Four-unit home: $801,950

Notes: Limits vary by county, so the baseline figures above might not apply to your area. In this context, “one unit” refers to a single-family home, “two unit” refers to a duplex-style property with two separate resident living in it, etc.

Nine Metro Areas Where Limits Are Going Up

While most home buyers and mortgage shoppers will encounter the same conforming loan limits in 2016, there are a handful of metropolitan areas where the caps will go up next year (Happy Holidays!). Specifically, there are 39 high-cost counties spread over nine metro areas where the caps will rise next year.

Loan limits will increase in 2016 for the following metro areas:

  • Boston, MA
  • Boulder, CO
  • Denver, CO
  • Napa, CA
  • Nashville, TN
  • Salinas, CA
  • San Diego, CA
  • Santa Rosa, CA
  • Seattle, WA

Most of these areas have something in common. Home prices in most of these real estate markets have risen to pre-crisis levels or above. In other words, houses are currently more expensive now than they were during the housing bubble of the early 2000s.

This is the trigger that causes FHFA to increase conforming loan limits for a particular area, and it’s clearly spelled out in the Housing and Economic Recovery Act of 2008 (HERA). That act set the baseline loan limit at $417,000 and mandated that, “after a period of price declines, the baseline loan limit cannot rise again until home prices return to pre-decline levels.”

In Denver and Boston, for example, home prices are now higher than the peaks reached during the housing bubble of the early to mid 2000s. So the 2016 conforming caps were increased for these markets to reflect the “new normal.” Over the last year, house prices have risen in all of the metro areas listed above, albeit to varying degrees.

Price Gains Alone Not Enough to Warrant Increase

While many U.S. cities experienced price gains over the last year, only the metro areas shown above will see higher loan limits in 2016. According to FHFA:

“Although other counties [across the country] also experienced home value increases in 2015, after other elements of the HERA formula — such as the statutory ceiling and floor on limits — were accounted for, these local-area limits were left unchanged.”

Jumbo Mortgage Products Still Available

To be clear, there are financing options available for home buyers who need to borrow more than the above-stated limits. They’re called jumbo loans. These are mortgage products that exceed the conforming limits for Freddie Mac and Fannie Mae. Jumbo mortgage products, while harder to come by, are still very much in use these days.

In fact, it appears to be getting easier to qualify for a jumbo product. While mortgage lenders typically set higher standards for borrowers seeking an “over-sized” mortgage, there appears to be some easing within the market. We reported on this earlier this year. Additionally, there are plenty of “non-bank” lenders out there competing for jumbo business.

So there you have them, the new (and mostly unchanged) maximum conforming loan limits for 2016. For most counties in the U.S., the current caps will carry over into the new year. Mortgage shoppers in the nine metro areas above will enjoy higher caps. The Federal Housing Finance Agency has set up a specific email address for people with questions about the conforming limits. Questions can be sent to LoanLimitQuestions@fhfa.gov.

Prediction: 30-Year Mortgage Rates Above 4% By End of 2015?

Are you planning to buy a home in the near future? Need a home loan to finance your purchase? If so, you might want to think about doing it sooner rather than later. The average mortgage rate for a 30-year fixed home loan rose again this week, nearly reaching 4%. This is according to the latest mortgage market survey conducted by Freddie Mac, published earlier today.

The 30-year rate average has been hovering below 4% since the end of July 2015. Rates could remain low going into 2016, giving home buyers more time to save. But there’s also a strong chance the 30-year average will rise above 4% by the end of this year. In fact, several analysts have made mortgage predictions to this effect — and that includes the economists at Freddie Mac.

Current Rates: 30-Year Average Approaches 4%

As of November 12, 2015, the average rate for a 30-year fixed home loan has risen to 3.98% (with an average of 0.6% fees and points at closing). That’s an increase of 11 basis points, or 0.11%, over last week’s average.

This is based on the weekly mortgage market survey conducted by Freddie Mac, the government-controlled corporation that buys and sells mortgage securities. This long-running survey dates back to the 1970s and is one of the best indicators of lending rates and trends.

Here are the average rates in four loan categories, as of November 12:

  • 30-year fixed mortgage: 3.98%
  • 15-year fixed mortgage: 3.20%
  • 5/1 adjustable (ARM) loan: 3.03%
  • 1-year ARM loan: 2.65%

A Fairly Stable Year, So Far

To give you some perspective, the current 30-year mortgage rates are only slightly higher higher than they were at the start of the year. So 2015 has been a pretty stable year, as far as long-term interest rates go.

On January 8, 2015, for example, Freddie Mac was reporting an average rate of 3.73% in the 30-year fixed mortgage category. That was only slightly lower than the current average reported earlier today.

This flies in the face of earlier predictions that mortgage rates would rise steadily throughout 2015 — that just hasn’t happened. Keep this in mind when mortgage analysts make additional predictions for 2016, as they inevitably will. You have to take these forward-looking statements and forecasts with a grain of salt. As we’ve seen, they don’t always pan out.

And speaking of those predictions…

Prediction: Mortgage Rates Above 4% by the End of 2015?

Many economists expect the average 30-year mortgage rate to climb above 4% by the end of this year. Freddie Mac’s own research team made a similar prediction earlier this week. According to their forecast, the average rate for a 30-year home loan will hit 4% between now and the end of 2015.

Looking even farther out, here is what Freddie Mac expects 30-year mortgage rates to do over the course of 2016:

  • Q1 2016: 4.0%
  • Q2 2016: 4.2%
  • Q3 2016: 4.4%
  • Q4 2016: 4.6%

These numbers came from Freddie Mac’s “Economic and Housing Market Outlook” issued on October 26, 2015. But again, they’ve been wrong in the past.

Attributed to Sean Becketti, chief economist, Freddie Mac.

“Recent commentary suggests interest rates may rise in the near future. Janet Yellen referred to a December rate hike as a ‘live possibility’ if incoming information supports it. The October jobs report to be released this Friday will be one crucial factor influencing the [Federal Reserve’s] decision.”

The Bottom Line for Home Buyers

No one can predict the future of mortgage rates with complete accuracy. Economists can (and frequently do) make educated guesses based on current trends and conditions. But these predictions are still only guesses. You can’t bank on them.

With that being said, the general consensus among industry watchers is that mortgage rates will rise gradually between now and the end of 2015, followed by a slow-but-steady rise in 2016. If that’s the case, home buyers might benefit from buying sooner rather than later.

Disclaimers: This article contains third-party data that are deemed reliable but not guaranteed. It also contains predictions and forecasts relating to long-term mortgage rates. Such statements are the equivalent of an educated guess and should not be viewed as facts. The Home Buying Institute makes no claims about future interest rates or mortgage trends.

Fed: Borrowers Could See Relaxed Mortgage Standards in 2016

With less than two months left in the year, many home buyers are looking ahead to 2016. So the Home Buying Institute has been publishing a variety of “forward-looking” reports involving home prices, mortgage rates, and other housing-related trends. This time around, we turn our attention to mortgage standards in 2016.

A new industry survey from the Federal Reserve revealed that mortgage lenders have eased the standards used to qualify borrowers for conventional home loans. This is good news for borrowers who are planning to purchase a home in 2016. Relaxed mortgage standards could make it easier for marginally qualified borrowers to secure financing.

Some Banks Ease Mortgage Standards, Going Into 2016

On November 2, 2015, the Federal Reserve published the findings from its latest Senior Loan Officer Opinion Survey. This quarterly survey is sent to up to 80 large domestic banks in the U.S., as well as 24 U.S. branches of foreign banks. As a result, it’s a pretty good indicator of mortgage qualification standards and trends.

With regard to home loans, the latest survey showed the following:

“Regarding loans to households, banks reported having eased lending standards on loans eligible for purchase by the government-sponsored enterprises and on qualified mortgage (QM) loans over the past three months on net.”

The “government-sponsored enterprises” (GSEs) mentioned above are Freddie Mac and Fannie Mae. Mortgage lenders often sell the loans they originate to the GSEs, as a way to reduce risk and increase liquidity. So the easing of mortgage standards mentioned above mainly refers to conventional home loans — those that are not insured by the federal government.

A Different Story for FHA and VA Loans?

Over on the government side, it seems that standards might actually be tougher for FHA and VA loans. According to the Fed’s November report: “In contrast [to the easing mentioned above], modest net fractions of banks tightened standards on government residential mortgages.”

In this context, “government residential mortgage” includes home loans that are insured or guaranteed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). This category also includes purchase mortgages that are originated under the U.S. Department of Agriculture home loan programs.

So we have some mixed results here. Senior loan officers have reported some degree of easing for conventional home loans, while standards seem to have increased a bit for government-insured products.

Pros and cons: Conventional vs. FHA loans

The bottom line: Reasonably well-qualified borrowers should be able to secure financing in 2016, and it might even be easier on the conventional side. Meanwhile, lenders appear to be setting higher standards for FHA and other government-insured home loans.

Still No Love for Subprime Borrowers

The latest survey also provided some insight into mortgage standards for “subprime” borrowers. According to the Federal Reserve’s report, most banks said they “do not extend home-purchase loans to subprime borrowers.”

These are borrowers with weak credit histories resulting from payment delinquencies, charge-offs, bankruptcies, etc. The subprime category also includes borrowers with “reduced repayment capacity” as indicated by their credit scores or debt-to-income ratios. Would-be home buyers who fall into this category are often turned down for financing.

About the Survey
The Federal Reserve’s “Senior Loan Officer Opinion Survey on Bank Lending Practices” solicits input from more than 100 banks across the United States. The goal is to gain insight into current mortgage lending trends and standards, based on survey responses. The Federal Reserve typically conducts the survey once per quarter. They time it so they can publish the results before the regularly scheduled meetings of the Federal Open Market Committee (the Fed’s “think tank”). On occasion, the Federal Reserve will conduct one or two additional surveys during the year, to gain additional insights into mortgage standards and trends for 2015 – 2016.

15-Year Mortgage Rates Dip Below 3%, Second Time This Quarter

Are you in the market for a 15-year mortgage loan? Then I have some good news. The average rate for a 15-year fixed mortgage dropped below 3% this week.

According to the weekly market survey conducted by Freddie Mac, the average interest rate assigned to 15-year home loans in the U.S. fell to 2.98% this week. That’s a decrease of five basis points (0.05%) from last week’s average of 3.03%.

That marks the second time this quarter the 15-year mortgage rate average has dipped below the 3% mark. On October 8, it dropped to 2.99%. The last time we saw rates this low for this particular loan category was April 30, when it fell to 2.94%.

Thirty-year loans dropped three basis points this week compared to last, landing at 3.79%.

Current 15-Year Mortgage Rates 7 Basis Points Below January

To give you some perspective, we started the year with 15-year mortgage rates at 3.05%. For most of 2015, they’ve been fluctuating above the 3% mark, climbing as high as 3.25% over the summer. That means today’s rates in the 15-year product category are seven basis points (0.07%) lower than where we were at the start of 2015.

This trend can be seen in other loan categories as well. The 5-year adjustable (ARM) loan started the year with an average rate around 3%. In this week’s survey, the 5-year ARM average was down to 2.89%. The current average rate for a 30-year fixed mortgage, on the other hand, is almost exactly the same as it was in January 2015. So it has been a pretty stable year for borrowers.

This flies in the face of earlier predictions that said rates would likely rise steadily throughout 2015. Apparently, some crystal balls need to be re-calibrated.

Will Fed Introduce a Rate Hike in October or December?

The Federal Reserve is expected to increase the short-term federal funds rate later this year or early next. The Fed has kept the funds rate near zero for years now, as part of a broader stimulus program designed to spur the economy.

They’ve been monitoring the nation’s jobless rate (and other indicators) to decide when to increase interest rates. At their last committee meeting, Fed officials decided to preserve the status quo.

Some housing analysts have said the Fed probably won’t make a move until 2016. For example, Joseph LaVorgna, the chief economist for Deutsche Bank, recently told CNBC he thinks the Fed will increase rates in March 2016.

Federal Reserve officials will have two more opportunities to increase rates this year. Their next committee meeting is scheduled for October 27 – 28, and the last one of the year takes place on December 15 – 16.

But even if the Fed does introduce a rate hike this year, it probably won’t have a huge impact on 30- or 15-year mortgage rates. According to Selma Hepp, an economist who wrote for Trulia:

“If rates increase 25 basis points, mortgage rates are still at historical lows and exceptionally favorable for homebuyers. The actual impact on a typical homebuyer will be marginal, but this really depends on the buyer’s budget.”

So there’s a good chance home loan rates will remain relatively stable through the end of 2015, and possibly into the start of 2016 as well. But now we’re getting into the crystal ball stuff again, and that’s been covered already.

Disclaimers: This story contains third-party data that are deemed reliable but not guaranteed. It also contains forward-looking statements regarding Federal Reserve policy and mortgage industry trends. economic conditions. Such statements are the equivalent of an educated guess and should not be viewed as facts. The Home Buying Institute makes no claims or assertions about the future or 15-year mortgage rates, or interest rates in general.

Revealed: the 10 Most-Complained-About Mortgage Companies

Yesterday, the Consumer Financial Protection Bureau (CFPB) published its most recent snapshot of consumer complaints regarding financial companies in the U.S.

The new report shines a light on mortgage complaints in particular. It also provides a list of the most-complained-about mortgage companies in the United States, based on complaints filed from April to June 2015.

Mortgage Servicing Problems Are Common

The CFPB also categorizes mortgage complaints by type, in order to find out where the most common problems lie. Based on their findings, it seems that homeowners have a lot of problems with mortgage servicing in particular. (Mortgage servicers are the companies that handle the day-to-day managing of your home loan, after you’ve closed the deal with your lender.)

According to CFPB, servicing-related problems are most common during certain scenarios, such as when the homeowner applies for a mortgage loan modification in an attempt to avoid foreclosure.

The CFPB’s Office of Consumer Response maintains a public, online database of consumer complaints regarding all types of financial companies. Consumers can file a complaint through the CFPB website located at www.consumerfinance.gov.

Policing the Financial Services Industry

The watchdog agency has handled more than 192,000 mortgage complaints since its inception. That makes home loans the most frequently complained-about financial product, accounting for 27% of all complaints filed by U.S. consumers. (The agency also deals with consumer beefs relating to credit cards, student loans, debt collection, and other financial products.)

When a consumer submits a complaint on a financial services company, the Consumer Financial Protection Bureau will notify the company directly. Compared “are expected to respond to respond to complaints sent to them within 15 days.”

And make no mistake. We’re not just talking about a paperwork shuffle here. The CFPB has “teeth” given to it by the Dodd-Frank Act. A recent article in Time magazine called it “one of the most effective and feared regulators in Washington [D.C.].” The agency regularly imposes large fines against financial services companies that have wronged consumers. So clearly, it pays to stay on their good side.

The 10 Most-Complained-About Mortgage Companies

The table below shows the mortgage companies with the most complaints during the three-month period from April to June 2015. (Note: This is a partial list. The CFPB’s original report identified 19 companies in its “most-complained-about” list. Here, we have listed the 10 mortgage companies that had the most complaints of the 19 listed in the CFPB report.)

Company 3-month avg., April – June 2015
Wells Fargo 433
Bank of America 430
Ocwen 428
Nationstar Mortgage 353
JPMorgan Chase 269
Green Tree Servicing, LLC 240
Citibank 126
Select Portfolio Servicing, Inc 113
Seterus 89
U.S. Bancorp 81

According to Richard Cordray, director of the Consumer Financial Protection Bureau, the agency sees this as an ongoing issue that needs continued monitoring.

“Despite strong protections that have been put in place to protect homeowners, this month’s complaint report shows consumers are still having problems when dealing with their mortgages,” Cordray said. “The Bureau will continue to work to make sure that consumers are being treated fairly on their mortgage issues.”

How to Submit a Complaint to CFPB
Consumers can submit complaints about financial services company in several ways. They can do it online by visiting www.consumerfinance.gov/complaint/, or by calling the CFPB toll free at 1-855-411-CFPB (2372). Their TTY/TDD phone number is 1-855-729-CFPB (2372). Letters can be mailed to Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244.

Will Fed Policy Keep Mortgage Rates Low Through Fall 2015?

Federal Reserve officials met last week to discuss current and future monetary policy. Among other things, they decided to keep the federal funds rate between 0% and 1/4% for the foreseeable future. Apparently, the economy has not improved enough for the Fed to be comfortable with a rate hike at this point. This could preserve the low mortgage rates we’ve been seeing through the fall of 2015.

In a statement following the Federal Open Market Committee meeting, Fed officials explained:

“To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.”

Translation: We are keeping short-term interbank interest rates low in an attempt to further strengthen the economy.

But how does this affect home buyers in 2015, or homeowners who are planning to refinance? What’s the connection between the Federal Reserve’s policies and long-term mortgage rates? And will we continue to see low mortgage rates through the fall? Here’s a quick primer.

Fed Policy Could Help Keep Mortgage Rates Low in 2015

Let’s start with an important distinction. The Federal Reserve does not control mortgage rates directly. It does, however, control the federal funds rate that banks use when trading balances with one another in the short term.

So how does this affect mortgage shoppers? The key word is “indirectly.” The Fed’s policies can have an indirect effect on long-term mortgage rates by shifting investor demand from one asset class to another. In its latest meeting, Federal Reserve officials said they would continue to invest in mortgage-backed securities (MBS). When the Fed invests heavily in MBS purchases, it tends to drive down mortgage rates for home buyers and homeowners.

As MBSQuoteline explains: “While lenders, in effect, set their own mortgage rates, how those rates are set is driven largely by the then current prices of Mortgage Backed Securities. ”

The bottom line is this. By continuing along its current course (which involves MBS purchases and keeping the funds rate near zero), the Federal Reserve is having an indirect effect on long-term mortgage rates. This has benefited home buyers and homeowners in the past, and it could continue into the fall.

The Federal Open Market Committee’s next meeting is scheduled for October 27 -28, 2015. They’ll revisit this subject at that time, and possibly make an adjustment to their existing policy. Until then, however, the status quo prevails.

A Look at Current & Projected Loan Rates

According to the weekly market survey conducted by Freddie Mac, the average rate for a 30-year fixed home loan has been hovering below 4% for the last few weeks.

Here are the average rates from their latest survey, for the week ending September 18:

  • 30-year fixed-rate mortgage (FRM): 3.91%
  • 15-year FRM: 3.11%
  • 5/1-year ARM: 2.92%
  • 1-year ARM: 2.56%

When (not if, but when) the Fed finally decides to raise the federal funds rate, we will almost certainly see mortgage rates climb as well. But whatever increase does occur will likely be gradual in nature. A “spike” is unlikely. This is precisely what the economists at Freddie Mac have predicted. In their latest housing market forecast, they’ve suggested that a gradual rise in rates is likely through the rest of 2015 and into 2016.

Jumbo Loan Credit-Score Standards Still Tough, But Getting Easier

Are you in the market for a jumbo loan? If so, be prepared for some extra scrutiny. Mortgage lenders are typically more strict when considering jumbo loan applicants, particularly where credit scores are concerned.

Credit-score standards and criteria vary from one lender to the next. There is no single cutoff point used across the board. In 2015, many mortgage companies seem to be setting the bar around 600 or 620 for a conforming home loan, and upwards of 650 for jumbo products. (This is on the FICO scoring scale, which goes from 300 to 850.)

The good news for borrowers is that we’ve seen some easing in the mortgage market lately, where non-conforming loan products are concerned. More on that in a moment. First, let’s talk about what a jumbo loan is, and why lenders have higher standards for the borrowers who use them.

Jumbo Mortgage Loans Defined

The concept of jumbo versus conforming home loans relates back to Fannie Mae and Freddie Mac. These are the two government-sponsored enterprises, or GSEs, that buy and sell bundled mortgage loans on the secondary market (think Wall Street).

Federal laws limit the size of loans Fannie Mae and Freddie Mac can acquire. Anything that falls within these size limits is a conforming loan. Anything larger than those limits is considered a “jumbo” loan, and is therefore not eligible for GSE purchase.

Conforming loan limits vary by county. They are established by the Federal Housing Finance Agency (FHFA), which also oversees Fannie and Freddie. Each year, the FHFA reviews loan limits in relation to home prices and makes adjustments if necessary.

According to LoanLimits.org, the current limit for single-family home loans for most counties across the U.S. is $417,000. In more expensive areas, like Los Angeles and New York City, the conforming cap can be as high as $625,500. In Hawaii, it can be even higher.

Mortgage lenders commonly impose higher standards for borrowers who are seeking a jumbo loan, simply because there’s more money involved. A bigger loan is a bigger risk to the lender, especially when they can’t turn around and sell it to the GSEs (which is usually the case with non-conforming products). So they often require larger down payments and higher credit scores for jumbo loans, when compared to the smaller / conforming mortgage products.

Surprisingly, however, jumbo loans offer lower rates on average than their smaller conforming counterparts. It wasn’t always this way. But that has been the trend for the last few years, due to shifting demand within the secondary mortgage market.

Minimum Credit Score Needed for Jumbo

As mentioned earlier, there is no industry-wide standard for jumbo loan credit scores. Mortgage lenders have their own, often unique, ways of underwriting home loans and qualifying borrowers. The one thing you can be sure of is that a higher credit score will increase your chances of qualifying for a jumbo loan.

These days, a lot of lenders want to see a credit score of 650 or higher for borrowers seeking a jumbo mortgage product. But that number is not set in stone. Other lenders will go below that level if they feel the borrower is a strong candidate for a loan. Borrowers with high income and a lot of assets, for example, often get a “pass” in the credit score department.

Signs of Easing in the Mortgage Market

I mentioned some good news at the start of this story. Here it is. The jumbo loan market has loosened up some over the last couple of years. We first got wind of this in September 2014, when CNN did a story on the subject.

According to the CNNMoney report from last fall:

“During the past several years, most jumbo borrowers needed at least a 700 credit score to get a loan. But now [fall 2014] lenders are giving loans to borrowers with credit scores of as low as 650.”

Additional signs of easing came earlier this week, when the Mortgage Bankers Association (MBA) released the latest results of its Mortgage Credit Availability Index.

According to Mike Fratantoni, Chief Economist with the MBA:

“Mortgage credit availability increased in August and has increased in eight of the last nine months. While much of the loosening has been for jumbo loan products, the availability of conforming conventional mortgage credit has also somewhat increased…”

The bottom line is that credit score requirements are generally tougher for jumbo mortgage loans. But it might be getting a little easier.

New Forecast: Mortgage Rates to Rise Slightly By End of 2015

The economic team at Freddie Mac recently issued a revised mortgage forecast through the end of this year. They anticipate the average rate for a 30-year fixed mortgage will rise to around 4.3% by December 2015. The 30-year average was hovering around 3.9% when this article was published.

We are nine days away from the next scheduled meeting of the Federal Open Market Committee (the Federal Reserve’s think tank), and many housing analysts are wondering if the Fed will finally raise short-term interest rates. If they do, we could see a subsequent rise in mortgage rates between now and the end of 2015.

In fact, some economists have previously predicted that mortgage rates will increase gradually between now and the end of 2015.

But there’s also a good chance the Fed will do nothing. We’ll know soon enough.

Next Federal Reserve Meeting: September 16 – 17

The Federal Reserve does not directly control mortgage rates. But they do control the short-term federal funds rate, which is used when banks lend money to one another. This has an indirect influence on longer-term interest rates, such as those applied to mortgage loans.

Federal Reserve policies and operations are decided during Federal Open Market Committee (FOMC) meetings. The FOMC meets eight times per year. Their next meeting is scheduled for September 16 – 17, 2015. Announcements and meeting minutes are typically published on the second day of the meeting.

For a while, the general consensus was that Fed officials would announce a rate hike during their September meeting. But now, analysts aren’t so sure. Recent turmoil in the stock market and global economy might cause the FOMC to continue along its current course, which would mean keeping the federal funds rate near zero. If they do maintain the status quo, mortgage rates would be less likely to rise significantly during the last quarter of 2015.

Mortgage rate forecasts for 2015 usually take all of this into account. For instance, in its latest forecast and outlook for the U.S. housing market, mortgage buyer Freddie Mac stated the following:

“Six-plus years into what has been a very tepid expansion, is it finally time for the Fed to raise short-term interest rates? The Fed has stated it is waiting for evidence that labor markets have recovered and inflation is reliably expected to be at or above 2 percent before it will take action.”

While the job market has improved since the start of 2015, inflation is still below 2% and could actually drop further according to some estimates. So there’s a good chance the FOMC will decide against any policy changes and continue along it charted course for now (with the funds rate near zero).

At a recent news conference, New York Federal Reserve president William C. Dudley said: “From my perspective, at this moment, the decision to begin the normalization process at the September F.O.M.C. meeting seems less compelling to me than it was a few weeks ago.” (Full story at New York Times)

Revised Mortgage Rate Forecast by Freddie Mac

The Chief Economist’s Office at Freddie Mac has taken all of these factors into account, and recently issued a revised forecast for mortgage rates. Their housing outlook report for August called for a slight increase in rates through the end of 2015.

They’ve actually revised their forecast downward in recent months. This time last year, Freddie Mac estimated that the average rate for a 30-year mortgage would approach 5% by the end of 2015. But it’s highly unlikely that will happen, given that the 30-year average is currently hovering below 4%.

Now, the company has issued a revised mortgage rate forecast with a lower year-end estimate. Based on current trends, they expect 30-year mortgage rates to rise slightly to around 4.3% by December 2015.