Mortgage rates here and elsewhere are stabilizing, and funds should be plentiful but expensive for the next 30 to 60 days.
Barring significant changes in the national economic climate, home buyers, sellers and rental property investors looking ahead to the spring season can plan on interest rates that will stay in today's range. That means:
Mortgage leans will carry 10 1/2 to 10 3/4 percent rates with 20 percent down payments, and marginally higher rates with 10 percent down payments. Major savings and loan associations in this area are quoting 10 7/8 to 11 percent on loans with 5 percent down payments.
The effective annual rate to the borrower on some high-ratio mortgages, including loan insurance premiums and "points," will exceed 11 percent in Virginia, Maryland and the District.
The District's interest rate lid is 11 percent, exclusive of points. Maryland lifted its 10 percent limit last week, but still prohibits points on most owner-occupant home loan transactions. Virginia has no limits. (A point is equal to 1 percent of the principal mortgage and is assessed at settlement by a londing institution to increase its return.)
Prime mortgage amounts should remain generous here and in most metropolitan areas, with S&Ls and mortgage bankers willing to go to $100,000 or $125,000 on well-secured loans. Maryland S&Ls, which had been forced to the sidelines by the state's usury limit, have jumped back into the market with a splash, and can offer plenty of large loans. Gevernment Services Saving and Loan Association in Bethesda, for example, has set a flat rate of 10 1/2 percent on 80 percent loans of up to $100,000 in Maryland.
Investor finacing for small-scale rental properties of one to three units should also be plentiful -- but at 11 1/2 to 11 3/4 percent effective rares. During last fall's money squeeze, in contrast, investor loans were shut off at virtually all lending institutions. When available at all, the rate was 12 to 13 percent.
Columbia Federal Savings and Loan Association in the District offers loans of up to $125,000 at 11 1/4 percent, plus two points for investment property. Maryland and Virginia institutions are a notch or two higher, but are eager to make these profitable loans.
FHA and VA mortgages still carry 9 1/2 percent rates, but require heavy payments of points by property sellers. Wally Wilson, president of Mortgage America, a suburban mortgage banking firm, estimates that point charges range from a low of 3 1/2 to a high of 4 1/2 in the metropolitan area today, and effective rates on FHA loans are hovering at 10 1/4 percent.
This includes calculation of the impact of the points on the seller and buyer (three points paid by the seller and one point by the buyer), as well as FHA's annual 1/2 percent insurance premium. VA loans, which can go to $100,000 and require no down payments for qualified veterans, are "probably the best deal anywhere in the market today," Wilson said. "The consumer gets a very-high-ratio loan and a 9 1/2 percent basic rate on the mortgage."
Sellers, of course, must be willing to shell out 4 or more percentage points from their proceeds. That's $4,000 on a $100,000 house purchased with a 100 percent loan.
The only real danger to the mortgage market this spring and summer is the rising cost of S&L savings deposits, according to lenders and economists. Most new deposits at the nation's thrift institutions are in the form of "money market" certificates with six-month terms. Locally, these certificates yield savers a compound 10.3 percent -- a rate that cannot long support the mortgages in the 10 1/2 percent range that S&Ls are making.
T. William Blumenauer Jr., president of Columbia Federal Savings and Loan Association, says that "something's got to give," possibly in the second half of the year. "Either S&Ls will be forced to cut back on the yield of these certificates -- which would drive money out of deposits and cut back on resources for mortgages -- or reduce our lending."
S&Ls generally need at least a 2 to 3 percent point "spread" between the cost of their deposit money and their mortgage loan rates to make a profit. As larger and larger proportions of deposits take the form of 9 and 10 percent certificates, the squeeze could begin on mortgage money. That, in turn, would have a depressing effect on homebuilding, home buying and the economy as a whole.
Kenneth R. Harney is editor of the Housing and Development Reporter, published by BNA Inc.