Banks Offering 3.875% Fixed Rate Mortgages

3.875%

TARP Dollars Deployed

Two Washington State banks are now offering 30 year fixed rate mortgages at 3.875%.

SPOKANE, Wash. — Spokane-based Sterling Savings Bank and Walla Walla-based Banner Bank are offering mortgages at interest rates below 4 percent to stimulate sales and help builders move homes.

Bank officials said the low rates benefit buyers and builders, and demonstrate the banks are putting federal government bailout money to work in the Northwest.

Banner received $124 million from the federal Troubled Asset Relief Program, or TARP, while Sterling collected $303 million.

Sterling is working with Golf Savings Bank, its mortgage lending subsidiary, to offer qualified borrowers either a 3.875 percent fixed mortgage rate or a 3 percent lender contribution, up to $20,000.

Golf Executive Vice President Donn Costa said the program helps reduce the inventory of unoccupied homes and firms up prices in markets where sales activity have been slow.

Sterling has set aside $25 million of its federal bailout money to the program, which has allowed it to do 10 times more loan volume than it would have without that money, Costa said.

Expect Mortgage Rates To Continue To Decline

To some extent, this low rate lending program is political theatrics and a public relations effort.   Although the banks in question are offering below market rates, Sterling Savings Bank is only allocating $25 million of its TARP funds to this program after receiving $303 million.  In addition, Sterling is accepting applications for this low rate program only from March 25 to April 15, 2009 and most borrowers will need a 20% down payment to qualify.  The program applies only to new home purchases and not refinances.

Nonetheless, expect to see more offers of low mortgage rates for the following reasons:

-The government is actively pushing  banks to lend TARP funds.

-Both the Federal Reserve and Congress are convinced that reviving the housing market is key to economic stabilization and recovery and will supply the banks with whatever amount of funds is necessary to achieve this goal.

-Continued purchases of mortgage backed securities by the Federal Reserve  (theoretically), will keep mortgage rates low.

-Banks are currently parking massive amounts of excess reserves in low yielding treasury securities.  At some point, especially if the housing market appears to be stabilizing,  funds should start flowing  from treasuries into mortgages. This asset reallocation  would be highly profitable for the banks, given the wide spread between cost of funds and mortgage yields.

In the long term, free market forces will ultimately determine the level of mortgage rates and housing prices.  In the short term,  I would view any  chance to refinance in the mid 3% range as the opportunity of a lifetime.

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