High home loan rates may be here to stay

October 12, 2010 03:00PM

Though mortgage rates have hit another record low — an average of 4.27 percent for 30-year fixed-rate loans, according to Freddie Mac — analysts say home loan rates are much higher than they should be, the Wall Street Journal reported. Rates haven’t fallen further because banks are unwilling to lower them and lose profit margins, as uncertainty in the market makes it difficult to predict the number of homebuyers. Instead of moving the rate lower to 4 percent, which banks might have done in earlier times, “illiquidity and unusual situations are causing originators to hold rates at this level rather than risk losing money on new loans they have difficulty hedging,” said Paul Jacob, director of research at Banc of Manhattan Capital, in Manhattan Beach, Calif. Normally, small banks would push rates as low as they could go, to make more loans and more money. But they have found that while lower rates may bring in more homebuyers, there is little guarantee that many of these consumers will qualify for a loan under today’s stricter borrowing standards. [WSJ]