Mortgage Rates Fall Back Towards 5%, Bank Nationalization Fears Rise

MortgageLoan.com's mortgage rate watch saw the average 30-year fixed-rate move back down, nearing 5 percent. The average 15-year fixed-rate mortgage dipped below 5 percent to 4.80 percent.

An enormous economic stimulus bill and a new $275 billion foreclosure prevention plan are driving down mortgage rates for the second straight week. More directly, mortgage rates are being pushed down by additional Federal Reserve purchases of mortgage-backed securities and continued nervousness in the equities market.

The Obama administration continues to fight the housing crisis on two fronts--making housing more affordable and preventing foreclosures. The recent economic stimulus bill included an $8,000 tax-credit for first-timehomebuyers and the foreclosure prevention plan announced Wednesday includes government-assistance in reducing borrowers' payments to 31 percent of their monthly income.

New home sales continued their downward trend to historic lows in December and existing home prices are down 15%, the biggest drop since 1968. However, mortgage applications continue to increase, as borrowers try to lock in low rates for what is considered a long economic downturn ahead.

Meanwhile, fears and debate continue to swirl around rumors of the nationalization of major US banks. Statements by Federal Reserve Chairman BenBernanke peaking anxiety in the US markets with statements on Wednesday, saying there would be drawbacks to nationalizing banks and that the Obama administration would be committed to "return them to private hands" quickly, if necessary.

Bernanke was speaking to the National Press Club and responding to a question asking if he agreed with another statement by his predecessor, Alan Greenspan. Greenspan had told the Financial Times that it may be necessary to temporarily nationalize banks to bring swift and orderly recovery.

Much of this discussion is hypothesizing around the results and potential reactions to current "stress tests" that are taking place on these major financial institutions. The Federal Reserve and other banking regulators are trying to assess quantify these banks true position. How much more negative economic pressure can they take--how much more capital will it take to steady these banks?