All of the stock market was in trouble this week, but among the stand-outs reaching trading lows were Fannie Mae and Freddie Mac – the giant, private, but pseudo- government, mortgage sources. When you get a mortgage from your local bank or mortgage broker, that loan is frequently sold immediately to Fannie Mae or Freddie Mac. You get a notice to send your payments elsewhere. The “elsewhere” is where Fannie Mae or Freddie Mac sold it after they bought it. In order for a loan to be sold in this way it has to meet certain guidelines – and if you can’t meet those guidelines, you will pay more for your loan because it can’t be sold on this efficient mortgage trading market. As the New York Times says in an interesting analysis this morning, “The mortgage financing system hums along until Fannie and Freddie have trouble raising money to buy loans, or it costs them more to raise the money. And that’s what is happening now.” The question then is how, and when, any of these higher costs will be passed along through the mortgage lenders to consumers. Fannie and Freddie have private shareholders, and those shareholders are not willing to absorb the costs forever. That there is fear that they may have to absorb some or all of them is reflected in the companies' plunging stock prices this week. As a result, according to the NY Times, many mortgage experts expect rates to rise a quarter percentage point to half a point in the coming weeks. The average rate on Thursday for a prime 30-year fixed-rate non-jumbo mortgage was about 6.45 percent for someone not paying special fees known as points to lower the rate, according to HSH Associates data reported in the Times. Over the longer term, a dysfunctional Freddie and Fannie could send mortgage rates higher than they would have been otherwise, relative to key market rates like Treasury securities. This trend will cause more homebuyers to be priced out of the housing market, not because homes are too expensive, but because interest rates are too high for some buyers to meet the monthly interest expense on their home loans. Now is the time for sellers who need to move to offer to “buy-down” the mortgage interest rate for buyers to effectively lower the buyers’ monthly payments. To learn more about the benefits of this for both buyers and would-be sellers, contact me or our blogging mortgage partner – Liz Fontanini of Wallick and Volk. Make a move next week! If you want to buy or sell real estate, call Team Heitland at RE/MAX Peak Properties. |
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