Mortgage Blog

The Federal Reserve announced on Friday that it will be essentially taking over the troubled Fannie Mae and Freddie Mac.  Fannie Mae and Freddie Mac currently account for about 50% of the nation’s $12 trillion of mortgages.  What does this mean for homeowners and mortgage rates?  Will this be enough to save the troubled mortgage and housing market?  Is it time to consider a home refinance?  Let’s take a look at what this could mean for you.  There still remains an excess of supply in the housing market.  This will not change over night.  The take over will likely mean a reduction in interest rates for those seeking a purchase loan or a refinance mortgage.  How you ask?  Investors in mortgage backed securities have been reluctant to invest due to the unknown continuation and solvency of Fannie and Freddie.  The government intervention basically insures that the two companies will continue to operate and remain solvent.  This bolsters investor confidence which will reduce the interest rates that are available to existing and future homeowners.  The gap between mortgage rates and treasury bills should be reduced as investor’s concerns are reduced.

The Feds are Here to Save the Day

As rates drop, it may allow more potential homeowners to qualify for home purchase loans.  This could help to slowly reduce the number of homes on the market and eventually stabilize the housing market.  Mortgage rates will also allow speculators to start buying homes in highly devalued areas of the market.  This speculation could help to shore up home values in rapidly declining markets.

The available capital for Fannie and Freddie is now virtually unlimited.  They have the backing of government and treasury funds which means that there is almost no chance of the companies going insolvent.  This is great news for the investors of mortgage backed securities.  The government will also be receiving a 10% return on the funds that they grant to Fannie Mae and Freddie Mac.  This could be a good thing for taxpayers, assuming the company can turn around.

There is still a long way to go before the mortgage refinance and housing markets recover.  There will be more steps taken by the government in the Federal Housing Administration and there are sure to be changes in the operating procedures for both Fannie Mae and Freddie Mac.  There is now some good news coming to the market, for the first time in a long time.  This is by no means a fix, but it could prove to be a much needed band-aid.

The recent drop in home prices may be starting to level off allowing home owners to pursue a home refinance or purchase a new home.  You can almost feel it starting to happen.  For the first time in a long time folks are starting to talk about purchasing homes again.  If you are wondering about your local real estate market there are some very basic ways to determine what the market will do moving forward.  Do you notice friends and family starting to talk about buying a home?  Have you started to see those homes that have been on the market for 8 months with sold signs in the front yard?  There are basic indicators that you can watch for in your neighborhood and your city.  Real estate is typically localized as far as values etc., thus national reports on home prices may not be a good indicator of value for your area.

Foreclosures are still rampant in the marketplace and there is no sign of a decrease anytime soon.  Foreclosures have a drastic effect on home values and can substantially decrease area’s home values.  There has been a fear for many potential new home buyers over the last year or two.  Home values dropped so rapidly that any thought of buying a new home was quickly put to rest for Americans over the last few years.  FHA loans are becoming increasingly popular recently.  These loans allow you to buy a home with as little as 3% down and there is no credit score requirement.  This opens the door for many new home buyers to qualify with little down payment.  There will be a great window of opportunity opening for buyers that plan to stay in their home long term.  The market will be reaching a bottom as far as home values are concerned within the next 12 to 24 months in my opinion.  As with most markets we typically do not know where the bottom was or will be until months after it has already happened.  This is due to lagging economic indicators and lagging real estate market figures.

The bottom line is simple.  The market is getting close to a recovery.  It may not be there yet in your area but it is getting close.  Stay poised.  Don’t be irrational.  Do not ever buy a home with a mortgage that you do not feel completely comfortable with.  Please stay away from adjustable rate mortgages and payments that seem too low to be true when searching for a new home loan.  30, 20, and 15 year fixed rate mortgages are the only financing that you should consider when buying your home, unless you are very knowledgeable about mortgages and have a situation that requires another mortgage product.  Your home can and will still be one of the best purchases and investments that you will ever make.  Be educated and use good judgment.  There will be a lot of money made when the housing market recovers and it is time to start considering the purchase of a new home.