A week has passed since the government took control of Fannie Mae and Freddie Mac, what has changed?
So far, very little. The CEOs of the two companies were let go (with nice severance packages that are being debated) and replaced with new heads meant to being back some security and clean up the balance sheets. No new regulations, guidelines or loan programs have been announced and no changes have been made to those existing. Plans to implement new guidelines and fees announced in August and taking effect on October 1st have not been changed.
The question becomes, has this really improved the mortgage, credit and housing markets?
If you look at interest rates alone, the answer by consumers is likely yes. On Monday morning interest rates on 30 year fixed loans dropped approximately .5%. Over the last month when the takeover began to look certain, interest rates have decreased almost .6%. Although by the end of the week rates had increased slightly off their lows, this took the 30 year fixed rate for the highest qualified borrowers below 6% for the first time since early this year.
This decrease in rate means that the monthly principle and interest payment on a $200,000 mortgage will be ~$75 lower than it was a month ago. It could possible result in a small increase in purchases and refinances, helping both buyers that are looking for homes, sellers and those that need to refinance and lower their monthly payment.
The reason for this decrease is renewed confidence in the mortgage backed securities these institutions sell now that the US Treasury is backing them. Under the terms of the bailout the US can loan Fannie Mae and Freddie Mac up to $200 billion and also buy their mortgage backed securities. With increased demand and decreased risks, the interest rates will usually go lower.
As for other measures of the success and the long term effect this will have, that remains to be seen. This may help some, but the credit, mortgage and housing markets still need to return to affordability in many areas and that could take some time. More money, restrictions and changes could still be needed and the outcome on the US economy of this new obligation is still unknown.
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Roland Carrillo, PhD
Branch Manager
VanDyk Mortgage in Cary, NC
Email: rjcarrillo@gmail.com
Website: http://www.mymortgageanalysis.com/
Our branch specializes in affordable lending options including FHA / VA and the Community Heros program. As both a banker and a broker, you have access to a full menu of products including all Fannie Mae and Freddie Mac Conforming loans, Reverse, Jumbo and Commercial financing on a variety of property types. We are located in Cary, North Carolina and are within easy reach of the entire RTP Area including Wake, Durham and Orange Counties.
