Sunday morning, on September 7, 2008 … The United States Treasury became MIGHTY MOUSE and flew into SAVE THE DAY for the U.S. Housing Market!!!

No matter how you look at this action, whether it be a necessary step or … a huge, undeserving BAIL OUT … like a hole in a sinking ship, this step was needed!! Not only must our national housing market be stabilized but the world’s entire global economy hinges on this recovery … Fannie Mae and Freddie Mac hold $5.4 TRILLION dollars in mortgage debt which is equal to all of the U.S. publically held debt … our entire economic survival hinges on the stability of these two (GSE’s) aka, government sponsored enterprises so … that being said this mornings announcement has set forth 4 steps that will take place and it is my attempt here to translate this into “Consumer English”.

Fannie Mae (FNMA) and Freddie Mac (FDMC) have been placed into a temporary conservatorship until December 31, 2009.  Just like you might have an aunt and uncle that can no longer handle their own affairs, our Uncle Sam now oversees Aunt Fannie and Uncle Fred. What does this mean to us? … It means that more investors will be willing to put money into our “Home Loan Cookie Jar” from which all loans will be made. Not only will there be more money available but, the cost of these loans will be lowered in an effort to encourage mortgage affordability.

Right about now … You might be asking yourself … ‘isn’t this how we got into this mess in the first place?’ … well, yes and no … The big difference THIS time is … the rules of getting a loan have changed so dramatically that these NEW LOWER INTEREST RATE LOANS will be a safe investment for anyone who puts money into the “cookie jar” …

Why do I say that the interest rates on these loans will be low? One of the new things put into play by this new plan, will be the issuance of new Fannie and Freddie Mortgage Backed Securities, otherwise referred to as GSE MBS’s … remember, it is really Uncle Sam telling Aunt Fannie and Uncle Freddie how to manage their financial affairs so that means that to encourage stability in the housing market we need to make mortgages more affordable to those people who are credit worthy of getting a home loan. Credit Worthy NOW means you have to have decent credit, can prove how much you make and how much you have saved in the bank or your 401K.  Over the last several months the underwriting guidelines have changed back to where they were several years ago so, the risk of lending money is lower because the chances of getting paid back are much improved … THIS IS A GOOD THING!!

Since the Summer of 2007, when the “Mortgage Meltdown” started those people who were still willing to put money into the “cookie jar” have been asking for a much higher rate of return because it was a riskier thing to do but now, with this new arrangement, the risk of making money available for home loans will be less risky and therefore lower, the cost of this money will be lower and this will result in lower rates. Additionally, Uncle Sam wants to see that these interest rates are more in line with the other investment securities they offer in the form of treasury bills so … barring any headline breaking, earth shattering global news, look for long term interest rates to dramatically improve over the next few weeks.

There are so many components that go into what sets our interest rates that good news for the economy actually means bad news for interest rates and visa versa … How long the news controls the effect on rates is determined by the psyche of the traders and investors at the time of the breaking news … if those that buy MBS’s have rose colored glasses on, then the breaking news doesn’t effect rates that much but … if those MBS buyers are nervous about ANYTHING, then watch out, the slightest thing will spook them and that 6% loan will now cost you ½% in points until of course another piece of news comes along to simmer everybody down and then the cost of that 6% rate is reduced.  

Money is a commodity and the cost of that money changes on a minute by minute basis throughout the trading day … until the closing bell, when you are choosing a Mortgage Lender, make sure they are aware of the current economic reporting data for that day, what is coming up for the week and more importantly, what the current trading value of mortgage backed securities. If you would like to discuss this further, please give me a call … Jane Whitten, Loan Officer with Windsor Capital Mortgage

Office: 562-728-9971

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 Tags: Fannie Mae, Freddie Mac, GSE, Mortgages, Bail Out