WOW! This weekend the government (treasury department) guaranteed a $250 billion open ended line to fund all fannie mae and freddie mac mortgage bonds.
What a historic expansion of government. After pimco (largest buyer of bonds) voiced concerns and said they would no longer buy mortgage bonds, this raised concerns in the capital markets. Other foreign governments were speaking along those lines as well. That would have meant bad new for mortgages! This is a result of Fannie Mae and Freddie Mac becoming too big for their britches.
They own or insure over 45% of mortgages in the United States.
This move by the government can be likened to the bailout during the savings and loan crisis. The hopes from our side is that this on a short term outlook will help mortgage rates drop, substantially this week. For a short-term bailout this was a critically important move by our government.
On a long-term note, this will help to shrink Freddie and Fannie over time. This will cause big banks and institutions to buy mortgage backed securities (mortgages). This allows the current market chaos to continue, but builds a floor for things to not get worse and should help to put a floor in places where needed. This will cause things to remain tight from a lending standpoint as they are now.
Conforming loans will stay put, and not go away. Banks (investors) will actually put money into these now safer mortgage backed securities and help the lost investor appetite here and abroad for our mortgages. With this the government will have more control over fees and costs for mortgages.
Yes, we still have a tight credit market, and tougher lending guidelines. But here in Colorado if you follow my blogs, foreclosures are starting to slow.
Enough of the techie jargon! What does this mean to all of us who own homes with rates in the mid to high 6% range, or those buying houses right now????
This will in the short-term mortgage rates staying lower, even in the mid to upper 5% range. If you need to refinance or are looking to buy make sure you take advantage of this and add to that the first time buyer credit to make nice assistance with a slower economy when buying your next home. I can attest that I did lock in my first client this week at 5.5% on her new mortgage rate. But call me to talk about your situation.
Sincerely,
Ray
Summit Mortgage
Branch Manager
303-779-0591
