We all know the government is moving away from that larger segment of the home loan business, better known as Fannie Mae and Freddie Mac. It will take years but the phasing out of Fannie and Freddie is on the horizon. This will ultimately increase the cost of borrowing money to purchase a home. On the other side, it will save taxpayers from bearing the cost, if the housing market implodes again.
Fannie and Freddie formed a secondary market for mortgage loans, with standardized terms, packaged into securities that carried a payment guarantee. Investors bought the securities and provide money for new mortgages. The demise of Fannie and Freddie came about when the home market collapsed and they were left holding loans that turned out to be too risky. The government paid more than a billion to honor the Fannie and Freddie debt and loan guarantees.
The process has started in making these government back loans less attractive. The limits on loans Fannie and Freddie will guarantee are slated to change this October 1, decreasing to a maximum of $625,000, the max is currently $729,750. This will make loans more costly in expensive housing markets, for example New York and San Francisco. The down payment minimums will probably increase to 10%. As of April 1 Fannie and Freddie raised rates on loans, by increasing the adverse market charge. Prior to April 1, borrowers with a 740 credit score or more were exempt from the adverse market charge, now they are subject to a 0.25 percent adverse market charge.
The debate is taking place now on the restructuring of the mortgage market for the long term. Will the rates go up, considering investors will no longer have the government guarantee? Probably lenders will demand larger down payments and higher credit scores? Will the traditional 30 years mortgage slowly disappear? What is your opinion?
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