Regulatory Changes Allow Freddie and Fannie to Buy More Loans!!!!

Federal regulators have relaxed the GSE's (Fannie Mae and Freddie Mac) capital requirements. How will this help us?  First, Fannie and Freddie provide liquidity to the secondary market for loans in two ways: by buying and holding mortgages and mortgage-backed securities (MBS) as investments, and by securitizing and guaranteeing large pools of loans that are sold to other investors.  By relaxing the capital requirements, the GSEs will be allowed to buy up to $200 billion more in mortgages and mortgage-backed securities  By years end, the GSEs will have purchase or guarantee $2 trillion in mortgages. An OFHEO press release said that the extra capacity will permit Fannie and Freddie to participate more in the jumbo-conforming market, sub-prime refinancing and in loan modifications areas.

This move will hopefully provide some stability to the Mortgage Backed Securities (MBS) market by removing high-risk assets form the Wall Street investment bank's balance sheets.  The GSEs will buy these securities to allow the investment banks to replace them with higher rated mortgages.  The Government actions are directed toward regaining market confidence by allowing the investment banks to show investors that the MBSs are a sound financial instrument.

Lately, there has been a widening gap between treasuries and other benchmarks against the 30 year treasury.  This gap is mainly due to the sub-prime collapse.  Investors are not buying  treasuries or MBSs.  Loss Investors confidence has been a direct result from investors losing their "AAA rated investment" backed by sub-prime mortgages.  As a result, Banks have no place to sell mortgages too unless they make the mortgages more appealing by raising the interest rate.  So it is market conditions, in this case the ability to sell MBSs, influence mortgage rates.  Read why Treasury notes are not the bench mark to use when tracking mortgage rates!

You can find AJ Nisen on Active Rain at Contra Costa California Mortgages.  Call AJ to talk about Mortgage Rates, Free Credit Report or visit AJ's website to use his mortgage calculator. 

Alan 'AJ' Nisen
Mortgage Loan Officer
Email: aj.nisen@bankofamerica.com
http://mortgage.bankofamerica.com/ajnisen 
http://www.activerain.com/ajn