Mortgage Market Report for Monday May 5, 2008

Today Representative Barney Frank complained that the mortgage industry has done little over the past month to make higher-value loans available in costly housing markets, after Congress took steps to try to infuse more cash into the so-called jumbo market.  He will hold a meeting on May 21^st.  He is trying to find out why these mortgages remain difficult to obtain and continue to carry high interest rates despite the rules that took effect April 1^st.

"I am disappointed," Frank said in response to an audience question after a speech to a Mortgage Bankers Association convention. "We fought very hard to raise the loan limits for Fannie and Freddie, and there have been a lot of problems in implementation."

Frank said he called the hearing to "try to unstick" loans made under the new rules covering jumbo mortgages.

"There is a chain of people blaming each other, and we're going to call everybody in there into the hearing and find out why," Frank said.

To address the worst housing crisis in decades, the economic stimulus package that President Bush signed in February included a temporary increase in the cap on mortgages that Fannie and Freddie can purchase or guarantee, from $417,000 to $729,750 in high-cost markets. The change will be in effect through 2008.

The goal was to spark investor demand for securities made up of higher-value mortgages backed by Fannie and Freddie, which would have the effect of driving down interest rates on jumbo loans and spur home buying and refinancing activity.

The immediate impact was expected to be muted as investors in mortgage-related securities remain wary of making risky investments, even if they're tied to mortgages guaranteed by Fannie and Freddie.

Interest rates on jumbo mortgages have been running about a percentage point higher than those for conforming loans for months, and Frank said he's seen little evidence since the new lending flexibility kicked in that the rate spread has narrowed.

Jay Brinkman, chief economist for the Mortgage Bankers Association said, "You don't want to guess on the low side. If you make a mistake in this environment... you can take a serious price hit."

Brinkman also said mortgage lenders and investors in mortgage-backed securities need time to adjust to regional differences in the loan amount that Fannie and Freddie can guarantee under the new jumbo rules.

Another problem is that jumbo loans guaranteed under the newly enlarged caps aren't being sold in a key secondary market. Mortgages above the conforming loan limit of $417,000 will not be allowed to be blended into packages of other loans traded in the market.

Thank you for listening to contactherrick.com and we will have another report for you your family your friends and your important business contacts tomorrow.

However beautiful the strategy, you should occasionally look at the results.

Sir Winston Churchill