The dust has settled and life goes on. Rates have plummeted for their programs but qualifying is a lot more difficult.
Starting in October the new risk base pricing takes affect; it was always there but to a lesser degree. It's very important for your borrower to keep the LTV at 60% or under for best rate.
AND the FICO score really matters more than ever. We used to think a 700 FICO was a great score, but no longer, the cut has risen to 740. Those above will receive the best rates. Those below 740 will have add on's to the rate and if their LTV is higher than 60% it gets even uglier. It's plain and simple investors no longer have an appetite for risk.
As the old and seriously flawed Fannie and Freddie mortgages continue to depress the market, the new government backed mortgages will find welcoming homes. But believe me there is a market for the old securities and the market is going to clean up big time, so please shed no tears for those investors.
As an example Merrill Lynch recently sold all their MBS's for 22 cents on the DOLLAR, investors were ready and willing to purchase them. For instance a $400,000 mortgage went for $88,000. If the investor puts it back on the market for $264,000, he cleans up. This is a pretty realistic picture of what will happen.
But now that the government has taken over the control and management of Fannie and Freddie can we really breathe a sigh of relief and expect a change for the better? I hardly think so when you consider the people responsible for oversight are the same government officials who let Fannie and Freddie ignore the guidelines established over and over again because they were paid off. Last year alone the finance committee received $1.7M and in previous years received about the same to remain silent.
You have to ask exactly what else did Charlie Rangel, Christopher Dodd and Barney Frank receive in exchange for this "oversight" (pun intended)? Well they were receiving about $500 Million a year to spend on their "pet projects".
Fannie-Mae and Freddie-Mac should never see the bright light of day of their former image. They need to be broken up into smaller pieces, receive NO federal funding and compete in the private market place. Up until the government stepped in and took over they existed on taxpayer funds, they paid NO taxes, paid exorbitant executive salaries (for continually losing money year after year), cooked the books by hiding or deferring loses and designed a flawed software program that allowed the "warm and breathing" to obtain loans. They created the "sub-prime" debacle along with Wamu, Countrywide and others. All of this with government oversight.
If any one asks whether the government should have more oversight and regulation in the mortgage industry, please say NO. Less government oversight and more privatization of the two companies should be mandatory. If any law or guideline is established it should prevent ANY company having more than a 15 - 20% market share. AND NO government subsidy to ANY ONE FOR ANY REASON.
The two quasi government entities grew to a size that was detrimental to the economy and industry because they were subsidized by the government preventing any legitimate competition in the securitizing industry.
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