Home buyers and holders of existing mortgages were the first beneficiaries of the Federal Government's decision to take over mortgage giants Fannie Mae and Freddie Mac this past weekend.
To give you the details...Before the decision was announced the so called FNMA 5.50% coupon closed at $99.40. By Monday, the FNMA 5.50% OPENED at $100.50 and closed up over 100 basis points near $101.30. All that turned in to a .5% drop in fixed mortgage rates.
For historical perspective, fixed rate mortgage rates have not been this low since February of 1995.
So what does it all mean for buyers, and homeowners in Portland and elsewhere? For buyers it means payments on the average 30 year fixed rate loan will drop by nearly $85. Those holding existing loans, especially Adjustable Rate Mortgages (ARM) have an opportunity to lock in 30 year fixed rates as low as 5.500%. Why is this happening. McClatchy's Kevin Hall explains it best...
"Since Fannie Mae and Freddie Mac own or back more than half of U.S. mortgage debt, anything to stabilize them helps the broader financial markets. In recent months, investors have demanded higher returns in exchange for buying Fannies and Freddies. That led to a widening spread, or gap, between these bonds and, say, a 10-year Treasury bond. Mortgage rates take their cues from long-term U.S. government bonds, so it has had the effect of driving up mortgage rates. Since a Fannie or Freddie will now effectively be government-issued debt, the gap should narrow and rates fall."
More of Hall's rundown is here.
Going forward, the best news may be that consumers will continue to have a wide variety of choice in their efforts to obtain favorable financing. Why?
Until the takeover, we were headed toward a mortgage world that may have been dominated by just a handful of uber banks. That would have limited choices for consumers, and ultimately resulted in higher costs. Until this weekend, Fannie Mae and Freddie Mac, while chartered as Government Sponsored Entities (GSE), were still publicly traded companies. They had a profit motive. That led them to often times offer more favorable terms for high volume partners.
Now that they have become fully governmental entities, that profit motive is gone. The result is that we should see more small and medium mortgage originators with access to the same perks the big boys have with Fannie and Freddie. That will level the playing field, and provide more choices for consumers.
Subscribe to CommentsComment