Fannie Mae and Freddie Mac

Mortgage and Lending with Peoples Home Equity Inc.

I have had a few thoughts about the recent collapse of the mortgage giants and would like to know others thoughts on the matter.  Fannie Mae and Freddie Mac were both taken over by the government in September of this year.  This was mostly because of lax underwriting guidelines, and the declining home prices in the US.  Since then the real estate market has continued to deteriorate, and congress has passed a $700 billion bailout of the banks.  Both of the mortgage giants have continued to tighten lending guidelines and ratchet up rates.  In order to get the very best rate a buyer in today's market getting a Fannie Mae backed loan needs to have a 720+ credit score and 20% to put down.  They have all but eliminated investors from their loan portfolios, making them put a minimum of 20% down and raising the rates on these loans to the mid 7's on a 30 year fixed loan, and limiting the number of properties that can be financed to 4 - where it use to be 10.  It seems to me that investors are one of the groups of people who could actually turn this market around.  But by limiting each investor to only 4 homes, and making loans less affordable, Fannie Mae and Freddie Mac are slowing down the recovery and eventual rebound of the housing market.  I know they have tightened the guidelines on the loan segments that were under performing, but they are now owned by the government and should serve the peoples best interest.  Investors could scoop up to 6 extra homes apiece off of the slow market and have them fixed and and rented out or sold at market prices, thus reducing inventory and cleaning out some of the homes in less than perfect condition.  Financing is what drives the housing market.  It is what drove prices too high when it was too easy, and the lack of financing options is part of what is fueling the decline.  Now that WE all own Fannie and Freddie, I think it is time for them to work for us.  I'm not saying that they should go back to lax underwriting guidelines, but there should be a happy medium.  They need to stop dinging the rate for first time home buyers with really good credit, but just under the top tier.  A person with a 625 credit score will pay up to 1.25% higher rate than someone with a 720 score on a 90% Purchase Loan.  That means that it is much less affordable for that person with the lower score to be able to make the payments on the same home.  I'm not saying there should be no difference in the two rates, but they should not be that far apart in my opinion.  Please let me know your thoughts and opinions on Fannie and Freddie and if they are doing the right thing by restricting lending to the point they have.



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