Will Mortgages Come to a Standstill?

Recently, Fannie Mae reported another record $2.3 billion loss--the fourth consecutive quarterly loss since the first quarter of 2007, and one that will again put mortgages in a precarious position. Fannie Mae cut dividends, raised fees, and has tightened its underwriting guidelines once again. Fannie's companion, Freddie Mac, is also in the same position and will probably follow Fannie. How does this affect consumers looking for home loans?

The Price of a Mortgage Has Just Gotten Higher

Fannie Mae and Freddie Mac's adversity to mortgage risk will translate into higher costs for consumers looking to buy or refinance a home, as higher costs for lenders generally translate to higher interest rates or fees for borrowers. Fannie Mae has also announced that it will no longer fund loans for "borrowers with solid credit scores, but little proof of income or small to no down payments." The company has also declared that it will raise fees on existing mortgage guidelines and will double its "adverse market delivery charge" to .5%." This adverse delivery charge, effective March, 2008, was a fee charged to "all mortgages delivered to Fannie Mae under standard or negotiated terms."

Higher Costs and Interest Rates: How Will it Affect Mortgages

Fannie Mae and Freddie Mac have seen a huge increase in their business as other lenders have backed away from funding loans. Now, if Fannie and Freddie do the same, what will happen to the mortgage market? With homeowners unable to sell or buy homes, more homes come on the market. With homeowners unable to refinance out of adjustable home loans, (and yes, with higher interest rates there will be another spike in mortgage foreclosures) home inventory again rises, pushing home values lower and putting even more homeowners upside down and at risk for foreclosure. Will the cycle ever end?

No one knows how long the mortgage crisis will continue. However, at this time there is no end in sight. In order to protect yourself, check into fixing any adjustable rate mortgages that you have. Second mortgages almost always come with the ability to fix your interest rate, but call your primary lender if needed and see if they won't fix your interest rate on your first mortgage as well. All signs do point to an increase in interest rates and mortgage costs, so now is the time to move.

Posted By :
Sheryl Landrum is a Loan Officer in San Diego, California and a freelance writer specializing in mortgage issues.

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