Rates at 10 month high, White House proposes changes for Fannie-Freddie

February 12th, 2011

While the world was focused on events in Egypt this week some major news was occurring at home for the mortgage industry. The industry took a look back and speculation began as to the future of the industry. If you are a homeowner considering a mortgage refinance or you are contemplating the purchase of a new home and are using the mortgage calculators here is some information that may impact your decision.

Rates jump

Freddie Mac released its Weekly Primary Mortgage Market Survey (PMMS) on February 10, 2011. The PMMS reports the average rate of 125 mortgage origination companies from Monday to Wednesday. In the February 10th release the benchmark 30 year mortgage rate was 5.05 percent at a cost of 0.7 origination points. The 5.05 percent rate was almost one-quarter of one percent (0.25 percent) over the prior week’s rate; the highest week to week increase in the PMMS since the June 11, 2009 release.

Not since April 29, 2010 has the PMMS rate been as high at 5.05 percent. Using a monthly payment calculator you can see that on a $200,000 mortgage the increase from last week’s PMMS rate of 4.81 percent to this week’s 5.05 percent rate will increase your mortgage payment $30 per month.

Future of mortgage industry uncertain

Since Fannie Mae and Freddie Mac went under conservatorship of the U.S. Treasury in 2008 politicians and regulators in Washington D.C. have had on their agenda reforming the two mortgage giants. Pressure has increased following the Dodd-Frank Act which instated reforms for most sectors of the financial and lending industries. With taxpayers having paid almost $150 billion into Fannie and Freddie to keep them solvent as the continue to report losses due to foreclosures nationwide, support for changing the way Fannie and Freddie operate has widespread support in both political parties and with taxpayers.

On Friday February 11, 2011 the White House issued a report outlining three major options for reforming Fannie and Freddie and “reducing the federal government’s involvement in the residential mortgage industry.” The options the Obama Administration wants Congress to consider are, one that would eliminate Fannie and Freddie within seven years, one that would have the federal government in a mortgage insurance role backstopping any losses to mortgage investors during times of extreme economic hardship and recession such as we have recently experienced and one option that would have the federal government act as an insurer to the mortgage insurance companies.

Each of the options would most likely result in higher costs for lenders, and therefore mortgage borrowers. The objective of the Obama Administration options is to reduce the role of the government in mortgage lending and increase the private sector involvement. Left unstated in the reporting of the announcement is that prior to the Treasury Department conservatorship of Fannie and Freddie in 2008 the mortgage giants were publicly traded companies and essentially considered private sector mortgage lenders, albeit with government sponsorship and charters.

In the coming months, and years, discussions, hearings and studies will analyze Fannie and Freddie and what role, if any, they should play in future origination and funding of mortgages. With the housing markets across the country still very weak and facing many challenges before recovering from the collapse of the housing bubble, any moves to reduce the role of Fannie and Freddie will be with extreme caution to not create another housing collapse by removing the source of over half the mortgages funded in the United States.

If you are using mortgage calculators and planning a new home loan in the future you will want to closely follow the news on the reform of Fannie Mae and Freddie Mac as any reform measures will impact mortgage rates and fees for consumers.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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