The kitchen sink is what the Federal Government chucked at the mortgage crisis last week when they took over Freddie Mac and Fannie Mae. When the Feds take over private companies it’s a really big deal and is the one thing that could pull the economy out if its ongoing slump.
Here are several things you can expect to happen over the coming months following the government takeover of Fannie Mae and Freddie Mac.
The most notable impact is the recent drop in mortgage rates. You can expect rates to stay just over five percent for a thirty year fixed rate loan. This is due to the government backing of mortgage bonds which significantly lowers the risk to investors. Because mortgage backed securities have higher yields than treasury bonds you can expect investors to move money which will drive mortgage rates further down.
Falling mortgage rates and the new government backed security of mortgage bonds should also bring foreign investors back to the US bond market, specifically new government insured mortgage bonds. This will have a side benefit of slowing inflation and boosting our faltering economy.
There is one unfortunate aspect of the mortgage industry that the government bailout will not change and that is lender underwriting. Qualifying for a mortgage loan will continue to be tight; even more difficult for homeowners in need of Jumbo mortgage loans. Jumbo loans are not purchased by Freddie Mac or Fannie Mae and have not been positively affected by the government bailout.
There is some good news for jumbo mortgage holders. Mortgage lenders know there is money to be made in this market and are currently offering competitive rates for loans greater than $417,000. The bad news is that tight underwriting standards aren’t expected to change anytime in the immediate future.
If you are a homeowner with good credit looking to refinance your home mortgage there is no better time than the present. Mortgage rates are at all time lows and lenders are desperate for homeowners with a solid financial history. You can learn more about refinancing your mortgage without overpaying and avoiding junk fees by registering for the free mortgage videos available on this website.