Fannie And Freddie Fallout….(Realtors, What You Must Know Now)
Interest rates are INCREASING for the best borrowers….
Rates on average 30-year fixed mortgages rose to 6.37 percent this week, about the highest in six years. More than 70 percent of new home loans are bought or guaranteed by the government-chartered companies, known as “prime” mortgages.
Higher rates for the safest borrowers may exacerbate the worst housing market since the Great Depression and thwart efforts by Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson to bring mortgage rates down. The slowest-growing economy since 2001 is already shutting out some buyers and increasing costs for those seeking to borrow with smaller down payments or below-average credit scores.
“New home buyers are going to have to get credit at reasonable terms for the decline to stop,” said Christopher Mayer, a real-estate professor at Columbia University’s business school in New York. “The price issue alone is having a very, very big effect.”
As rates rise, sellers are forced to lower prices for buyers seeking to make the same monthly payments. A rate of 6.37 percent equates to a monthly payment of $1,871 on a $300,000 mortgage, up from $1,739 when rates were as low as 5.69 percent in May, according to data from Bankrate.com in North Palm Beach, Florida.
Record High
Applications for mortgages fell 34 percent to the lowest level since 2000 in the week ended Aug. 15 from a year earlier, partly because of the increase in loan rates, according to the Washington-based Mortgage Bankers Association.
Paulson received authority from Congress last month to pump unlimited amounts of capital into Fannie and Freddie in an emergency after the debt yields rose and their shares tumbled 90 percent from a year earlier. Freddie paid its highest yields over Treasuries on record in a debt sale Aug. 19.
Fannie, the largest mortgage-finance provider, was created as part of Franklin D. Roosevelt’s New Deal in the 1930s and became a publicly owned company in 1968. Freddie was started in 1970, when the economy was strained by the Vietnam War.
The economy’s growth is forecast to slow to 1.5 percent this year, the slowest since 0.8 percent growth in 2001.
Outside People
Home foreclosure filings rose 55 percent in July and banks repossessed almost three times as many homes as a year earlier as falling prices made it harder to sell or refinance, according to RealtyTrac Inc., an Irvine, California-based seller of foreclosure data. U.S. home prices fell 15.8 percent in May, the most since at least 2001, according to the S&P/Case-Shiller home- price index.
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