Your Money in the Post-Fannie & Freddie Mortgage Market

Posted: March 9th, 2011 by Just Real Seattle

Rumors of the demise of the government-sponsored mortgage enterprises, Fannie Mae and Freddie Mac, have been floating around for some time. But these rumors are ever closer to reality; currently, the US government is mulling over options that include the scaling back of their role to varying degrees, from minimally doing so to completely backing out and privatizing the entirety of the industry so that they only cater to the underserved, low-income buyers and veterans.
 
Fannie Mae and Freddie Mac guarantee more than half of the $11 trillion in mortgages held by Americans and 80% of Fannie and Freddie ownership is held in their hands. Just recently, Freddie Mac requested another $3.1 billion dollar from their Treasury Department lifeline after reporting negative net worth, which is being considered yet another death rattle from these troubled institutions.
 
To offset these losses, the government’s newest plan calls for an increase in down payment for FHA loans, a reduction in the maximum size of loans offered and an increase in fees to encourage more private lending, including risk-based pricing in the form of an up-front fee for borrowers with less than a 740 credit score and who are putting less than 20% down.
 
As the government is increasingly shies away from guaranteeing loans, the potential for risk increases for private lenders. They will in turn pass that risk along to borrowers in the form of stricter lending regulations, additional fees and climbing interest rates. After the reforms are enacted, whatever they may be, borrowers will most decidedly feel the pinch, but the rehabilitation potential for the mortgage market is hopeful. It will ensure more qualified borrowers and therefore a more robust and sustainable market. This may be cold comfort, however, for buyers who are currently on the fence and fail to take advantage of the current favorable lending climate while rates on their side. So if you’re currently thinking about buying – don’t snooze and lose!

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