First Ohio Home Finance

By now, surely you’ve heard of the nationalization of our industry. Fannie Mae and Freddie Mac were “seized” by the Federal government and put into “conversatorship” over the weekend as it became apparent these secondary markets for the mortgage industry had come to the point of bankruptcy.

Short-term, that means mortgage rates are heading lower – MUCH lower. The loans on your home and mine are now backed by the full faith and credit of the United States Treasury now. What seems like zero risk means that more investors will buy mortgage bonds and rates will continue to decline.

An interesting facet of this bailout, though, is that the “solution” is having the opposite effect as the intended purpose of the grand vision for Fannie and Freddie to improve the lives of average Americans. Peter Schiff doesn’t pull any punches in a recent column:

The original idea that gave birth to Freddie and Fannie, which is to make housing more affordable to average Americans, should now be seen as farcical. Their new goal is to keep housing prices high. Absent Freddie and Fannie, housing prices would fall sharply and the mortgage market would stabilize. Americans would once again be able to buy affordable houses with mortgages they could actually repay –just like their grandparents did. Instead they will keep overpaying for houses, burdening themselves with excessive payments in the process, and ultimately sticking taxpayers with the bill when they default.

What’s your opinion?

Regardless of our second guessing of massive policy decisions, this is an excellent time to refinance your home. Call us if your mortgage rate on your first or second loan is more than 6.5%! We’ll give you the straight scoop every time.

If you’ve dodged the dust-up between John McCain and Paris Hilton, you probably heard this week that the Federal Open Market Committee left interest rates untouched last Tuesday. That means the Prime Rate remains at a low 5.0%. What does it mean for mortgage rates? What does it mean for you?

For those who’ve followed the gurus Greenspan and Bernanke, you’ll remember that when the Fed announces a decision on Discount and Fed Funds rates, the decision is less important than the accompanying policy statement. These statements are short reviews of the Bank’s view on the economy and inflation – and therefore give clues to future monetary policy decisions.

Those opaque statements are what move mortgage bond markets, and thus mortgage rates. You can read the whole thing in less than 30 seconds right here.

A policy decision for the status-quo does signal to investors that market forces are in balance – or at least rates cannot be safely lowered. Because the Fed talks of an economic slowdown with no end in sight, rates will be stable to lower until inflation picks up. To further illustrate this, consider that one year ago, Prime Rate was at 8.25%.

The immediate result of the current decision was for stock markets to rally and rates to rise.
If there is good news here, it’s that slow economic times mean mortgage rates will not be rising significantly. I’d say that perspective is here for another 6-12 months at least.

If there is bad news here, as the economy slows and foreclosure rates rise in Ohio, credit standards will continue to tighten and the cost of financing will creep up. Tight credit standards – like the end of down payment assistance and 100% financing programs – will be discussed in the next few posts about the new Housing and Economic Recovery Bill (HR 3221).