Who is Fannie and Freddie and what do they have to do with my interest rate?
For anyone who pays any attention to headlines, you hear those two names often enough. You might know they are tied to the mortgage industry, but not really understand how.
Fannnie Mae and Freddie Mae are the backers of mortgage money, so that local banks can make more mortgages. If the local banks were limited to borrowing what actual money they had on deposit, they would be drastically limited. With mortgage backed securities, local banks and mortgage lenders borrow money to local homeowners, but then sell those mortgages on the “secondary” market, and get them off their books. That makes room for new loans, and the process starts over. New homeowners notice this when they borrow money from the local bank, but within 30 days to 6 months, they are required to start making their payments to Wells Fargo, Chase or one of the other mortgage giants.
The talk of the week is from the Obama Administration and how they would like to see the end of the government involvement in mortgages. According to local experts, this will directly translate to at least a one half percent interest rate jump for new borrows. That is aside from any other outside forces that affect interest rates, like the inflation, treasury bill rates etc.
How did things get so bad? There may be several theories on this, but most agree that during the Clinton Administration, there was a strong push to make the “American Dream” available to more and more people. With new lending requirements, and the reporting of lending records, banks found themselves making loans to buyers who would never normally qualify for a loan. But in order for their numbers to look better, banks approved those shaky mortgage loans. That has come back to bite them. We know see that the American Dream may not be meant for all, and has turned into a nightmare for many.
Watch for a lot of debate on whether the government should get out of the mortgage business. While the government should do what is best for all citizens, this is a critical time in the real estate market to start playing with fire. Numbers are starting to show that with no government intervention (can you say $8,000 tax credit) the real estate markets are starting to limp along unsupported. This talk and the implementation of the plan could put real estate back in the intensive care unit!
If you are totally confused, join the crowd, or call me to buy, BEFORE the rates start rising! I can find you a great buy in the city or the suburbs of Greater Milwaukee! I saw a ton of good buys just this past week!
Posted by: 
Pat Tasker
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