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September 2019
« Sep    

Home Loan Rates Rising

One of the things most consumers haven’t come to grips with is that interest rates in the United States are finally going up. According to Zillow, the fixed interest rates fixed for thirty-years jumped to 4.45% from 4.37% a week earlier. The real estate marketing company reported higher home loan interest rates for five of the last six weeks.  Erin Lantz, director of Zillow said, “Home mortgage rates were essentially unchanged last week because of mixed economic data and low trading levels associated with the shortened holiday work week.”  The report also indicated that the interest rate on home mortgages fixed for fifteen-years is presently at 3.41%, up from 3.34% a week earlier. The interest rate for a 5-1 variable-rate mortgage is 3.14%, above last week’s 3.12%. A 5-1 ARM offers an intro interest rate that works for the first five years of the amortization schedule and then has the potential to adjust each year. The most popular mortgage products remain the government, Fannie Mae and Freddie Mac loan programs.

Other Real Estate Finance Articles

Comparing Home Loans with Bad Credit

VA Home Purchase Loans

Home Mortgage Rates Inch Up

Consumers have grown accustomed to mortgage rates always dropping in the U.S.

Stronger than expected Retail Sales data hurt MBS this morning, extending the losses seen last week. April Retail Sales rose 0.1% from March, above the consensus for a decline of 0.3%. If consumer spending continues to remain healthy, it will reduce investor concerns about a spring slump in the economy.

Falling MBS prices result in higher mortgage rates. Rising MBS prices lead mortgage rates lower. MBS pricing provided by MBSQuoteline. Today’s mortgage rates are based on real-time mortgage market pricing. Read the original article from the mortgage reports website.

Can I Refinance My 2nd Home Under HARP?

Fannie Mae and Freddie Mac clarified that borrowers can use the HARP 2.0 to refinance second homes and investment properties. Most people already knew that HARP mortgage lenders were allowed to offer refinances on primary residences but few borrowers were aware that the Home Affordable Refinance could be accessed for rental and vacation homes. Yes, HARP loans can be used to refinance second houses and in some cases of investment homes as well.

Refinance Vacation Homes Even if They Are Underwater

The “HARP 2.0″ changes that took full effect last spring greatly expanded the eligibility guidelines for mortgages that could be refinanced under the program. The most prominent of those was lifting a negative equity restriction so that lenders could offer HARP refinance loans no matter of how far upside-down they were. However, there were a number of other changes as well, and expanding eligibility to vacation homes and investment properties was one of them.

Condos Approved for HARP Refinancing

According to, qualifying with a vacation or 2nd house must be a single unit, although condominium units are eligible as well. Investment homes can be from one to four units and it is not necessary for the applicant to be living in the property. It also doesn’t matter if one of the homes used to be a primary residence, but is now a second home or investment property. You still have to meet the other HARP refinance standards, the main one being that the mortgage must be backed by either Fannie Mae or Freddie Mac. You also have to meet the usual credit and income criteria – including being able to show two months of liquid reserves if refinancing an owner-occupied home and six months of reserves for an investment property. Other than that, it doesn’t matter how much the property may have fallen in value, as long as you’ve remained current on your mortgage payments. Your loan balance can be twice as much as the property is worth and you can still qualify. In fact, appraisals are not even required in most cases under HARP 2.0.

Mortgage Refinancing Approved for More Than One Home

One question that some have is whether they can do a HARP refinance on a second home or vacation property if they have already gone through HARP to refinance their primary residence.  Yes, the only restriction of this type is that the mortgage must have been closed by May 31, 2009, which basically limits you to one HARP refinance per property. You are not limited to refinancing with your current loan service company, but refinancing with any HARP lender is allowed. Some consumers who have mortgage insurance may find it difficult to find a new lender who will accept that insurer, so your HARP lender options may be more limited in that situation. Read the original article in the New Jersey Post.

Upside Down Refinance Plan of Freddie Mac Questioned

In a recent Eliot Spitzer article published on Slate, the question of why Freddie Mac did not address underwater mortgage refinancing sooner came up. It’s not like the government sponsored enterprise was unaware of the national crisis of depreciating house values. The truth is that Fannie and Freddie own a “lion-share” of the mortgages sold on the secondary market.

Spitzer questions the “inability to get underwater mortgage loans refinanced on a mass-level.” He asserts that this is one of the signature failures of economic policy of the past four years. In a fascinating and revealing story published by ProPublica on Oct. 25, Jesse Eisinger explains how several board members and executives of Freddie Mac, the now-taxpayer-owned mortgage giant, made essentially impossible to get a high volume of upside-down loans refinanced at the current interest rates. According to Eisinger, one of these board members, Robert Glauber, objected on the grounds refinance programs were “designed to be a stimulus.”

The particular issue in 2002 had to do with spinning, a process whereby CEOs and other senior executives at companies would be given personal allocations of “hot” IPOs by the investment banks underwriting the IPOs. Hot IPOs are those in which the stock is expected to jump when trading opens, and so an allocation leads to instantaneous trading gains—often very substantial in magnitude. Why did the investment banks give the executives this option? The companies run by the CEOs were good clients, and the banks wanted these companies to continue to direct business to the investment banks.

Spitzer believes that the practice had to stop, on the grounds that the particular behavior amounted to little more than commercial bribery. If the investment bank wanted to bestow a gift on the company to maintain the client relationship—something the bank is entitled to do—then the benefit should go to the shareholders, not the CEO. If the CEO takes it individually, as they do when they take the stock granted in a spinning allocation, it is just a fancy form of bribery. Indeed, my office recovered vast sums of money from CEOs on just this theory.

Read the original Slate article.

Rates on Home Mortgages Remain Low and Affordable

The average fixed interest rate on a 30-year loan has fallen to near its record low set earlier this month. The rate on the most popular mortgage dipped to 3.37% from 3.39 last week, mortgage buyer Freddie Mac said. Two weeks ago, the rate reached 3.36%, its lowest level on records dating to 1971. The average rate on the fixed 15-year loan, often used for refinancing, set a record low of 2.66%, down from last week’s 2.7%. Today applicants that seek a no cost home loan will typically pay a point. Less costly mortgages are helping fuel a modest but steady housing recovery. The average rate on the 30-year loan has remained below 4% all year. And rates have fallen even further since the Federal Reserve started buying mortgage bonds in September to encourage more borrowing and spending. The Fed said it would continue buying bonds until the job market shows substantial improvement. When home prices rise, people tend to feel wealthier and spend more freely. And consumer spending drives nearly 70% of economic activity.

With refinancing activity surging, it makes sense to shop lenders and compare mortgage refinance rates online.

Sales on houses have inched up slightly from last year, and prices are rising more consistently in most areas. Builders are clearly more confident but has the housing market turned the corner for good. Read
the Interest Rate Article from the Detroit News.

Good Credit Equates to Low Interest Rates

Lenders Rewarding Borrowers with Low Mortgage Rates for Good Credit Scores

Most consumers in the digital age understand that credit scores play a significant role in mortgages, home loans and refinancing. Getting approved for the best home loan rate often is driven by the average of your three credit scores. Trans Union, Experian and Equifax are the three main credit repositories that best mortgage lenders use for underwriting home loans in the United States.

Mortgage Lenders Still Basing Loans on FICO Scores

It’s no secret that loan companies offer the best fixed mortgage rates to applicants that have high fico scores. The most common scores are based on models established by Minneapolis-based FICO, formerly known as Fair Isaac Corp., which are used to gauge a consumer’s financial health. The numbers, which range from 300 to 850, affect the ability to get mortgages and credit cards, as well as the rates borrowers pay for them. The score is used by 90 of the 100 largest U.S. financial institutions, according to FICO’s website.

About 18 % of 200 million consumers in the U.S. with credit scores, or 36 million Americans, had credit scores of 800 or higher in 2011, according to estimates from FICO. More than 75 million had scores of at least 750 while the median credit score last year was about 711, FICO said.

Good Credit Opens Up Doors

According to Freddie Mac the average 30-year mortgage rates that were tied to a fixed term came in at 3.89% this week.  According to the Federal Reserve the average interest rate charged on credit card balances was 12.8 % in the 4th quarter of 2011.

Maximize Your Financing Opportunities

A credit score of 760 or higher on a $300,000 fixed thirty-year home loan may qualify a borrower for a 3.625% rate or $1,368 monthly payment, compared with a 3.85 % rate and monthly payment of $1,406 for those with scores from 700 to 759, according to Having a credit score of at least 720 typically translates to the best mortgage rates available. In many cases, when a borrower has a credit score that exceeds 720 it enables lenders to be more aggressive with loan to value and debt to income ratios used to qualify home mortgage loans.

Home Values in Many US Cities Declining

Financing a home may be a good idea as home prices have fallen to 10-year lows around the country. Home prices in the nation’s largest cities fell in October for the second straight month, suggesting that prices will head down further next year and dashing hopes that the sluggish housing market was headed for an upturn. The Standard & Poor’s/Case-Shiller index, a measure closely followed by economists, showed price drops in 19 of 20 cities since September. Overall, the price index slipped 1.2% month over month and fell 3.4% compared with October 2010.

Low Mortgage Interest Rates Make Financing Very Attractive

The decline is typical of the season, when home buyers back off after the busy summer period. But coming off five straight months of increases through August, the retreating prices in the fall suggest that weakness in the market may stretch into 2018. Home purchasing loans are becoming more accessible as lenders are opening the lending parameters for first time home buyers. Bad credit home loan programs are not as available as they were in 2017 but FHA and VA still extend mortgages to borrowers with less than perfect credit.

In Los Angeles, the Case-Shiller index recorded a monthly decline of 1.5% in October after sliding 0.8% in September. Year over year, L.A. prices are down 4.9%, as measured by the index.

San Diego fell 0.6% from September and was down 4.5% from October 2010. In San Francisco the pattern was almost the same, with the price index off 0.7% from September and down 4.7% from a year earlier. “In the October data, the only good news is some improvement in the annual rates of change in home prices,” said David M. Blitzer, chairman of the index committee at Standard & Poor’s. In 14 of the 20 cities tracked, the rate of the annual decline in home prices slowed.

More than 6 million homeowners (12.6% of the homeowners with mortgages) were either delinquent on their payments or in foreclosure at the end of the third quarter, the Mortgage Bankers Assn. said. About 22% of residential properties with mortgages were underwater at the end of the third quarter, meaning that the homeowners owed more on their loans than the properties were worth, according to CoreLogic data. “Add to this the currently high unemployment and underemployment rates, one gets a recipe for further price declines,” Newport said in a research note. “Our view is that foreclosures, excess supply and weak demand will drive prices down another 5% to 10%.” Should the economy slip into a recession, the unemployment rate will climb, driving foreclosures up and leading to an even larger drop in home prices, Newport said. He rated the chance of another recession a 35% probability.

Home sales in California were up 4% in November compared with the same month a year earlier, though they fell 4.2% from October, according to real estate research firm DataQuick. The median home price in the state in November was $244,000, down 4.3% from a year earlier but up 1.7% from October, the report found Read the original LATimes article online here.

Rates Rise Slightly for Refinancing and Home Buying

Home loan and mortgage refinance rates rose slightly last week and many lenders are hopeful that rates will see a positive bounce in the weeks to come. Interest rates rose slightly, with the average rate on 30-year fixed-rate mortgages climbing for a fourth straight week, according to Freddie Mac’s weekly survey of mortgage rates. The volume on cash out loans rose as well.

The 30-year fixed-rate loan averaged 4.91% in the week ended Thursday, up slightly from the prior week’s 4.87% but down from 5.07% a year earlier. Mortgage rates generally track U.S. bond yields, which move inversely to Treasury prices. Mortgage rates have climbed this year after slumping most of last year when prices rallied on economic uncertainty.

The FHA rates remain as low as conventional rates. The VA rates dipped below conventional rates this week on 30-year fixed rate terms.

15-year rates for fixed-rate home loans averaged 4.13% in the latest week, up from 4.1% in the previous week but down from 4.4% a year earlier.

Five-year Treasury-indexed hybrid adjustable-rate mortgages were 3.78%, up from the prior week’s 3.72% but down from 4.08% a year earlier. One-year Treasury-indexed ARMs were 3.25%, up from 3.22% but down from 4.13%, respectively.

To obtain the rates, the 15-year fixed-rate mortgages required payment of an average 0.7 point and the others required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest

Mortgage Interest Rates Going Higher?

In the latest mortgage lead report, the Lead Planet indicated that mortgage applications rose as home loan rates fell. Credit standards have been a significant factor in loan applicants qualifying for the record low interest rates that have been advertised. The fact is that bad credit VA loan rates are just as low as the rates are for borrowers with good credit scores. The mortgage lead generation company publishes these reports as a snapshot of the lowest and average interest rates available within the Lead Planet network of loan companies. Read the entire article, Will Mortgage Rates Rise in 2011?

FHA Loan Outlook for 2011

Few would argue the impact the FHA loan programs have had on the mortgage market in the last four years. With FHA rates at record lows, it’s logical to think that FHA loan originations would increase in 2011. However, a recent report revealed that HUD is forecasting that the Federal Housing Administration will endorse $288.7 billion of single-family FHA loans in fiscal year 2011, a 9.4% decline from FY 2010, which ended September 30. 

Low Rates and Mortgage Friendly Guidelines

Let’s be honest, low interest rates and mortgage friendly guidelines drive the housing market. Mortgage lenders and banks continue to ask borrowers for more loan documentation. The streamline refinance is the one exception for tighter guidelines. This unique refinance loan does not require income documentation and in some cases no appraisals.

Having record low mortgage rates with tight lending guidelines will not help the housing sector rebound. We have had record low rates for 3 straight years and the home sales remain sluggish. Historically low home loan rates are a crucial component of record affordability for home buyers, but lack of confidence in the market and fear of further price declines are challenges that are outweighing that factor, Credit Suisse analysts wrote Wednesday. Record low interest rates have dominated mortgage news for most of 2012. The fact is that lenders stopped approving bad credit equity loans. Many consumers are hoping that lenders ease some of the lending requirements in the year to come.

Existing home sales were down in all 50 states in the 3rd quarter with double-digit year-over-year declines in 47 states, the result of weakened demand after the homebuyer tax credit. In new construction, housing starts in October were at a seasonally adjusted annual rate of 519,000, down 1.9% from the October 2009 rate and 11.7% below September’s rate, the Census Bureau and Department of Housing and Urban Development reported Wednesday.

Tips for Refinancing into the Lowest Home Mortgage Rates

By now most homeowners realize that a mortgage refinance loans may be the best way to increase cash flow and reduce housing expenses. Just when it looked as if mortgage rates couldn’t fall any further, they did. Mortgage interest rates on 30-year fixed home loans hit an average of 4.25% in September, the lowest level since 1953, according to Freddie Mac, and are still hovering below 4.5%. Jumbo mortgage rates fell to 5.125% which is the lowest level for jumbo rates in years. Many consumers searching for a poor credit mortgage solution have been selecting the government loans because they are more flexible with credit guidelines. FHA mortgage rates fell to 4.125% in October which enabled thousands of borrowers to refinance their adjustable rate loans.

1. Maintain good credit scores. High ficos are needed to maximize the lowest possible rates.

2. Work with a trusted lender that offers competitive rates. Working with a shady lender offering lower rates will end up biting you.

3. Consider a variety of home loans in an effort to find a great rate mortgage that meets your needs.

15year interest rates are even more enticing at 3.75%. The most creditworthy borrowers may even find lower payments, with interest rates as much as quarter of a percentage point lower.

Credit Qulifications for Best Mortgage Refinance Rates

More than ever, credit has become the driving factor for borrowers to qualify for the best mortgage refinance rates.  Good credit borrowers are finally being rewards with mortgage refinance rates at their lowest point in 50-years. 

In today’s market, borrowers with high credit scores are eligible for conforming, jumbo and FHA rates below 4% with fixed rate mortgage refinancing terms. Qualifying for a low rate home refinance is no easy task as most mortgage lenders have significantly tightened their lending guidelines. With refinance rates this low, you can imagine that there is quite a frenzy of homeowners trying to lock into today’s record breaking rates. And unlike in late 2008, when rates started their plunge to historic lows, many home loan lenders say they are rushing to accommodate the influx in applications.

2010 the Summer of Records for Mortgage Rate Lows

It seemed like every week this summer the mortgage interest rate records were broken with new lows. Conforming, VA and FHA mortgage rates all glimmered at 40-year lows. But even as a glut of unsold inventory keeps the housing market from recovering, nearly a third of Americans can’t qualify for home mortgages, according to new data from online real estate search company Zillow.

Home Loan Rates Starting at 4.25%

Potenetial homeowners with credit scores below 620 points were largely unable to take out thirty-year home loans in the first half of September, even if they offered down payments as high as 25 %, Zillow found after analyzing more than 25,000 loan quotes and purchase requests on its website. A full 29.3% of Americans have a credit score that low, Zillow says, citing data from myFICO. The time to compare mortgage rates has arrived, so don’t miss this opportunity.

Mortgage interest rates, meanwhile, are at a levels not seen since Freddie Mac started recording interest rates in 1971. According to data compiled by the Federal Reserve the average mortgage rate on a thirty-year mortgage was 4.37% as of September 16th. The St. Louis Fed has data going back to 1971 and, in that period, before 2009, the interest rate never fallen below 5%.

These days, according to Zillow, the lowest home loan rates remain at 4.25%, available only to those with a credit score above 720 points about 47% of Americans. The higher rates, ranging from 4.44 to 4.9%, are available to about 23.8% of Americans. The remaining 29.3% of the United States cannot get approved for home mortgage loans at all.

A variety of factors, including a high volume of foreclosures and weak demand, have depressed the housing market to such an extent that some experts say it won’t rebound for three years. But mortgage lenders are understandably cautious. While easily accessible home loans might contribute to a housing recovery, lenders are still shell-shocked from the aftermath of the housing bubble. Banks have been writing off debt in record numbers, the charge-off rate this year has been higher than any year since at least 1988, according to data from the Saint Louis Fed.

Interest Rates on Mortgage Loans Decline Again

Once again, mortgage rates fall again and continued their streak of record breaking interest rates. The fixed 30-year loan fell to 4.55 percent and the 15 year declined to 3.91 percent. The Mortgage Bankers Association posted their weekly application survey and it shows that some folks are taking advantage of record-low mortgage rates.

The mortgage data report underlined the fact that most of the activity is coming from refinancing rather than home buying. The MBA survey showed a 4.5 percent increase in the overall number of home mortgage applications, and a 5.7 percent increase in the number of people who applied to refinance. So that means that mortgage refinancing represented 82 percent of all loan applications. It was notable that bad credit home equity credit line applications declined nearly 5 percent and fixed home equity rate loan application volume dropped over 2%.

Mortgage Interest Rates Hit Record Lows

Mortgage Interest Rates Hit Record Lows

Freddie Mac announced the lowest mortgage interest rates since 1971, yet the demand for new home loans remained weak. US mortgage loans did inch up last week but even with record low mortgage rates new home-buyers were not impressed. Lending companies have been taken back by the lack of interest from loan applicants. Mortgage industry insiders insist that the unemployment and tighter home loan guidelines are driving away the growth of home-ownership. .

Home purchase and mortgage refinancing applications rose by less than 1% in the first week of August, even as 30-year mortgage interest rates fell to 4.57%, the lowest in 20 years of record keeping by the Mortgage Bankers Association.

Wall Street Pushing for Home Refinancing Boom

Mortgage rates for a 30-year fixed rate loan are now available at 4.375%, the lowest it has been since Freddie Mac began tracking mortgage interest rates in 1971. But A big reason has to do with the fact that falling housing prices have left many borrowers with little or no home equity, which is also known as being “underwater.” As a result, they can’t qualify for home refinancing. Others are deterred from refinancing by strict lending standards and the high fees that come with it. People continue to seek fixed mortgage refinance loans even if they have negative equity.

To get more mortgage refinancing approved, some respected economists and analysts at firms like Morgan Stanley and Goldman Sachs say the government should encourage a refinancing wave by adjusting lending policies at Fannie and Freddie. The mortgage lenders were taken over by the government two years ago. They own or guarantee about half of all U.S. mortgage loans, or nearly 31 million home loans worth more than $5 trillion. They buy home loans from lending companies, package them into bonds with a guarantee against default and sell them to investors.

The savings from a major mortgage reset could be significant. Allow someone with a $200,000 mortgage at 6% to refinance down to 4.5%, and suddenly there is $3,000 a year available to be plunged back into the economy. Add that up across millions of people, and you have what Morgan Stanley economist David Greenlaw calls a “slam dunk stimulus.” The government is already trying to help borrowers refinance, but its existing programs have failed. The Home Affordable Refinance-Program, or HARP, is directed a homeowners whose loans nearly or completely outsize the value of their homes. The government rolled out HARP in an effort to aid millions of loan refinances, but only a few hundred thousand have been done. The problem is that there are too many restrictions when trying to refinance under HARP. That’s why some people on Wall Street want the government to roll out a less restrictive program to get more mortgages resets done.

Regardless of the pressure coming from homeowners and some on Wall Street for the government to ease refinancing guidelines, Treasury Department spokesman Andrew Williams tells The Associated Press that “the administration is not considering a change in policy in this area.” The government sees where the pitfalls are. Taxpayers have already pumped $145 billion into Fannie and Freddie over this last two years, and widespread refinancing now could raise that burden. Fannie Mae and Freddie Mac would very likely see their earnings decline and write-downs on their home loan securities go up. In total, a giant mortgage reset could cost the home loan lenders $75 billion, according to research from investment firm Keefe, Bruyette & Woods. Let’s also consider that a refinancing boom could have unintended consequences. The reality is that the pace of home foreclosures might not slow. A lower interest rate still might not be attractive enough for borrowers with deeply underwater mortgages to stay in their homes. To some, it is not worth paying any money toward a depreciating asset, regardless of the interest rate.

New borrowers could also face higher mortgage rates. A large refinancing wave would depress the value of mortgage-backed securities, making them less attractive to investors such as pension funds and foreign governments. Weak demand for those securities could lead to higher mortgage rates because lenders could have a harder time selling off their loans to investors. A short-term home refinancing wave could help stabilize the housing market now, but it could also hurt home sales later. Homeowners who are able to lock in a once-in-a-lifetime interest rate could be deterred from moving in the future. Hitting the mortgage refinance button could put more money into homeowners’ pockets today, and would also give the economy a quick jolt. But the ultimate costs are too high.

Lowest Mortgage Rates Seen by Freddie Mac

Freddie Mac announced another record today for the lowest interest rates since they began recording mortgage interest rates in 1971. The 30-year fixed rate mortgage reported averages of 4.69% for the week ending June 24th. Fifteen-year fixed mortgage rates fell to a 4.13% average which was also slightly lower than the previous week. VA mortgage remain appealing to military vets because the record low VA rates are still available as well. If you already have a VA loan but need a lower interest rate, consider the VA streamline.

New and existing home sales showed declines in May, Nothaft pointed out. “Existing sales fell 2.2%, compared to the market consensus forecast of a 6% gain, based on figures published by the National Association of Realtors. Sales of new homes fell 32.7% to an annualized rate of 300,000 units, which was the largest monthly drop and slowest pace since records began in 1963, according to the Census Bureau,” he said.

Thirty Year Mortgage Rates Drop to 4.79%

Borrowers across the nation are lining up for home refinancing offers as mortgage interest rates drop once again. The current mortgage rates remain low as the 30-year fixed-rate mortgage average rose slightly to 4.79% with an average 0.8 point for the week ended June 3, according to the buyer of home mortgage loans. In the prior week, the average rate was 4.78%, the lowest since early December. The year-ago average for the thirty-year home loan stood at 5.29%. “The economy grew at a slower rate than originally reported in the first three months of the year … which suggests inflation will remain tame in the near term,” Freddie Mac chief economist Frank Nothaft said, referring to revised data on U.S. gross domestic product. See full story on first-quarter GDP revision pegging growth at 3.0% pace. “As a result, home loan rates held at historic levels this week,” he said in a statement. Underscoring this, interest rates on fifteen-year fixed-rate mortgages reached a new record low, averaging 4.2% — the lowest level since Freddie Mac began tracking the mortgage rates back in 1991 — down from 4.21% in the prior week.

One-year Treasury-indexed adjustable-rate mortgages averaged 3.95%, unchanged from the prior week, and the lowest level since May 2004. The 1-year ARM averaged 4.81% a year ago. The 5-year Treasury-indexed hybrid ARM averaged 3.94%, down from 3.97% in the prior week. A year ago, the 5-year ARM averaged 4.85%.

To obtain the rates, the 30-year fixed-rate mortgage required a payment of an average of 0.8 point. The other mortgages required a payment of an average 0.7 point. A point is 1% of the mortgage amount, charged as prepaid interest.

Suggestions for Fannie Mac Mortgage Reform

Regulatory reform in the mortgage industry is inevitable. The mortgage blogs have been buzzing this week with talks of Fannie Mae and Freddie Mac merging together in an effort to salvage these failing government companies that own 97% of all mortgage notes in America. Even with 30-year fixed rate mortgage programs below 5%, we can’t fix the mortgage mess simply by inducing another refinance boom.

The new Fannie Mac should no longer target low and moderate-income individuals since that replicates FHA’s function. On the path to economic independence, Congress should form a Resolution Trust Corporation type of entity to acquire the new Fannie Mac’s tainted assets. The RTC-type company would dispose of bad credit home loans and real estate acquired through foreclosure. The original RTC was established in 1989 to mop up the assets of failed savings and loan associations. The late Bill Seidman headed it up. He was previously chairman of the Federal Deposit Insurance Corporation under President George H.W. Bush. He adroitly disposed of billions of dollars of assets and returned the proceeds to the Treasury.

The new Fannie Mac will inherit a massive one-to-four unit, home-lending division. That is where most of the tainted assets are. It will also acquire the smaller, multifamily division. Its delinquencies and defaults are more manageable. The skills necessary to underwrite, securitize and service multifamily loans have little in common with mortgage lending. As a result, the new Fannie Mac should spin off the multifamily division into a new company. One company to dispose of tainted assets; another for home lending and a third to make multifamily loans is a rational approach to shrinking the GSEs and returning billions to the Treasury.

The Republican’s GSE amendment calls for repealing Freddie Mac’s and Fannie Mae’s affordable-housing mandate, requiring the companies to shrink their mortgage portfolios, lowering their loan limits and increasing down-payments for home loans. It is unrealistic for that to happen with the GSEs in their present form and while the economic recovery is weak. But the time is right to merge Fannie Mae and Freddie Mac and form three separate companies. That is the best way to lead the GSEs out of federal conservatorship and repay the taxpayers.

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