Posts Tagged ‘Fannie Mae’

Intero Insider: How to Save $67,960 on Your Next Home Purchase

By Gino Blefari | August 18th, 2011 0 Comments

Standard & Poor’s downgrade of the U.S. debt rating this month sparked speculation about what the effects would be on stock, bond and key interest rate markets. A lot of conversations centered around the prediction that interest rates for mortgages would increase dramatically, damaging an already delicate housing recovery.

So far, the opposite is true. We’re talking down, down and down again. In the tumultuous days following the S&P downgrade, rates on 30-year fixed-rate mortgages fell to 4.32%, according to Freddie Mac’s Primary Mortgage Market Survey.

I realize I’m the CEO of a real estate company so you’d expect me to say this: But, now truly is an opportune time to borrow money for real estate if your finances are in a solid, healthy state. Borrowers who lock in super low rates stand to save a substantial amount of money over the life of a mortgage.

Take this example: A borrower with a $450,000 30-year mortgage with a 4.3% interest rate would have a monthly payment of $2,227 and pay a total of $351,692 in interest. If their rate on their fixed-rate mortgage had been 5%, they’d pay $2,416 a month and $67,960 more in interest over the 30 years.

Substantial!

Could rates go even lower? Who knows? Seriously. We don’t know. However, S&P also downgraded Fannie Mae and Freddie Mac, which means borrowing could get more expensive for the mortgage giants. That increase likely gets passed on to consumers.

Even if you refinanced last year at an average 5.5%, a rate drop to below 4.5% is worth a check-in on the math of refinancing. When rates really do start moving up, you don’t want to look back and think “I wish I’d…”

Interest rates really do matter. So if you are on the fence or if you’re an agent with buyers who are on the fence, do some math to see your/your client’s total savings. It’s as good a time as any to borrow money. Talk to your mortgage advisor today!

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Why the Fed’s Role in Housing is Important

By Gino Blefari | May 3rd, 2011 0 Comments

The big debate in the housing industry this year is over the federal government’s role in the mortgage finance system. Our biggest industry group, the National Association of Realtors, favors a continued federal presence. But, others do not. What is this debate all about and why is it important?

As we’ve noted before here, a couple of issues that are on the Congressional table would have a direct impact on home buyers and homeowners:

  1. The mortgage interest deduction
  2. Government backing conventional mortgage securities through Fannie Mae and Freddie Mac

The mortgage interest deduction is a tax boost many homeowners enjoy. It enables those who itemize their deductions to deduct the interest they pay on their mortgages from their income tax bill. For many years, it’s been a great selling point for many homeowners, saving them money and offering a small break on the costs of ownership.

Congressional groups have been eying the deduction as a possible source of instant revenue for the nation, and have talked about putting restrictions on it or doing away with it altogether.

I think the government’s role here is critical, and taking away this benefit of homeownership at a time when Americans are struggling and the housing market is still trying to recover is a big mistake.

What about Fannie Mae and Freddie Mac? Does the government need to continue to prop up these financiers? And if so, at what cost?

Fannie and Freddie’s role thus far has been two-fold: buying mortgages, securitizing them and selling them to investors in order to free up funds for more home buyers; and setting underwriting standards.

There’s no doubt that these two entities cannot continue operating the way they were during the boom and bust. But without a federal role in backing mortgage finance, there’s always the chance that the private market would freeze up in tough times, leaving no available money to the nation’s borrowers who are willing and able to become homeowners.

In that case, a bad situation gets worse. Fewer and fewer people are able to buy homes without the 30-year mortgage that’s historically played a vital role in boosting home ownership.

I don’t know what the answer is for how to structure a new system for the government to be involved in backing mortgage finance, but it’s clear to me that it’s important. Homeownership continues to be a source of economic stability for the majority of owners out there – despite the recent years of record foreclosures.

And as we’ve seen in recent surveys, the majority of Americans still have faith in home ownership. We need the federal government to show its faith too, and stay involved without getting in the way – a difficult dance we’ll be discussing more in the months to come.

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Intero Insider: Housing Issues to Watch in 2011

By Gino Blefari | January 5th, 2011 0 Comments

Well, we made it through 2010 – a good year for some, a bad year for others in the housing industry. Some lucky home buyers were able to secure a house at rock-bottom interest rates, lower-than-average prices and with a nice home buyer tax credit to boot. But some unlucky sellers had to sell at a loss or worse, foreclose or even walk away.

What’s in store for 2011? I’ve already discussed my market predictions here. What I want to get into in this post is more the things outside of housing that will play a key role in how we end the year.

1.     Federal deficit: As the deficit problems loom, the administration rightly goes looking for places to find more cash to put on the books. In 2010, we saw some talk about big reductions in the mortgage-interest deduction – one of the most often talked about incentives for buying a home, and also a big cash cow for potential tax revenue if reduced or eliminated altogether.

As I’ve said before, this type of change will not happen quietly nor without a fight. But I’m guessing we will see more discussion as Congress looks for ways to fix our budget woes.

2.     Jobs: Yes, this is obvious, but it is worth mentioning yet again. Without a solid job outlook, housing markets will suffer. It’s difficult to sign for a mortgage when you’re unsure of your job security or worse – unemployed! Any good news on the job front will bode well for real estate markets so watch this issue closely for clues.

3.      Lending regulations: The Obama administration doesn’t seem to be finished looking at more regulations for the lending industry. In fact, one of the first things on the agenda this year is to look at how to restructure Fannie Mae and Freddie Mac. Regulators are also looking at rules about how banks must retain some of the risk when selling off mortgage-backed securities.

4.     Other administrative tactics: Think Home Buyer Tax Credit. Will the administration step in and try to create another incentive program to boost sales? Will it try to incite banks to do more short sales or loan modifications to keep more homeowners out of foreclosure? Will it create tax incentives for investors looking to rehabilitate some areas in desperate need? Of course, no one can predict these things. But we’ll need to pay attention. Some analysts are already saying 2011 is likely to be another “worse” year on record for housing. With that in mind, it is highly likely that Congress will try to take some action to keep the market moving or to save more Americans from foreclosure.

These are the main issues I think we’ll need to pay attention to this year. Through it all, I think it will be important to focus on our single situations and whether it’s the best time for us to buy or sell – regardless of all the outside influences. It still comes down to the buyer and seller of a single transaction.

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Intero Insider: Homeownership’s New Image

By Gino Blefari | September 28th, 2010 0 Comments

Attitudes about home ownership are changing. The latest housing topic to hit the headlines is the notion that the allure of owning a home isn’t what it used to be – and for many reasons. For those struggling with job security or unemployment, owning a home looks more like an economic trap than a path to economic security.
 
As with most housing news, this sounds so grim on the surface. But there really is a glimmer of hope and good news if you dig. These changing attitudes are bringing back a healthy outlook on ownership: owning a home is a lifestyle first, not an investment choice.
 
True, owning a house under normal circumstances can be the best way to build some financial security. But it’s not a mutual fund or stock portfolio.
 
Even through the housing boom, you’d find that the shrewdest real estate counselors would say not to view your house as a financial investment like stocks. Neighborhoods are not markets. Patios, kitchens and yards are not trading floors – these are the floors where we live our lives and create memories with our families.
 
Now that the market has taken a tumble, we are finding our way back to these basics. A recent story in the Wall Street Journal covered a survey from Fannie Mae that showed a decline in the number of people who consider housing a safe investment.
 
But guess what? No investment is safe. Just ask all the folks you know who had planned to retire early only to watch their 401(k)s get eaten alive by the financial collapse in 2008 and 2009.
 
The real point here, though, is that housing for the average American cannot be approached from purely an investment standpoint. We all know it’s much more than that. It’s your home first. It’s your lifestyle. It’s your family’s gathering place. And it’s also a way to build savings in an asset rather than give your monthly housing check to a landlord.
 
So when I hear that fewer people now see housing as a safe “investment,” I think that it’s good that fewer people are looking at it in those terms. I’m willing to bet that as soon as we see some real movement on job creation, that sense of security will start to spread through America once again.
 
And what’s the first thing you’ll see folks do when they are more financially secure in their jobs? Buy a house, of course – because, hey have you seen how great the market is for buyers right now?

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With Rates at Historic Lows, What’s Next?

By Russ Boyd | January 19th, 2010 0 Comments

You already know that what the Federal Reserve does with interest rates has a huge impact on the housing market.   I’m Russ Boyd and what you might not know is that the Fed influences housing prices in another significant way—through its purchasing of mortgage-backed securities (MBS)—and now the question is that when the Fed stops buying those securities in the near future, how will it affect the housing market?
Some background will help explain what is going on. Let’s start with a definition. An MBS is a group of mortgage loans that are pooled together and sold as a bond.

Part of a Pool

It is easy to understand how MBS come about and how they work. When you go to a bank or mortgage broker to borrow money to purchase a home, the home is collateral, and your mortgage—the promise you’ll pay principal and interest each month—is the anticipated cash flow the lender receives from you.
That bank or broker then sells your loan to an entity that aggregates your loan with a bunch of other loans into a big “pool” of various types of loans with various maturity dates (fixed, adjustable rate, one-year, 30-year, good credit, bad credit, etc.) The aggregator then issues these pooled mortgages as bonds, the MBS, which promise investors an attractive stream of interest payments.
Who are these aggregators?
They are government sponsored entities (GSEs). One large group is the Federal Home Loan Banks (FHLB), a private corporation made up of 8,100 member banks. All of the member banks must own stock in FHLB in order to participate in its loan program.  Other GSEs, which have become household names are Fannie Mae, Freddie Mac, and Ginnie Mae
To recap,  an MBS is a pool of home loans sold as a bond. And we know who issues them: government sponsored enterprises such as Freddie and Fannie, etc. So, how does this help us understand where real estate prices are going?

Easier to Get a Home Loan

Well, most banks have neither enough money, nor any desire, to hold a large number of home loans for an extended period of time. Absent a place for the banks to sell them, as many of us found out over the last year, it then becomes difficult for us to get a new loan. Thus, the MBS market is currently providing us all with an important means of loan supply, albeit indirectly via our bankers and mortgage brokers. The easier it is for banks to sell our loans to MBS aggregators, the easier it is for us to get a home loan. The more difficult it is, the harder (and more costly) it is for us to get a mortgage.
When the entire financial system found itself on shaky ground the housing market was affected big time. Anticipating a big increase in homeowners defaulting on their mortgages, investors no longer wanted to own their existing MBS, let alone buy newly issued MBS.
With no buyers for those securities, the GSEs couldn’t sell them or issue more. As a result, the supply of mortgage loans all but came to a screaming halt.
To the rescue came the Fed. Last November, as part of its efforts to get the economy moving again, the Fed announced it would buy $500 billion in mortgage-backed securities. In March of this year it raised its target to $1.25 trillion, and it has followed through on its pledge.  These purchases have undoubtedly provided much needed liquidity to the MBS market and helped keep the long-term mortgage rates at historic lows.

Behind the Higher Rates

O.K., let’s get back to the original question: What’s next? Well, just as it has been with interest rates, the Fed has been transparent about its intentions toward MBS. It has said it will stop buying MBS once it fulfills its commitment of buying those $1.25 trillion worth of bonds. It will complete that purchase sometime during the first quarter of next year.
That means that, sometime within the next five months, the Fed will be withdrawing a prop under the housing market.
What remains to be seen is how other investors react as the Fed slows—and then eliminates—its purchase program.
My expectation: As the Fed pulls out, private investors will demand a higher interest rate for such securities—to compensate for their concern people will continue to default on their mortgages—and thus long-term mortgage rates will rise. The real question is how fast and how high.

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Mortgage that Matters: Happy New Year from the US Government

By Rick Soukoulis | January 8th, 2010 0 Comments

When I first got in the Business in 1981 I met someone wearing a little button on his lapel with these letters, EGBAR. He told me it stood for “Everything’s Going to Be All Right”.  At the time interest rates were 18.5 % and 4 points… That’s how I feel about the government’s latest policy pronouncements about Fannie Mae and Freddie Mac.

As you might know, the federal government on Christmas Eve made the announcement that the U.S. Treasury would essentially provide these two agencies with as much capital as they might need.

Originally, there has been a cap on how much money the government would provide, but the administration said that they will now do whatever is necessary to keep these Agencies alive and well.

There’s almost unanimous opinion by analysts that these two agencies won’t need additional monies, but housing experts still applauded the move.  And I’m one of them. Their view is that by saying they will stand behind Fannie and Freddie, even if such a statement is not necessary, it would provide a calming influence to investors in the agencies’ debt.

Let me explain something.  There are two types of securities at issue, (1) Fannie Mae and Freddie Mac Mortgage Backed Securities, and (2) bonds issued by these two entities.  The first category is and always has been backed by the full faith and credit of the U.S. government.  Investors know that if they buy a mortgage backed security they will not lose any principal.

The bonds issued by Fannie and Freddie are another thing, however.  They have never been backed by the U,.S. government.  Interestingly, many people thought so, but it simply wasn’t the case.  By offering unlimited support, investor around the world can safely buy Fannie or Freddie bonds.

People opposed to this support say it provides Fannie and Freddie with a blank check.  And from a literal point of view, they’re precisely right.

However, broader public policies are at play here, and the real issue is that such a “blank check” will probably never be cashed, but the fact that it exists will provide stability and predictability to our housing markets.

Right now, with such a fragile economy and difficult housing environment, stability and predictability are precisely what the market needs.

I applaud what the government did.

I think it will help get things back to normal.

EGBAR

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Intero Insider: Sweeping Changes Coming to the HVCC

By Gino Blefari | December 23rd, 2009 0 Comments

While we’ve all been focused on the Homebuyer Tax Credit and the effect that foreclosures have had on the real estate market, Congress has been hard at work, trying to right some unintended wrongs.

For some time now, the home buying process, already strained by the desperate straits of our nation’s economy, has been made more difficult than necessary as a result of unofficial “rules” put in place by Fannie Mae & Freddie Mac. These “rules”, known as the Home Valuation Code of Conduct, were put in place to reduce abuse by appraisers, who’d been under pressure from lenders, real estate professionals, sellers … you name it, to make sure that a particular house appraised for a certain amount (whether that amount had any basis in reality or not).

But while paved with good intentions, the HVCC’s road was littered with potholes.

The HVCC put the onus on lenders to order appraisals. It also required that lenders stay out of the process; that they not exert any influence over the appraisal. This has led to the use of appraisal management companies, which, for lack of a better description, are like brokers for individual appraisers. The AMC (appraisal management companies) gets an order for an appraiser, then assigns someone to take care of the job. The big problems here are that, more often than not, appraisers are being assigned to value homes in communities and neighborhoods with which they are wholly unfamiliar. Also, the use of the management companies requires the splitting of appraisal fees, causing appraisers to cut their rates and putting many experienced appraisers out of business.

Complaints about the HVCC have run the gamut from inaccuracy in valuation, “lowball” appraisals, to inexperienced appraisers (not to mention a host of other complaints). As a result, many sales have been adversely affected.

It looks like that may be about to change.

The US House of Representatives has been hard at work on its financial and mortgage industry reform bill. It has voted to terminate use of the HVCC, pending the initiation of a new Consumer Financial Protection Agency. The House’s bill, now on its way to the Senate, requires the director of this agency to implement national sales rules and standards that will cover all transactions.

Once the new standards are in place, Fannie Mae & Freddie Mac will be barred from using their much-maligned rules.

How the Senate will handle the creation of this new agency (if it goes along with it at all) remains to be seen, but the House bill is a clear signal that the HVCC is all but dead in the water.

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What the heck is the Fed up to?

By Rick Soukoulis | November 13th, 2009 0 Comments

The Federal Reserve Board may be the least understood institution in America and about which people know the least.  But in these trying times, their role has not only been big.  It’s been critical.  The Fed has probably done more to get the economy moving again than all the government spending and bailout programs combined.

 About 85% of all mortgages made today are being put into mortgage backed securities. These securities are being created primary by Fannie Mae and Freddie Mac. Both of which are now 80% owned by the government.  In past, these securities were bought by banks, mutual funds, insurance companies and pension funds.  These same investors are still buying, but in general, they are buying a whole lot less than they did before the credit crunch of 2008-09.

In order to drive rates lower, the Fed has stepped in and been buying massive amounts of mortgage securities.  As a matter of simple supply and demand, massive buying will drive bond prices up, and as bonds prices rise, rates drop.  Thus, the Fed made a conscious decision to buy mortgage securities to drive mortgages rates downward, largely to keep pressure off the American homebuyers and to stimulate housing markets in general.

 The Fed has stepped in as the buyer of last resort, and they are now authorized to buy up to $1.2 trillion in these MBS’s.  They’ve already bought $975 billion, with $225 billion more to be bought.

 They have been buying at a rate of $25 billion a week; just enough to keep rates relatively low, allowing people to refinance at lower rates and for homebuyers to afford new homes.

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Fannie Who?

By Rick Soukoulis | August 2nd, 2009 0 Comments

If you live around Washington D.C. and feel a desperate need for some chocolate, you’ll probably head to the nearest Fannie Mae candy shop.  In parts of the East Coast, Fannie Mae is their version of See’s candy.

In the rest of the country, Fannie Mae is perhaps the most important government sponsored agency that no one knows anything about.

So what the heck is it, what do they do, and why does it matter?

First, it doesn’t really affect you if you’re going to rent the rest of your life.

But if you’re a homeowner, someone who wants to be a homeowner, or a realtor, it matters a great deal.

Let’s take a look at its history.

Fannie Mae was originally chartered during the New Deal.  It was meant to be a source of liquidity to the banks, prepared to buy mortgages so that the banks could re-lend the money.  In fact, it did very little of this for decades, and it only became a big business in the early 1980’s.

If you’re over sixty, you might recall how it used to be when you were looking for a mortgage. You would walk into an S&L, and as amazing as it sounds today, they would often tell you they were “all loaned up.”  This meant that all their deposits were lent out, and, as they’d tell you, you could come back in a few days and see if they had some new money to lend. 

It could be because some loans paid off, or perhaps because they took in some deposits.

As crazy as it sounds, it was this way till the late 70’s and early 80’s when Fannie Mae started getting much more active.

By buying loans, Fannie Mae freed up money for the banks & S&Ls lend again.

It provided liquidity, which is really fancy way of saying that it supported housing values.  If you think about it, it makes total sense that housing values would decline if there is no mortgage money around.

As California housing prices climbed in the last 30 years, Fannie Mae became less and less relevant in California.

Why?

The answer is that Fannie Mae sets a limit each year on the size of mortgages they can buy.  Right now, it’s a max of $417,000 per loan.   While that might be enough in rural North Dakota, it’s just not enough in most parts of California.

I know what you’re thinking. You’re thinking a big So What?

It actually matters a great deal. 

 If you get a Fannie Mae loan today, that is, one that’s $417,000 or less, your rate is significantly lower than if you get a so-called jumbo loan over that amount.

 Go over $417,000 – even by just on e dollar – and your rate will jump almost a full point.

In round numbers, the monthly payment will jump about 10% once you go over this threshold.’

 One of the more exciting things coming out of Washington, aside from Fannie Mae chocolate, is the possibility that Fannie Mae will raise its loan limits.  Congress is getting close to raising it a whopping 75% to $730,000.

Just imagine. With higher Fannie Mae loan limits, monthly payments will be lower and that will make it infinitely easier to qualify borrowers.

Does it matter?

You bet it does!

If it goes through, Realtors should see values stabilize, sales increase, and borrowers get easier to qualify.

It matters a lot!