Guarantee Mortgage’s Newsletter says that there may be some truth in Charles Dickens’ long-winded prologue from A Tale of Two Cities, which begins “It was the best of times, it was the worst of times. . .” We could look back and see that this was the best of times to be a home buyer. In some parts of the country, prices are off 35% to 50% from highs set three years ago. On the other hand, we may look back and see that this was the worst of times. At least it could be the worst of times for Freddie Mac and Fannie Mae: Both firms lost 60% of their value this past week on solvency concerns.

Why should those of us who are not Freddie or Fannie shareholders care? Because they provide stability and liquidity to the mortgage market by guaranteeing that investors who purchase mortgage securities will receive timely payments of principal and interest. The two companies currently own or guarantee about $5 trillion in mortgages, or nearly half of all outstanding U.S. home-mortgage debt. They are pretty much the only game in town for conforming mortgages.

Fannie and Freddie aren’t going anywhere, but a disruption in their operations could impact mortgage rates. Some of the doomsday pundits have stated that if their troubles persist, rates on mortgages could move higher – as much as 0.25% to 0.50%.

So far, mortgage markets remain sanguine over Fannie’s and Freddie’s fate. The prime 30-year fixed-rate mortgage fell five basis points to 6.48% last week, while the prime 15-year fixed-rate mortgage fell eight basis points to 6.01 and the prime 5/1 adjustable-rate mortgage fell four basis points to 6.05%, according to Bankrate.com’s latest survey.

This entry was posted on Monday, July 14th, 2008 at 10:02 am and is filed under Market Conditions. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

Posted in Market Conditions  

Leave a Reply

Name

Mail (will not be published)

Website