Over the last few years, we have experienced some of the lowest interest rates in history. We receive many calls regarding the availability of loans and the current process of applying for a loan.
There are loans available. The rates are still very low. Housing is priced well. Now is the time to act as we see some signs that will more than likely result in rate and fee increases. One of the major changes has been the announcement to phase out Fannie Mae and Freddie Mac.
On February 11, 2011, in a report to Congress, the Treasury Department outlined a plan to phase out the role that Fannie Mae and Freddie Mac have played in the housing market. The report is entitled “Reforming America’s Housing Finance Market , A Report To Congress”.
The first thing to understand is what has been Fannie and Freddie’s role and how has it changed over time. The second issue is how this changing role will affect the future of lending.
Fannie and Freddie: Fannie Mae was created in 1938, Freddie Mac was founded in 1970. Both institutions have played a major role in the securitization of mortgages – the purchasing of mortgages from financial institutions. This pumped more liquidity back into the system to allow for more lending. These agencies were known as quasi-government agencies and had individual investors. After the real estate melt-down, the agencies were taken over fully by the government due to the large losses that they incurred and the fear that they would go under. The agencies suffered huge financial losses due to the high degree of foreclosures.
The Future of Lending: In reading the Treasury’s report, there are some items that are mentioned that in the future, until private funds are truly available, we will probably see higher rates and some tightening:
- Lowering Conforming Loan Limits (High Balance Conforming Loans seem to be targeted).
- Raising Down Payments.
- Raising the FHA MIP– this is scheduled to happen on April 18th – MIP to go from .90% to 1.125% – about a $40 increase in payment on a $200,000 loan. There are other changes on FHA planned as well.
- Increasing risk based pricing – additional premiums placed on loans, thus raising the rate – if a credit score is not 740 or above, higher premiums for this issue.
Because of these pending/current changes, we feel that there is a window of opportunity to act now. Loans are available – documentation is the name of the game these days. If you are thinking of purchasing a new home, now may be the time to act.
Ann Heinz of Kensington Mortgage
NMLS #360599, License #100027008
303 University Boulevard, Denver, Colorado 80206 Phone: 303.221.1810