Local mortgage rates drop
Mortgage rates in Colorado Springs have started to fall after the federal takeover of mortgage giants Fannie Mae and Freddie Mac, but longer-term effects are less clear, local lenders said Monday.
Rates dropped Monday by between one-fourth and one-eighth of a percentage point to about 6 percent on conventional (standard) mortgages and to between 5¾ percent and 5⅞ percent on loans backed by the Federal Housing Administration or the U.S. Department of Veterans Affairs, said Gene Mills, president of CB&T Mortgage LLC, a unit of Central Bancorp and a major mortgage lender in the Colorado Springs area.
Local mortgage rates had jumped as high as 6¾ percent in the past 10 days amid uncertainty about whether the federal government would bail out the Federal National Mortgage Association, known as Fannie Mae, and Federal Home Mortgage Corp., known as Freddie Mac. The two mortgage titans own or guarantee about half of U.S. mortgages, buying many of the loans made by lenders in the Springs and across the nation. Fannie Mae and Freddie Mac then package and sell those loans to investors on what's called the secondary market.
"This should have a very positive impact," Mills said of the federal bailout. "One of the issues in the mortgage market has been the instability of the secondary market. The government stepping in will help stabilize that market and mean lower rates. The problem was that there was no investor confidence in the mortgage-backed securities market, so investors weren't willing to buy those securities," driving down prices of those securities and pushing mortgage rates higher.
Mills doubts the federal takeover will affect lending standards, which most lenders have tightened in the past year as defaults and mortgage foreclosures have soared. Borrowers with lower credit scores or those who are seeking large loans on pricey houses have found getting mortgages much more difficult and expensive in the past year or so, which he said is not likely to change in coming months.
Jay Garten, president of Peoples Mortgage Corp., one of the largest mortgage lenders in the Springs area, said the takeover could trigger a "slight easing" in lending standards "if investors buy into the fact that stability has been brought to the housing market. That is key to the recovery of our economy, and if that doesn't happen lenders will have to tighten lending standards more and make the recovery even lengthier."
Lending standards for most borrowers e_SEmD such as the amount of down payment lenders require and the percentage of the value of a home that can be mortgaged e_SEmD are more strict today than they were eight years ago, before lenders started making the subprime, interest-only and other exotic mortgages that contributed to record numbers of defaults and foreclosures locally and nationwide, Garten said.
Whether lending standards loosen a bit or become tighter should be clear in about two weeks, although Monday's stock market rally was a good sign that investors believe the move will stabilize the nation's housing market, Garten said.
By stabilizing the mortgage market, the federal takeover has put "more stable legs underneath the housing market. It is what we clearly needed," said Robert "Hutch" Hutchison, president of Adams Mortgage LLC, an affiliate of Adams Bank. "This is the first building block for a recovery of the economy. It will eliminate a lot of risk and short-term will help the market recover, but the long-term question is how much it will cost taxpayers."
Although Colorado's mortgage industry welcomes tighter control over Fannie Mae and Freddie Mac, the long-term effect of the federal takeover is much less clear, said Chris Holbert, president of the Colorado Mortgage Lenders Association.
"The mortgage industry already is operating on only 40 percent of the mortgage types that were available 18 months ago, and the availability of money for mortgages last year and this year is half of what it was at its peak in 2003," Holbert said.
The bailout is expected to do little to stem the growing number of foreclosures, The Associated Press reported. Mortgage lenders are hoping the government will end or reduce fees Fannie Mae and Freddie Mac have been charging lenders to protect against increased losses on mortgages the giants own or guarantee. Lenders typically have passed those fees along to borrowers in the form of higher rates and fees.
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