Fannie and Freddie to Aid Mortgage Banks

empty_safeIn a move that is designed to help the housing industry, the Wall Street Journal reported today that Fannie Mae and Freddie Mac are working on a program to help smaller banks get the short term credit needed to help them make home loans. This would come in the form of Fannie Mae and Freddie Mac making advance commitments to buy home loans that meet a certain criteria.  The program builds on a pilot program already underway between Freddie Mac and NattyMac and Provident Lender Associates LP.

While it seems that much of this plan has yet to be announced, any assistance to small banks appears to be welcome.  Another column in the Wall Street Journal pointed out that there are over 8,000 mortgage lenders nationwide (not counting reverse mortgage lenders).  When one considers that the majority of mortgage loans tend to be completed by the three major banks- Wells Fargo, Bank of America,  and JP Morgan Chase. These three lenders alone account for 52% of new home mortgages, up 15% from the 37% market share for the top 3 lenders in 2007.  An increase in market share for the top lenders likely doesn’t bode well for the industry though. As a result, it will be interesting to see if the plan with Freddie Mac and Fannie Mae will help revitalize the mortgage industry by helping the smaller lenders.

 

Rising Mortgage Rates Increase Concerns About Housing Market

 

Wall Street Journal graph depicting the number of overdue mortgages and foreclosures versus the rising 30-year fixed mortgage rates

Wall Street Journal graph depicting the number of overdue mortgages and foreclosures versus the rising 30-year fixed mortgage rates

The Wall Street Journal announced today that mortgage rates have surged to their highest level in three years. The average rate on 30 year fixed rate forward mortgage was 5.44% on Thursday.  But what is more remarkable is that the level jumped 7.6% from Tuesday, when the rate was just 5.03%.   While forward mortgage rates are not directly related to the reverse mortgage rates, the same trend can be observed in the reverse mortgage rates.  Between May 19th and May 27th, the rates for the 10-year CMT (which affects the HECM CMT programs) increased by 4.6%, while the rates for the 10-year LIBOR swap (which affects the HECM LIBOR programs) increased by 2.4%.  If the forward mortgage data is any indication, next week’s reverse mortgage rates will be even higher.

 

The increasing mortgage rates in both markets are a cause for concern amongst those in the industry. For one, increasing mortgage rates will make homeowners less likely to buy a home.  The Wall Street Journal reports that Credit Suisse estimates that each increase of .10 percentage point in mortgage rates is equivalent to a 1% rise in home prices. By their calculations, home prices would then have risen over 3% in two days (while home values have remained constant).  

Increasing mortgage and reverse mortgage rates will also make it harder for borrowers to refinance and/or get out of foreclosure.  They will lower the amount of money that can be saved by refinancing. These negative affects will not help a stuggling housing industry where, as reported yesterday, the number of homeowners behind on their mortgage or in foreclosure is already at record high levels.