San Antonio Mortgage News

Things are picking up in the Mortgage business!!!

Surge in Mortgage Applications

Perhaps it’s the falling interest rates, perhaps it’s the hint of fall in the air in the evenings, perhaps it’s the steady price drops that sellers are offering but, according to Real Trends, last month’s mortgage loan applications have surged in comparison to expected trends.  Below is a summary of the increases the mortgage industry has seen: 

·        9.5% increase on mortgage applications

·        15.4% increase in refinance loans

·        6.4% increase in purchase loans

No wonder things around the office have seemed so busy lately!!!  Although, as always we have time for you, your friends, your family, and your clients. 

Positive Effect on Mortgage Bonds, buyers and Refi's

 

After this weekend’s news about the government takeover of Fannie Mae and Freddie Mac, Mortgage Bonds started steadily climbing.  The Treasury said that they will back the payments on the Bonds which enticed investors to once again start buying up Mortgage Bonds.  Due to the government backing, investors can buy Mortgage Bonds with a higher rate of return and the same guarantee as lower yielding Treasury Bonds.  This morning, the difference between the company’s debt and equivalent Treasury bills dropped to lower than historical averages catching the attention of savvy investors.  Not only are local investors noticing what this government bailout could mean, many international investors have taken note that the US has taken action to prevent the potential failure of Freddie and Fannie and do what is necessary to stabilize the two companies.  This increased national and international confidence should lead to attractive (lower) interest rates to you the consumer, therefore, should lead to a surge in refinancing on current loans.  The government stepping in to save Fannie and Freddie has the potential to have a very positive impact on the current mortgage industry including an expected surge in refinancing interest.  Also a surge in purchases because with lower interest rates a larger percentage of buyers in the market will now qualify for the home they want because lower rates equals lower mortgage payments.  This will be a very welcome time for the economy worldwide!

How did Fannie Mae and Freddie Mac get here and how do we keep it from happening again!

If you haven’t been keeping an eye on the mortgage industry as much as you would have liked, the news about the government takeover of Fannie Mae and Freddie Mac may have knocked the wind out of you when you first heard about it.  However, a little basic explanation of the way that the two companies make money will help shed a little light on how we got where we are and how it should have been obvious where they were heading.  Fannie and Freddie issue Bonds which, as they mature, the principal needs to be repaid.  Fannie and Freddie pay back the principal by issuing new bonds on a monthly basis and using the capital to complete the payoffs.  This system has worked well until the recent loss of investor interest in purchasing new Bonds.  When investor interest sank, Fannie and Freddie still had maturing Bonds to pay off without new profits coming in as they had in the past.  Further deepening the problem was a decision that Fannie and Freddie made to try and make their Bonds more enticing for investors.  They offered Bonds at higher yields without any way of increasing profits which sank Fannie and Freddie even further into the negative.  The company’s flawed business model didn’t have a safety net in case new Bonds weren’t selling as quickly as other Bonds were maturing which resulted in the two companies sinking further and further without an end in sight.  In addition to finances, the government is planning on restructuring the two companies to prevent a repeat in the future should the housing market take a similar turn.

In the long run this will create a safety net for the mortgage backed securities market so that we keep the foundation of our economy heading in a direction that is tolerable for all sectors to follow!

Fannie Mae and Freddie Mac (Rescue Plan)

Fannie Mae & Freddie Mac’s Rescue Plan

 

We had some big news over the weekend regarding the two mega players in the mortgage finance industry.  Fannie Mae and Freddie Mac have been placed in a legal status called “conservatorship” which is similar to bankruptcy.  Additionally, new chief executives have been appointed and the current chief executives have been moved in a supportive role.  In recent months, these two companies have funded over two thirds of all home loans but have experienced huge losses which have left them in a bind that the government has decided to help pull them out of.  Why is the government going to step in and “rescue” these two private companies?  According to Treasury Secretary Henry M. Paulson Jr. the failing of either of these two companies would result in “turmoil in our financial markets here at home and around the globe.  A failure would be harmful to economic growth and job creation.” 

The rescue plan has been described as a “bridge” to allow the companies to continue to have a strong stance in the housing finance industry regardless of the financial losses they have sustained due to the housing slump that much of the nation is feeling.  The government will interject money into the companies every quarter that they are unable to fund themselves.  I haven’t seen any estimates on projected costs nor a projected time table for this plan but, I imagine, it will take a little time before Fannie and Freddie can stand on there own two feet again.  In addition to financial assistance, Congress has been called upon to restructure the companies in order to give them a more sound business model to achieve financial stability quicker and with continued long term success.  This is perhaps the greatest change for the two companies whose business model has come under great scrutiny over the past several months.  After all is said and done we may walk away with a much stronger foundation for Fannie and Freddie than we had during the housing boom. 

To read more stay tuned or you can visit www.fanniemae.com/index.jhtml or www.freddiemac.com