Hilde's Mortgage Blog

Treasury Secretary Henry Paulson made a tremendous move in putting Fannie and Freddie into conservatorship.

The bad news is the realization how seriously damaged both entities had gotten during the past 18 months.

Fannie/Freddie issued mortgage backed bonds of about 12 Trillion. Allowing them to fail would have been disastrous.

There had always been the assumption of the implied government guaranty of those bonds and now that assumption is actually confirmed.

The impact on bond investor confidence is already hugely apparent. Just last week one of the biggest bond investor came out saying they will not buy any mortgage bonds of any kind. Now with this news they have again stepped up and are buying mortgage bonds. Mortgage rates already tumbled about 3/8% and may drop more. Also, there may be some upticks on the way.

In addition the Mortgage Bankers Association is approaching the new Fannie/Freddie regulators regarding the recently increased guarantee fees implemented risked based pricing fees. I am hopeful that those add-on fees will be reduced some and make conventional loans more affordable again. We may see a wave of refinance opportunities and lower payments for home buyers.

After all the mortgage finance dust has settled, what options are left for the home buying consumer as financing tools?

In short, pretty much all the financing options we had up to about 4-5 years ago. Back then we had a reasonable housing market with financing available to borrowers able to document their income, their cash needed to close and their willingness and ability to manage their financial obligations. That sounds pretty basic, and it is.

We still have many financing tools available from zero or little down payment to 20 percent down or more. We still have our State Housing Authority, Alaska Housing Finance Corporation, which offers a spread of loan options with below market interest rates serving low to moderate income earning first time home buyers.

In short, yes, the sky has fallen on the easy money loaned so liberal that it overheated the housing market beyond sustainable. However, the tried and true sources and tools are still available today.

We are seeing another high profile financial institutions crumble under financial crises. The 158 year old Lehman Brothers filed for bankruptcy and Merrill Lynch is being acquired by Bank of America. Those two casualties are probably the some of the biggest firms affected.

The bond market reaction to this news is very favorable to borrowers looking for new financing. Rates came down significantly early last week after the news of Fannie and Freddie bail out by the government. Some of those rates came back up a bit later in the week. Although after todays news, rates did drop again.

We may be at the best time for new financing for the year.

In all the current housing and mortgage tumults we are actually in exiting times.

1. First time home buyers are eligible for a tax credit up to $7,500 (income and dead lines apply)

2. The recent government bailout of Fannie Mae and Freddie Mac seems to have a very calming effect on rates. It is expected for mortgage rates to drop some and then remain relatively low for the near future.

3. The falling oil price seems to have a calming effect on inflation fears, which is also good for mortgage rates.

4. Low to no down payment options are still available via FHA, HUD184, USDA and VA loan types.

5. Sellers seem more motivated to negotiate.

If you had been considering buying your first or your next home, now is the time to get ready and prequalify so you are prepared to make the next move quickly before somebody else beats you to it.