WASHINGTON — The crisis at Fannie Mae and Freddie Mac, once the unwavering giants of the mortgage finance industry, could make getting a home loan even more difficult at a time when lenders are already tightening their grip on credit, industry experts and financial advisers said.
If you’re thinking of buying or refinancing a home, expect to see a rise in mortgage rates, the experts said. But if you already have a mortgage, even one backed by Fannie Mae or Freddie Mac, you should have nothing to fear as long as you have no pressing need to refinance, they said.
A spike in rates could also drive homeowners into foreclosure as hundreds of thousands try to refinance out of adjustable-rate mortgages that are scheduled to reset this summer.
What caused this latest panic in the already-crippled mortgage market? Investors have lost confidence in the government-sponsored entities when they need it the most. Badly bruised by the downturn in the housing market, Fannie Mae and Freddie Mac need to raise cash to stay afloat.
Rising foreclosures have already shrunk the pool of potential homebuyers by spooking lenders into requiring bigger down payments and stronger credit histories from borrowers. Higher interest rates would keep even more people from buying homes that have been lingering on the market for so long.
Don’t be surprised if this crisis affects other forms of lending, such as car and student loans.
“As people are already finding, credit tightness translates to the entire system,” said Michael Kitces, director of financial planning for Pinnacle Advisory Group in Columbia, Md. “A bank that loses millions of dollars on mortgage loans is a bank that has less money for loans for other purposes.”
