The federal government’s takeover of mortgage giants Fannie Mae and Freddie Mac translated into lower mortgage rates Monday and should keep credit available for home loans.
The average U.S. rate for a 30-year fixed mortgage moved from 6.26 percent last week to 6.08 percent Monday, according to .
That rate had been above 6.75 percent earlier this summer.
“So much of the housing trouble involved confidence. Anything that helps to restore confidence is good,” Boulder mortgage banker Lou Barnes said.
Despite several Federal Reserve rate cuts, mortgage rates hadn’t moved significantly lower in recent months. With federal support going from implied to realized, investors appeared more willing to buy mortgage-backed securities, bringing rates down.
Also, the two mortgage agencies — which hold about $5 trillion, or almost half, of U.S. mortgages — had tacked on numerous fees and kept rates elevated to raise capital.
Homeowners looking to refinance their mortgage and buyers stand to see the greatest benefits, but they may want to move quickly.
The rate drop is large enough that loan applicants two weeks or more from closing should ask for a “float back” on rates or consider an entirely new loan, said Michael Thomas, a mortgage broker with Hyperion Capital Group LLC in Aurora.
The takeover did not help rates on the jumbo mortgages used to finance more expensive homes or home-equity lines. And it won’t do much for delinquent borrowers, an estimated 4.33 percent of households in Colorado.
Mortgage rates could even start rising again if investors become nervous about how much debt Uncle Sam is taking on, said Greg McBride, a senior financial analyst with .
Taxpayers are on the hook for $200 billion initially and potentially much more if housing markets worsen.
Heavy government borrowing could push U.S. Treasury rates higher, which would mean higher mortgage rates.
“The worst part of this is that the U.S. Treasury and the Federal Reserve are attacking the consequences of bad policy decisions but not the causes of them,” Wells Fargo economist Eugenio Aleman said.
But McBride said the government action was preferable to seeing one of the two home-finance agencies collapse.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
What they’re saying
Reaction to the rescue of Fannie Mae and Freddie Mac:
“They found out they had a house of cards. Once they got someone looking closely at Fannie and Freddie’s books, they realized there just wasn’t adequate capital there.”
Sen. Richard Shelby
, R-Ala.
“We accepted him at his word that all he needed was the authority and that he wasn’t going to exercise it. Then he used his authority very aggressively. Fool me once, your fault. Fool me twice, my fault.”
Sen. Christopher Dodd
, D-Conn., on Treasury Secretary Henry Paulson
“A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”
Dana Perino
, White House spokeswoman
