Danny Salas

Chico, CA Interest Rates Market Report – Economic Influences – May 29th, 2007

Rates Still Higher

The Fannie Mae Foundation is the largest purchaser of real estate loans  in the  United States. 

If you meet their guidelines, than you qualify for the lowest interested rates and more flexible products than other loans because lending institutions can sell these loans to the foundation, freeing up more money for them to lend to more home owners and buyers.  The foundation has recently pledged $20 Billion toward loosening these guidelines to assist homeowners in refinancing that currently may be in a tight financial hardship in an effort to help prevent foreclosure and bankruptcy. 

As you may have been reading in the media, many homebuyers in the past few years, purchased mortgages that could not be sold to Fannie Mae and therefore, were put into sub-prime loans that enabled them to buy for reasons like bad credit, high monthly expenses compared to monthly income (debt ratios), extremely flexible underwriting requirements, almost no documentation to support claims on an application, and high loans values compared to the purchase price.  These types of loans are generally fixed for a very short period of time, and then start adjusting with a high profit margin to the bank over an index that can make payments difficult for a client. Generally refinancing or selling to get out of that financial hardship are the homeowner’s only options.   If they are unable to refinance or the home doesn’t’ sell, their sub-prime loan will adjust to higher interest rates with their payments adjusting dramatically, as a result. 

While values in our area have remained relatively stable, values throughout the nation have steadily declined, causing many homeowners to not have the equity to refinance out of these high interest loans.  Banks generally want to finance a percentage of the value of the home.  Some of these loan balances have surpassed the value of the home itself and many people unfortunately have been forced into such a financial hardship, that they have had to either walk away from their home, causing a foreclosure, or simply file for bankruptcy protection on their other personal financial responsibilities. 

What’s Fannie Mae doing to help with this situation? 

The $20 Billion has been set aside to aide the refinance of borrowers in this undesirable situation.  By encouraging full documentation; Fannie Mae has determined that allowing higher debt ratios, not requiring an appraisal on the subject property, allowing minimal amounts of liquid assets (cash) in saving institutions, and increasing the term or time in which a borrower has to pay the loan off (40 year terms), will help homeowners stay in their homes and help alleviate the financial hardship.  This will save lending institutions, homeowners, tax payers, and consumers billions of more dollars on foreclosures and bankruptcies alone.  Fannie Mae will be choosing four lending institutions to handle these requests.  Access Real Estate Lending, of course, has access to these options now! 

For those of you not in the sub-prime market, the stock market is still doing quite well.  Not helping matters was Tuesday’s Consumer Confidence Report coming in hotter than expect at 108.  We just can’t get through this negative downtrend that we’ve been experiencing.  This Friday, we have two big reports coming out; the Jobs Report and the Core Personal Consumption Expenditure (PCE) Index.  These two reports would have to really be tame to turn this current market around.  But, how quickly the market can change…Until next week…