Sep 09 2008
Cheaper home loans likely post Freddie, Fannie takeover
With the federal government taking control over the Freddie and Fannie giants it is the fraternity of home owners and those seeking mortgage refinance can expect to take a sigh of relief as with this new development the home loan rates can finally expect to see a down slide. Loan rates fixed for thirty years finally saw a dip of about a quarter of a percentage. The average 30 year fixed rate is now poised at a comfortable 6.08% and with the season of bulk sales of homes occurring in the US fast approaching this rate could reach levels of almost 5.5%. this slow and steady decline in interest rates which is already on the way is expected to land the rates lower by almost half a point in the next two to three months to come.
Mortgage rates registered a slip immediately after the government announced its decision to take over the mortgage giant duo. Fannie and Freddie were established after the Great depression with the motive of providing affordable mortgages to home buyers and with this takeover the government assumes responsibility to bring it back in sync with its original motive. Also this takeover is expected to move the risk spread close to the historical average which therefore indicates that the rates are expected to see a further slip by as much a three quarters of a percentage point. This will also bring down the sales of previously owned homes by an expected figure of almost 30%. This could in turn have a cascading effect on the prices of homes which could bring down the median price of an average home in the US by good about 17%.
With the government stepping in, this could result in bringing back and restoring credibility in the mortgage market thereby instilling confidence back in the investors to start buying mortgage bonds all over again.