Mortgage and Real Estate Blog

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Bailouts unintended consequences. Fixed rates on the rise!

Metzler Mortgage group at Mortgages Unlimited Minnesota Wisconsin

Saint Paul, MN: According for Fannie Mae's, own web site, "Fannie Mae is a government-sponsored enterprise (GSE) chartered by Congress with a mission to provide liquidity and stability to the U.S. housing and mortgage markets."

Treasury Secretary Paulson recently spoke about how the takeover (seizure) will increase the availability of mortgage financing.

SOUNDS GREAT. So why are 30-year fixed rate mortgage rate HIGHER than before?

According to many, the reason is investors now have many other places to put their money and still get the safety of the U.S. Government backing.

Prior to all the recent bailout activity of banks, investment , and the likes of AIG, Fannie Mae and Freddie Mac, as Government Sponsored Enterprises (GSE) were one of the only places to get the full faith and credit of the U.S. Government.

This in turn allowed Fannie and Freddie to have very low cost of borrowing money. This allowed THEM to buy mortages from lenders that carried lower rates. All simply because of Fannie and Freddie's dominant market position.

Now that so many of these banking institutions are being guaranteed, or are now partners with the U.S. Government, investors have many new "safe" investment choices.

Another example is the old theory "stocks bad = mortgages good". Historically, as the stock market is dropping, people would pull their money and place it in bonds. Less return, but much safer. This activity into the bond market would push rates down.

As the stock market has recently seen crazy days of 500, 600, 700 point movements, we've seen little, if any of that stock market money move into bonds. Where is it going?

According to Joe Metzler, a Senior Mortgage Banker with Mortgages Unlimited in Saint Paul, MN. "Quick thinking, quick acting by Congress was bound to have unintended consequences. Expect to see Congress forced back to the table a few months down the road to deal this these issues again."

Comment balloon 1 commentJoseph Metzler • October 20 2008 08:20AM
Bailouts unintended consequences. Fixed rates on the rise!
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