Fannie and Freddie get to borrow the car?
By Matt Carter, Tuesday, March 18, 2008.Perhaps ...but they still have to be home by midnight.
It sounds like Fannie Mae and Freddie Mac will get some more leeway to buy up and guarantee mortgages, with federal regulators set to hold a press conference tomorrow morning. Fannie and Freddie's CEO's will be at the press conference with James Lockhart, director of the Office of Federal Housing Enterprise Oversight. The conference comes on the heels of a report in the Wall Street Journal today that OFHEO would soon reduce, but not eliminate, additional capital requirements put in place in the wake of accounting and management scandals at the companies.
This could be good news if you have clients who are hoping to take advantage of lower rates on the new "jumbo light" loans of up to $729,750 Fannie and Freddie have been authorized to back in high-cost markets until the end of the year. Some have worried that Fannie and Freddie's recent losses would constrain their ability to buy these loans. While the government-sponsored enterprises can also guarantee jumbo light loans that are packaged up as securities for sale to investors, there's speculation that investors won't gobble them up. That could mean that the interest rates on Fannie and Freddie backed jumbos might not be much better than what you'd pay for a jumbo loan today.
If OFHEO cuts Fannie and Freddie some slack, some will undoubtedly fret that they are increasing the likelihood of a taxpayer bailout should the GSEs get in over their heads. But Democrats are pressuring the Bush administration to take even more drastic steps, such as creating a government program to buy up troubled borrowers' mortgages at a discount from lenders.
One thing is for sure -- Fannie and Freddie never relaxed their underwriting standards the way the subprime lenders did during the boom, and they have gotten even tougher lately.
You can check out Fannie's guidelines for jumbo light loans in this previous post, and here's a link to Freddie's.
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Submitted by Kevin Schmidtchen on March 19, 2008 - 12:27pm.
Santa Barbara became one of the many high cost counties in California to receive the Maximum of $729,000. After the long anticipated wait, we are still waiting so to speak. Tack on what is happening with the overall economy and we are definitely now seeing too many benefits from this new amount. Maybe somewhere in the coming months, but most lenders that I talk with state that they don't forsee any big changes.
Blog: www.SantaBarbaraRealEstateVoice.com
Submitted by Matt Carter on March 19, 2008 - 2:46pm.
Thanks for the report from Santa Barbara County Kevin. I see OFHEO didn't have to split the county in two for you to get to the maximum, after all, as SBAR had requested.
The lenders you spoke to may be right not to count on big changes, but today's move by OFHEO to relax Fannie and Freddie's capital requirements (see story) does increase the likelihood that the "jumbo conforming" buyers will get better rates.
One big question has been whether Fannie and Freddie will buy and hold these loans (or securities backed by these loans) or just securitize and guarantee them for sale to other investors. The "jumbo light" loans that are securitized aren't going to be bundled with conforming loans, and investors will demand higher returns for risk.
OFHEO's action today makes it more likely that they will be able to buy the jumbo conforming loans as investments -- which in theory would provide faster relief.