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Low Down on Mortgages
- By Clay Brown
- Published 02/4/2009
- Real Estate
- Unrated
Clay Brown
Clay does residential mortgage loans for purchase, refinance or debt consolidation. He provides a high level of expertise and understanding in the area of mortgage financing and has a great depth of knowledge for what effect mortgage rates and trends in the market.
View all articles by Clay Brown
On a regular basis, I have people come tell me about how they heard something on the news about rates dropping or mortgage rates being fixed at 4%. Most of what you hear about mortgage financing on TV are just rumors.
It's obvious that most of the politicians in Washington have no clue how conventional mortgages even work. I can almost hear the directors at Fannie Mae and Freddie Mac laughing at some of the proposals that are curculating. The bottom line is that mortgage companies and banks have very little to do with the rates that are charged on conventional mortgage loans. A "Conventional" loan is one that can be sold to Fannie Mae or Freddie Mac because it meets their guidelines. The rates on conventional loans are determined by the mortgage backed securites that back those loans. For example, as the price of a Fannie Mae bond rises, the interest rates drop and vice versa. A few weeks ago,
mortgage bonds were selling at an all-time high and mortgage rates were at their lowest in 60 years (mid-4's).
The Federal Reserve has no way of directly controling mortgage rates without fundamentally changing how the mortgage industry works. They can only effect mortgage rates by purchasing mortgage backed securities, effectively pushing their value up and bringing rates down. It was this activity that led to rates hitting an all time low, but they didn't stay low because the investors that owned these bonds saw an opportunity to sell them at an all time high. It will be interesting to see what strategies the US Treasury employ in the coming months to try and bring rates down again if possible.
If you are considering purchasing or refinancing, now's the time to talk with your mortgage loan officer because once the rates drop, you'll have to stand in line with the thousands of other people who had the same idea and waited until the last minute. Now's the time to act!
It's obvious that most of the politicians in Washington have no clue how conventional mortgages even work. I can almost hear the directors at Fannie Mae and Freddie Mac laughing at some of the proposals that are curculating. The bottom line is that mortgage companies and banks have very little to do with the rates that are charged on conventional mortgage loans. A "Conventional" loan is one that can be sold to Fannie Mae or Freddie Mac because it meets their guidelines. The rates on conventional loans are determined by the mortgage backed securites that back those loans. For example, as the price of a Fannie Mae bond rises, the interest rates drop and vice versa. A few weeks ago,
The Federal Reserve has no way of directly controling mortgage rates without fundamentally changing how the mortgage industry works. They can only effect mortgage rates by purchasing mortgage backed securities, effectively pushing their value up and bringing rates down. It was this activity that led to rates hitting an all time low, but they didn't stay low because the investors that owned these bonds saw an opportunity to sell them at an all time high. It will be interesting to see what strategies the US Treasury employ in the coming months to try and bring rates down again if possible.
If you are considering purchasing or refinancing, now's the time to talk with your mortgage loan officer because once the rates drop, you'll have to stand in line with the thousands of other people who had the same idea and waited until the last minute. Now's the time to act!
