Mortgage Rates Sink Following Frannie, Freddie Takeover

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Once the federal government took control of Fannie Mae and Freddie Mac last week, many expected a significant drop in mortgage rates, at least for the near-term. As expected rates did fall considerably, with Freddie Mac’s Primary Mortgage Survey showing a .42 point drop in the 30-year rate to 5.93%. With rates falling below 6% we’re likely to see some renewed consumer interest in both new purchases and refinancing.

Just how long the rates stay low is up for debate, as NAR Chief Economist Lawrence Yun discussed in his most recent commentary piece:

Mortgage rates will trend down over the short run. But how much of a decline will depend on how actively the government - more specifically the Treasury Department and the FHFA - loosens their mortgage liquidity spigot. For over the next 12 months at least, the FHFA has the authority to purchase more than the normal amount of mortgages from lenders to put into their portfolio holdings. That means all conforming loans, including the newly conforming jumbo loans up to $625,000, will qualify for purchase by the FHFA. That will help drive down mortgage rates. In about two year time, when the housing recovery is assumed to be well underway, the government will trim its mortgage portfolio. Then Fannie and Freddie will be completely restructured. It will be up to the next administration and Congress to determine that structure in for which NAR will make our 1.3 million voices heard.

Now it appears the financial markets are heading for some more turbulence, with some of the biggest players continuing to see fallout from their mortgage-related assets. Just what impact these most recent developments have on overall markets remains to be seen.

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