Fannie Mae and Freddie Mac are the largest purchasers of loans in America. They have been called devils, and saviors by different segments of the industry. The FHA ( Federal Housing Administration) which played a much smaller roll in the industry has been called upon by the President to help correct the mess and to be more significant. The three organizations could be of greater help by buying loans at higher amounts than their current limits but they are being held hostage by Politicos and Institutions that aren't in favor. In return Fannie and Freddie have started adding fees to various loans and other fees to all loans that will eventually cost the consumer more. The answer to that and more follows.
Many states are going after the mortgage brokers as the bad guys who brought this all about. Many politicians are just finding out how the industry works and apparently aren't happy about what they have seen. The first results we have seen is a major exodus of brokers from the mortgage arena, which at least frees the industry from the , brokers and loan officers who were out of control mavericks, and of course over a hundred lenders that have gone. Some from bad management and some from having the bad luck coming from the inability to sell their loans. The shrinking of an industry can be good to a point and then it becomes a problem for the consumer.
Why have the aforementioned results come to fruition. The simple answer is all loans are sold! There are brokers, bankers and investors. No matter how the loan is originated, whether through a broker or a banker, they all end up (with some exceptions) with investors. That is the simple explanation of how this industry works.
Conforming loans are sold to Fannie or Freddie, and some to the FHA, but not a large enough amount (see above). In some cases some of these loans are held by lenders in their portfolios but not to any significant amount. Jumbo loans had a home on Wall Street, being placed into securitized pools, and sold to investors. That has basically disappeared! Taking it's place are portfolio lenders, smaller banks and some institutions on Wall Street, who offer 3, 5 , 7 and 10 year loans that all adjust after the fixed period. (Wasn't that one of the major problems with the industry?) Some of the smarter portfolio lenders are making these 40 year loans so the adjustment isn't as painful as before. When you had a 10 year arm and it adjusted it not only had a higher interest rate in most cases, but also a 20 year term. Now, at least the term will be 30 years which will help to keep the payment lower and result in less of a shock to the borrower. Until the credit market in the Country becomes vibrant again, where lenders can sell the pools of loans do not look for decent fixed rate jumbo mortgage loans.
While the industry is suffering through it's worse disaster in history, and trying to right itself, the consumer needs to learn all possible aspects concerning their situation because this industry is all about money, and someone once said " Money is the root of all evil!"
Just something to think about.