In olden days, about a year or so ago, mortgage rates were a reflection of the economy. They were set by lenders who reacted to the market for mortgage backed securities which of course was influenced by the movement and direction of the Treasury bills, notes and bonds. The Treasury Securities were trading at a particular range guided in some part by the actions of the Federal Reserve. All of these were simple textbook responses.
Not so anymore!
Today, some of us now feel the actions of the mortgage market have been dictated in part by the Federal Government's social engineering, by individual state laws, public pressure and the media. The mortgage backed securities market appears to have decoupled from the Treasury markets influence and each lender seems to be acting on their own. This makes it very difficult for individuals, sophisticated or unsophisticated, to know where to look for the information that can pertain to their individual situation. The mortgage industry, feeling the affects of the black eye it received from its past actions is struggling to redefine itself. This struggle can touch all homeowners. I will attempt to explain each point I raised in order to give you the broadest appreciation of the new complexity in the mortgage industry.
The Federal Government now controls Fannie Mae and Freddie Mac, the largest purchasers of mortgages in the country. They now have the power to control directly who will get a mortgage or who will not. Although the banks have frozen up and haven't begun to thaw, they do offer conforming loans, those that conform to the rules of the above mentioned mortgage giants and thus can be sold to them. Most banks still refrain from offering portfolio loans in the mortgage arena which are the loans that they would hold in their own portfolios. They also do not have the ability to form mortgage pools to put out the jumbo loans, absent for the most part from the mortgage market, because there isn't a market for these pools on Wall Street.
When we first had our taste of what was in our future, the stimulus loans which expired on New Years eve 2008, we found that Fannie and Freddi had offered relief by counties in some states instead of the entire state. This also held true for FHA loans which are under HUD. It helped some people who were in the "right" counties in those chosen states and left many others in the "wrong" place scratching their heads. Obviously housing would be more robust in the areas where you could get a larger mortgage than the area where you couldn't. Would this be social engineering or redlining?
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.