The Real Estate Bloggers

Freddie Mac and Fannie Mae To Be Shut Down?

Posted: 11 Feb 2011 07:48 AM PST

Today the Obama administration outlined 3 different scenario’s that would shut down Freddie Mac and Fannie Mae as the backstops of the mortgage markets.

All of the administration’s proposals envision a scaled-back role for the government, and officials emphasized the goal of restoring the market for mortgage-backed securities issued without the government’s guarantee.

… One option proposed by the administration includes a new government backstop of certain mortgages under a federal ‘reinsurance’ model, while another would proposes a more limited backstop that would scale up primarily during times of economic crisis. The third option proposes no such government backstop beyond existing federal agencies such as the Federal Housing Administration. via the WSJ

The one unifying factor of all these plans is that interest rates would rise and the banking system would be expected to play a much bigger role in the housing industry.

That is not all bad. Sure it will be a shock to the system, but the federalization of the housing market is not a great thing for the industry. Instead, the ability of housing market and the banking sector to find it’s equilibrium is the most important factor in a healthy real estate marketplace.

And never forget, banks need to make their money. So loans will be harder to get and they will be more expensive, but they also will not be subsidized by your tax money.

Read the full report here.

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Mortgage Rates Rise On Inflation Risks

Posted: 11 Feb 2011 07:04 AM PST

Moneyhousecoins The moribund housing market has had one big thing going for it.

Low interest rates.

Now with indications that the economy is recovering and inflation is increasing, those interest rates are starting to rise. Quickly.

For the rest of the economy this is green shoot behavior and a welcome site, but for the housing sector this is the squeeze that could push housing prices into the double dip. Instead of recovering with the rest of the country the rising interest rates, essentially increasing the cost of home ownership, could push prices down and slow sales.

If the interest cost of a mortgage rises the cost of ownership rises. If the cost of ownership rises, the price that a potential buyer can pay will decrease.

The only good thing that will come out of rising interest rates is that banks may start home lending again instead of funneling all the activity through the FHA.

But many worry that the housing market is lagging behind other parts of the economy. One risk is that higher rates could deter buying, putting further pressure on prices and squelching hope of a housing recovery for now. Many analysts expect nationwide home prices to decline 5% to 10% in the months ahead.

Still, rates remain near historically low levels, and the market has withstood much higher rates in the past. By at least one measure, housing affordability has returned to its levels before the housing boom collapsed. via the WSJ

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Mortgage Rates Rise On Inflation Risks