What a week!! Last week Fannie Mae and Freddie Mac were taken over by the government to help stabilize the housing market. Rates dropped quickly with the news. This week we had Lehman Brothers file bankruptcy and Merrill Lynch was bought by Bank of America. On Tuesday, the Federal Reserve met and decided to leave interest rates unchanged for now. There were several economists that were hoping the Fed would drop rates by at least a quarter. As soon as the Fed announcement came out, the bond market dropped and interest rates increased almost a half a point! The government also gave a $85 billion loan to AIG on Tuesday. Wednesday the stock market had another huge drop. It’s hard to keep track of it all!
The government takeover of Fannie and Freddie should provide an opportunity to help modify loans for homeowners. This would help some homeowners avoid foreclosures. There has also been some discussion that they would come up with some programs to facilitate homebuying for low to moderate income families. Rates did drop last week with the news about Fannie and Freddie, but long term, we may see rates increase if the government bailout costs more than they expect.
Fannie and Freddie are still buying loans on the secondary market, but they are tightening credit standards. For those looking to get a new conventional mortgage, the best rates are available if you have a credit score of 700. Fannie Mae announced last month that weaker borrowers will pay a higher surcharge for loans. For example, those with credit scores between 640 and 659 with 15 to 20% down may pay an additional 2.0% points.
FHA loans are still available with as little as 3% into the transaction and credit scores down to 580. In January the minimum investment will increase to 3.5%.
If you are looking at buying a new home, it is still a great time to buy. Home prices are fantastic, we don’t know that they will go much lower. Depending on who you talk to, the market may be near the bottom, if so, prices will stabilize and then start to increase. Interest rates are great! The bond market did stabilize a little on Wednesday, so that may help lower rates a little in the next day or two.
