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Maine Mortgage Market Update 12.09.2010
After record low interest rates for 7 months, mortgage rates are rising quickly. Mortgage rates rose for the fourth straight week this week, hitting 4.61 percent. Could this surge slow refinancings and further hamper the housing market? Absolutely.
Today, Freddie Mac says the average rate on a 30-year fixed loan increased sharply from last week’s rate. And it is well above the 4.17 percent rate hit a month ago — the lowest level on records dating back to 1971. The average rate on a 15-year fixed loan rose to 3.96 percent. Rates hit 3.57 percent last month — the lowest level since 1991.
Currently, investors are selling Treasury bonds in anticipation of an extension of tax cuts and unemployment benefits that could boost the economy next year. Investors are also dumping the bonds because they believe budget deficits will grow over the long term because of the deal. The sell-off is raising the yield on Treasury bonds. Mortgage rates tend to track those yields.
The increase in rates already is discouraging homeowners interested in refinancing their homes. Refinance activity fell for the fourth straight week last week, according to the Mortgage Bankers Association.
Rates may see some short improvements, but will likely remain at present levels and continue to rise over time. And when you include the stimulative action of extending the present tax rates and the extension of unemployment benefits, it becomes really tough to see Bonds improving much further.
Freddie Mac requests $1.8B in aid after 2Q loss
WASHINGTON (AP) — Government-controlled mortgage buyer Freddie Mac is asking for $1.8 billion in additional federal aid after posting a larger loss in the second quarter.
Freddie Mac said Monday it lost $6 billion, or $1.85 per share, in the April-to-June period. The company is required to pay a 10 percent annual dividend to the Treasury Department on money it has received from the government. That made up $1.3 billion of the company’s second-quarter losses.
The company lost $840 million, or 26 cents a share, in the same quarter last year.
The government rescued McLean, Va.-based Freddie Mac and sibling company Fannie Mae from the brink of failure nearly two years ago. The new request means they have needed $148.2 billion to stay afloat, about $63.1 billion of which is being used by Freddie Mac.
Freddie Mac is losing money from bad loans it backed, many of them before the housing market went bust. It had $118 billion in bad loans at the end of June, up from $103.4 billion at the end of last year. It owned more than 62,000 foreclosed properties in June, up from about 35,000 a year earlier.
Both Fannie Mae and Freddie Mac have both lost tens of billions of dollars during the past two years and both are asking the government to prop them up. Last week, Fannie Mae requested $1.5 billion after posting a loss of $3.13 billion, or 55 cents per share, in the second quarter.
Still, the two companies are taking different approaches to their situations. Fannie Mae sounded optimistic about its future. Freddie Mac offered a more tempered view.
“We recognize that high unemployment and other factors still pose very real challenges for the housing market,” CEO Charles Haldeman said in a statement. “With that in mind, we continue to focus on the quality of the new business we are adding to our book to be responsible stewards of taxpayer funds.”
Fannie and Freddie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans worth more than $5 trillion. They buy home loans from lenders, package them into bonds with a guarantee against default and sell them to investors.
During the housing boom, Fannie and Freddie faced political pressure to expand homeownership and competitive pressure from Wall Street to back ever-riskier loans. When the market went bust, defaults and foreclosures piled up, and the government had to take them over.
Over the next year, lawmakers plan to review the nation’s mortgage-lending system and consider a potential replacement for Fannie Mae and Freddie Mac. The financial overhaul signed by President Barack Obama didn’t address that issue, despite protests from Republicans that it was incomplete without a such a plan. The administration is holding a public conference on Aug. 17 in Washington to discuss the mortgage system.
