Bail outs & Government Loans....what does it all mean to Buyers & Sellers
By Greg Downey – Town & Country Mortgage
We’ve had an extraordinarily volatile couple of weeks, with several high-profile bankruptcies and government takeovers deflating any last sense of investor confidence on Wall Street. It’s time to comment on these events, and to the degree they impact the cost that you as a homebuyer will ultimately end up paying for your mortgage.
First, let’s take a look at the Treasury’s decision to place Fannie Mae and Freddie Mac into a conservatorship. For years, investors worldwide have purchased mortgage backed securities from the two Government Sponsored Entities (GSEs) with the expectation that these bonds had the implicit backing of the U.S. Government. Though the Government always denied this, it was forced to backtrack in a big way two weekends ago as it stepped in to effectively take over operations of the GSEs and guarantee almost $5 trillion in mortgage debt. In the first trading day following the takeover, investors rushed in to purchase as many of these mortgage bonds as they could get their hands on – and with great reason, as the bonds were offering a much higher yield than standard government treasuries but overnight they were blessed with the same U.S. backing as their lower-yielding counterparts. This activity in itself was enough to drop mortgage rates by almost a full ½ percentage point overnight.
Next, the following weekend saw talks of a Lehman buyout fail in the 11th hour. The nation’s oldest and largest investment bank went on to declare bankruptcy on Monday morning. To put the “big deal” of this announcement in perspective for you, consider that the previous two largest bankruptcies in U.S. history were Enron, at $89 billion, and WorldComm, at $126 billion. The Lehmann bankruptcy totals a staggering $648 billion – fully five times larger than the next largest bankruptcy ever to occur!
It’s no wonder the stock market has shed almost 10% of its value over the last three trading days, and fear has so tightly gripped traders who are afraid of catching a falling knife before it hits the ground. But what does all this mean for us little guys who are just trying to borrow enough money to finance the purchase of our new homes? The news has, so far, been very positive for mortgage bonds. Rates have dipped well into the 5’s for a 30-year fixed mortgage, with some other mortgage products available even down into the 4’s!
Unfortunately, vividly underscoring the need to work with a true mortgage professional is the fact that rates continue to suffer from extreme volatility – sometimes jumping or dipping as much as 1/4 or even 3/8 of a point in a single trading day. In my quest to become the best mortgage professional you will ever do business with, I continue to pay for real-time mortgage quotes and charting tools so I can best advise you on a time to lock. This tool alone has helped me save clients thousands of dollars over the terms of their mortgage loans.
Please give Bob or me a call right away so we can get the process started for you. It is our pleasure and responsibility to ensure you have the smoothest transaction possible, while seeing you through all these current market events.