Home Buyers and Mortgage Refinance Get Discount on Fannie, Freddie

Fannie, Freddie Bailout Drops Rates

All of this bustling activity is the result of Secretary of Treasury Paulson using his self-described "bazooka." Last weekend's take over of Fannie Mae and her smaller cousin Freddie Mac drew confidence into the mortgage-backed securities (MBS) market--shooting mortgage rates downward.

This has sent borrowers, encouraged by US government policy, to seek more affordable mortgage financing. Paulson himself stated that more affordable mortgages and lower rates and fees were a primary objective of the takeover action. In addition, with the recent legislation that passed the Housing and Economic Recovery bill, FHA modernization measures gives even more incentive for borrowers to look for better mortgages.

FHA Mortgage Refinance Assistance

When the housing bill goes into effect October 1 even more borrowers will become eligibile for immediate mortgage payment relief. HUD, and their mortgage insurer FHA are dramatically expanding their guidelines and qualifications. FHA insured mortgages has been a dieing breed during the years of exotic mortgage refinance options. However, with private insurers and lenders becoming increasingly risk adverse FHA has become the main player.

Expansions in loan limits, low down payments, and accomodating credit standards will make FHA the defacto standard for refinance assistance.

Seller Down Payment Assistance

Another driving force in the market is the soon to be gone, availability of seller down payment assistance. A popular program for first time home buyers, non-profit companies like Nehemiah Corporations would facilitate a loop-hole in FHA guidelines that allowed home buyers to use these seller assistant pass-throughs as qualifying down payments. The assistance would then allow them to purchase the home with zero money down and the seller would simple increase the sale price of the home to fund the "gift."

As you might imagine this inflated the market value of the home and gave borrowers 100 percent financing--both risky propositions to mortgage insurers like FHA. However, for the next 30 days this is a real opportunity to still get this down payment assistance.

Mini Refinance Boom

Caution in the market is unlikely to trigger another exuberant mortgage refinance boom, but it is certain to give borrowers a golden opportunity to purchase discounted homes or refinance riskier mortgages.