Mortgage Memo

The Obama administration finds itself balancing the need to spur the economy through promoting the housing and mortgage market, while protecting banks and other investors from risky mortgages.  On February 11th, it presented a broad plan to begin shrinking its support of the nation’s mortgage market.  While the plan lacked details or a timeframe, the resolution is far from certain and unlikely that it will be completely implemented in the next couple of years.  In the meantime, however, major mortgage investors (i.e. Fannie Mae and Freddie Mac) will be tightening their underwriting guidelines to include smaller loans (in October the maximum size of mortgage backed by Fannie and Freddie will shrink), higher fees (The Federal Housing Administration is replenishing its fund by increasing monthly insurance premiums) and bigger down payments (current proposals provide for a increase to 10% for loans sold to Fannie or Freddie).  Each of these proposals aim to promote homeownership to those with the financial wherewithal, while reducing the risk present in the housing industry.  Long term, a more stable market is good, but buyers looking within the next year should be aware of changes.

Interest rates continue to remain at historical lows, though they are up from where they were several months ago.  If you’re looking for a general rule of thumb: as the stock market goes up, so do interest rates.  Outside of the recent employment report (which may have been skewed due to the winter storms), most economic releases have been positive lately, which accounts for the rising market and interest rates.

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