The State of the Mortage Industry and What You Should Be Doing To Protect Yourself
The State of the Mortgage Industry
and What You Should Be Doing To Protect Yourself
By
Julie Stern Fukuhara
You may be asking yourself, why are jumbo rates so much higher than conforming loan rates? Well, here’s the scoop on why.
After a lender has funded loans, they take several of those lose and bunch them together to sell to an investor. Lenders can always count on the government entities Fannie Mae (FNMA) and Freddie Mac (FHLMC) to purchase bundles of loans to restore the lender’s liquidity. However, those government entities can only purchase loans that fall within certain guidelines. One of the requirements is that the loan amount cannot exceed $417,000. Any loan above that amount is considered a “jumbo” loan. Lenders look to private investors to purchase their pools of jumbo loans. Naturally, these private investors are demanding a much higher “risk premium” for taking on these pools of loans as they see the rates of default climbing higher.
In light of all that has happened, many people are wondering why the Fed didn’t just lower the Fed Funds Rate to ease the situation. There are two main reasons they have refrained from doing so. The first being that the Fed is not yet convinced that the economy needs to be stimulated, as they are still concerned about keeping inflation in check. Secondly, the Fed doesn’t want to bail out investors who made risky decisions just to provide an easy way out. A possible stabilizer would be if the White House and Congress allow Fannie Mae and Freddie Mac to provide more assistance in the secondary mortgage market by increasing the conforming loan limit. This would enable them to purchase loans up to $625,500 which is the current conforming limit for Alaska, Hawaii, Guam, and the U.S. Virgin Islands. But all these policy-makers are stuck between a rock and a hard place, with trying to stave off a recession on one side, and not wanting to liberate the careless risk-taker investors on the other.
Even though you may not be able to change the economy yourself, here are a couple of things you can do to protect yourself. Whether you are in the market for a home loan or not, you want to make sure your credit is in order and your score is as high as possible. With no immediate need for a loan, time is on your side and you can take the necessary steps to ensure impeccable credit. There seems to be some cosmic force that makes it take twice as long to repair your credit when you are in a hurry and in need of a loan.
If you are in the market for a loan, keep in mind, now is NOT the time to shop around until you find someone who promises to give you an unbelievably low rate or claims they can save you a few hundred dollars in closing costs. Your home financing is just too important to be messing around with people who may be inexperienced or unprofessional.
Lastly, if you receive a notice in the mail stating that your loan has been sold and you are now to send your payments somewhere else, be SURE that it is legitimate before sending your hard earned dollars anywhere. Call the 800 number on your most recent statement to verify that the information is correct.
As always, your safest bet for getting the right loan at the right price is by finding an ethical expert mortgage broker who can guide you through the process. Seeking the advice of an industry professional is more important than ever given the volatility of the market and the rapidly changing lending guidelines. Your mortgage is most likely the largest single investment you will ever make. Be sure you invest wisely.
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