Mortgage rates fall but crunch isn't over
The federal government's takeover of Fannie Mae and Freddie Mac has led to a drop in mortgage rates, making it a lot more attractive to buy a house or refinance the one you have. Dan Grech reports.
Prospective home buyers Lars Kalnajs and Leah Fuchs talk to real estate broker John Skrabec of Live Urban Real Estate in the yard of a home that has been reduced in price in Denver, Colo. (Chris Hondros/Getty Images)
More on Housing - Real Estate, America's Financial Crisis
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KAI RYSSDAL: We still don't know what the long-term fallout from the Fed's bailout of Fannie Mae and Freddie Mac is going to be. But the short-term indicators are pretty clear. No sooner was the takeover announced than interest rates on 30-year mortgages started falling. They dropped half a point Monday and have been on the decline ever since.
If you locked in a rate today, you could get a 30-year for about 5.75 percent. And all of a sudden it's looking a lot more attractive to buy a house or refinance the one you have. Marketplace's Dan Grech reports.
DAN GRECH: The bailout of Fannie and Freddie restored investor confidence in mortgages. That's why mortgage rates have fallen so fast.
Mortgage banker Brian Koss is with the Mortgage Network.
Brian Koss: Fannie and Freddie mortgages were sliding into junk status. And now what they're saying is, "OK, we feel better about you. So we're taking you off the junk list and moving you back into maybe just an A-minus kind of world." But we're still not back to A.
Lower mortgage rates make it cheaper to borrow money for a house or to refinance an existing loan. That could bring new buyers into the housing market and help others hold on to their homes.
Greg McBride is a senior analyst at Bankrate. He says the combination could slow the fall in housing prices.
GREG MCBRIDE: This is a step in the right direction. But like a baseball game in extra innings, there's no telling how long this credit crunch can go. What we've seen so far is the equivalent of getting a man on first base. That may or may not prove to be the winning run.
The housing market is still up against energy-based inflation, a weak economy and an ongoing wave of foreclosures. And, says Brian Koss, the up to $200 billion Fannie and Freddie bailout creates a new problem.
KOSS: This money that we're printing to take over Fannie and Freddie comes out of the same bucket that we have for everything else in our lives. And therefore the potential is for longer and larger deficits.
A bigger deficit means it will cost more for the federal government to borrow money. That could eventually drive mortgage rates back up.
I'm Dan Grech for Marketplace.
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