No matter how much lipstick you put on it. Why don’t the members of the House Financial Services Committee understand what probably every mortgage broker or banker in this country has figured out? That labeling a mortgage “conforming” does not make it a lower risk conforming deal if the loan amount is in fact higher. And investors don’t willingly take on added risk without added compensation. Yet these public servants are having a hearing (assuming perhaps that someone must be pulling a fast one) to see why the price of the ambiguously named ‘jumbo-conforming’ mortgages didn’t come down as they expected. Um, maybe because they aren’t really conforming mortgages? Since investors didn’t bite (fool me once, etc.) Fannie stopped packaging them for sale and is holding them in its portfolio. This brought pricing down somewhat but investors on the open market have still shown little interest in these loans.
Loans of higher amounts share certain characteristics that make them greater risks and offer lower returns than their conforming counterparts, according to the Mortgage Bankers’ Association. They are more concentrated geographically and many of the highest-priced markets are also the most volatile. Jumbo borrowers tend to refinance, sell their homes, or retire their mortgages much faster than those with conforming loans, making the servicing on jumbo loans less attractive. Lenders deal with risk, return, supply, and demand every day and understand how it works in mortgage lending. It would be nice if our leaders would take the time to learn about our industry before they started meddling with it.
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6 responses so far ↓
1 Ling // May 23, 2008 at 4:48 am
Loosening down payment requirements in areas where home prices are expected to fall would be foollishness even in normal times. It’s a virtual deathblow for Fannie May under today’s conditions, and you’re right - It shows why the federal govt. should not be allowed to own companies, even in part. A privately owned company would never risk shareholders’ money like this.
2 Cliff Pape // May 26, 2008 at 2:17 pm
I guess the first question is what where they trying to accomplish? Where they trying to achieve more liquidity or meet portfolio requirements? It would be interesting to understand what was the impetus behind this move can you provide more insight?
3 Gina Gardner // May 27, 2008 at 8:53 am
I believe these guys didn’t understand the industry — that in the mortgage secondary market pricing reflects percieved risk and that you can’t just tell investors what to charge. Now I think officials are doing damage control, trying to find someone else to blame because their ill-concieved solution didn’t work. And trying to get in their sound bites and position themselves as public protectors before an election.
4 Cliff Pape // May 27, 2008 at 9:04 am
Why where they trying to sell these packaged mortgages? What where they trying to primarily solve? If you would prefer me to e-mail you that would be fine. Just e-mail me at cliff@home-buddies.com.
5 Gina Gardner // May 28, 2008 at 10:04 am
The secondary mortgage market keeps things liquid. Mortgage originators fund loans, then sell them to investors. They then use the money to fund more loans. Fannie Mae and Freddie Mac were created to inject liquidity into the market and make more money available for home purchases.These are corporations called GSEs (government-sponsored enterprises) and not government agencies. So government officials can’t just tell a corporation what to charge, nor can they order investors to pay less than the going rate. Some in Congress are apparently learning this now
6 Cliff Pape // May 28, 2008 at 12:07 pm
I understand thank you for the clarificaiton.
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