Takeover effects begin to take hold
Mortgage rates drop after US takes over Fannie and Freddie, but relief for housing sector may come slowly
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Consumers saw an immediate benefit from the government's takeover of Fannie Mae and Freddie Mac when mortgage rates dropped by as much as half a percentage point yesterday, pushing the 30-year fixed rate to well below 6 percent.
Local mortgage brokers were surprised to see rates plunge following this weekend's disclosure that the Treasury Department had put the two mortgage giants, which own or back about half of the nation's home loans, into conservatorship.
"That's a huge jump," said Rosemary O'Neil, vice president of Conway Financial Services in Norwell, after learning her company had dropped the interest on a 30-year fixed-rate loan from 6.375 on Friday to 5.75 percent yesterday.
"This is just unfolding," she said. "It will take a little while for it to trickle down to where the consumers are motivated to keep looking again."
The takeover is spurring cautious optimism in the ailing housing industry, which is struggling with foreclosures and declining values. Bankrate.com said mortgage rates nationally dropped from about 6.5 percent on Friday to a little over 6 percent yesterday. In Massachusetts, brokers reported rates as low as 5.625 percent for a 30-year fixed-rate mortgage.
"We have seen a flurry of activity today from our borrowers," said Drew Grandi of Dynamic Capital Mortgage Inc. in Brookline. The firm's rate dropped to 5.625 percent for a 30-year fixed-rate loan. "Most of the inquiries are from people who have loans looking to potentially refinance."
Brian Koss, managing director of Mortgage Network in Danvers, said that although the lower rates are helpful, they won't change the fact that more people are having trouble getting loans because of stricter lending guidelines imposed in recent months.
"Rates are not what is keeping people from getting homes today. The peo ple who can't qualify today aren't going to qualify tomorrow," Koss said.
And Alex Coon, market manager for Redfin Corp. in Boston, expected that even more prospective buyers will be unable to get loans as Freddie and Fannie further tighten lending regulations and shrink the number of loans they will cover.
However, Coon said those with good credit and at least a 5 percent down payment should be able to get loans.
Gil Campos, who heads Campos Homes Re/Max in Foxborough, said that such a dramatic drop in rates in one day could indicate how much the turmoil swirling around Fannie Mae and Freddie Mac have had on the mortgage market.
Rates had jumped over much of the year, as the two companies' troubles became more and more prominent and investors shied away from the mortgage-related securities that help determine loan rates. Still, rates are higher than they were at the beginning of the year.
Now, Campos hopes the lower rates will provide shoppers the impetus to make offers on homes.
"This is an opportunity. Prices are low. Rates are low," he said. "Yes, the market might continue to fall, but you're not buying stock - you're buying a home. If you find a house, take it."
Others say lower rates are more likely to affect those who are refinancing.
Susan Ryan may be one of those ready to refinance. The medical company executive purchased a three-bedroom town house in Needham in July. Her rate at the time was higher than she would have liked: 6.25 percent.
"I'm going to call my broker right now," Ryan said about yesterday's news. "That's great news."
Still, uncertainty remains the issue of the day.
Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association, said he hopes government backing will be the boost the housing sector needs.
However, the mortgage giants were created to provide that stability in the first place.
"There is a huge degree of uncertainty," Cuff said. "It is just another paper cut on the uncertainty level. People just don't know where the market is going."
Jenifer McKim can be reached at McKim@globe.com. Kimberly Blanton can be reached at blanton@globe.com.
