NEW YORK (CNNMoney.com) -- The fate of Fannie Mae and Freddie Mac may be hanging in the balance but many mortgage borrowers already find themselves struggling to find affordable loans - and the legislation intended to help current homeowners may be jeopardized too.
Because of the turmoil surrounding Fannie and Freddie, a new borrower will likely pay nearly 10% more in monthly mortgage payments.
Fannie and Freddie borrow money in the bond markets to pay for the mortgages they offer and their costs of borrowring have gone up. The added cost stems from an erosion in confidence, according to Mark Zandi, chief economist for Moody's Economy.com.
He said the companies are paying more to acquire funds "because of the general angst over the possibility that they might fail on their obligations."
"It does have an impact on mortgage interest rates," said Richard DeKaser, chief economist for National City Corp. "It will be more expensive for Fannie and Freddie to acquire mortgages and that will ripple through the market."
And mortgages are not only getting more expensive for ordinary borrowers but they're also harder to obtain as lenders tighten up their standards.
"Some lenders are really pulling in their horns," said Steve Habetz, a Connecticut mortgage broker. "They're getting scared. They're demanding really clean loan applications with every i dotted and every t crossed."
In the past, Fannie and Freddie backed loans were inexpensive and fairly easy to get because the mortgage giants' borrowing costs were relatively cheap. Now their borrowing costs have jumped - due to their uncertain fates - bringing up the cost of Fannie and Freddie backed mortgages.
What is happening now is compounding the damage which has already devastated the housing market.
The troubles for Fannie and Freddie could even affect current mortgage borrowers since they put the housing rescue bills which Congress has been agonizing over for months in jeopardy, according to Zandi, who has testified before the Senate on aspects of the bills.
"The ability of [Fannie & Freddie] to become more aggressive in extending credit, which is what the policy makers hoped and planned for, may be compromised," he said. "It could further delay any housing recovery."
See Also:
- Notice of Initial Distribution of Net Settlement Fund
- CEMEX and Urbi Promote Economic Housing
- Grubb & Ellis Company Names Devin I. Murphy to Its Board of Directors
- SCI Capital Group Hires Nicole Monlon to Expand National Accounts
- Fannie Mae, Freddie Mac: The $5 trillion mess - Jul. 11, 2008
[Via Home Mortgage Rates and Real Estate News]
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