Long story short…
Fannie Mae and Freddie Mac both have issued many Bonds which over time mature, and Fannie and Freddie need to pay back the principal on the maturing Bonds. The way they raise capital to pay these maturing Bonds is to issue new Bonds. This happens every month. And as long as Fannie and Freddie can sell new Bonds this system works well.
Lately, as you know, the real estate and lending markets have been struggling. Investors and buyers who were purchasing these bonds to raise money for Fannie and Freddie have been backing away. The more this happens, the more insecure Fannie and Freddie bonds become which, in turn, causes more investors and buyers to back away. If this were to continue to happen, Fannie and Freddie would collapse and drive this market even deeper into the abyss.
On Sunday, September 7th, our government announced that they would start to back Fannie and Freddie bonds. This action almost gives investors a guarantee that these Fannie and Freddie bonds are now stable. With this new confidence, investors are starting to buy new mortgage bonds.
Good news: Because of the sudden investor turn-around and many bonds being purchased at this very moment, home mortgage interest rates have dropped considerably. We were quoted today for a 30 year, fixed, loan at 5.625%. Last week this loan was at 6.25%. On the other hand, the same source also mentioned that these lowered interest rates might not last too long. If you are on the fence about buying, now would be a good time! This also proposes a refi boom in the near future.
Be sure to check out our Mortgage Info to see the latest interest rates.