Mortgage and financial professionals in Temple and Belton said on Monday that Treasury Secretary Henry Paulson’s announcement was perhaps overdue, but nevertheless a good move that could make local real estate more affordable.
“This news has led to a nice bond rally, which will help us to potentially see some more attractive mortgage rates, especially for conventional loans,” Caren Hildinger, a certified mortgage planning specialist at Castle & Cooke Mortgage in Temple, said in an e-mail. “Hopefully it will last, making mortgages more affordable while at the same time easing the pressure on the housing market.”
That pressure Ms. Hildinger referred to is often called an oversupply, something Terri Covington, Temple-Belton Board of Realtors president, said is not a huge problem here in Central Texas (mostly confined to high-end homes) but could use a little correcting. The lower interest rates, which means lower monthly payments, could be the incentive that gets some hesitant buyers off the fence and into their own homes.
Speaking by cell phone from the Texas Realtors convention in San Antonio, Ms. Covington said real estate professionals there were excited about the plan.
“The main thing, the interest rates will be lower. That’s what we’re hearing,” Ms. Covington said.
Interest rates could drop because Fannie and Freddie play an integral role in what happens to a home loan after it is closed. Primary market mortgage lenders - banks, mortgage companies and credit unions - generally sell these home loans to institutions like Fannie and Freddie on the secondary market. Now that these two companies are not in danger of going belly-up, the supply of new loans can flow through the system more freely, which means possibly lower interest rates.
However, one aspect of the bailout could be disastrous for investors holding a large number of shares of these two major mortgage players. For example, Fannie Mae stock dropped from a $68 high last October to less than a dollar today.
“Shareholders are going to lose out,” said Hugh Shine, the managing director of investments at Shine Richardson Investment Group. “Shares of common stock are not in play at all.”
Shine said he had no clients invested in Fannie and Freddie and would not advise anyone looking for a bargain to buy their stock although it is at a rock-bottom price. He compared it to buying a lottery ticket.
Dr. Larry Woodward, business professor at The University of Mary-Hardin Baylor, said, “In general, the bailout should help lower interest rates on mortgages and help make more mortgage money available.”
Woodward said he agrees with the economists that say Fannie and Freddie are too big to fail because if they did, the economy could fall into a depression. But the overall, long-term effect of government intervention was not so clear.
“The general problem is, it encourages other companies to take more risks, knowing that the government is going to be there to bail them out,” he said.
