WASHINGTON – Sept. 26, 2008 – Consumers shopping for a loan have yet to see much benefit from the government takeover of Fannie Mae and Freddie Mac almost three weeks ago, but the new chief executives of the mortgage finance companies planned to tell lawmakers they are working to stabilize the housing market.
Mortgage rates dipped after the government put Fannie and Freddie under conservatorship on Sept. 7, but spiked this week.
The average interest rate for a 30-year, fixed-rate loan this week is 6.09 percent, up from 5.78 percent last week, Freddie Mac said Thursday. That increase boosts the payment on a $200,000 loan, for example, by about $40 a month.
“We have not seen any (mortgage) program changes, no assistance for clients to make anything different,” said Jodi York-Caraballo, owner of Green Valley Mortgage Inc. in Bloomingdale, Ill. “They haven’t eased up on lending restrictions.”
Still, Fannie Mae’s new chief executive, Herbert Allison, was expected to tell lawmakers Thursday that the company is evaluating the higher fees and tighter lending standards that the company put in place over the past year.
“Done correctly, this should have long-term benefits for the mortgage market,” Allison said, according to prepared remarks.
Fannie Mae and Freddie Mac are the dominant players in the U.S. mortgage market. While they don’t make loans directly to consumers, they own or guarantee more than $5 trillion in loans, about half of the nation’s total.
The two companies saw their finances deteriorate as an alarming number of homeowners fell behind on their payments and went into foreclosure.
Rather than reassuring investors, the historic government intervention spread fear through financial markets about the health of banks and investment firms that may hold even riskier mortgage assets than Fannie and Freddie.
On Capitol Hill, Democrats and Republicans traded barbs about who was to blame for Fannie and Freddie’s woes.
Republicans bemoaned the companies’ lobbying influence in Washington and said they had long pushed efforts to rein in the two companies. Democrats said the companies played a valuable role in supporting home ownership and noted that Wall Street banks – not Fannie and Freddie – led a dramatic decline in lending standards.
Those home loans were turned into complex securities that now languish on banks’ books and caused the Bush administration last weekend to propose a $700 billion bailout of the financial industry.
Emerging from a two-hour negotiating session on the plan, Sen. Chris Dodd, D-Conn., said, “We are very confident that we can act expeditiously.”
Dismal economic news is adding to the sense of urgency.
New home sales tumbled in August to the slowest pace in 17 years and the average sales price fell by the largest amount on record, the Commerce Department Thursday.
New homes sales fell by 11.5 percent in August to a seasonally adjusted annual sales rate of 460,000 units, the slowest sales pace since January 1991.
The average price of a new home sold in August dropped by a record amount of 11.8 percent to $263,900, compared to the July average of $299,100. The median price was also down, falling 5.5 percent to $221,900.
The big drop in new home sales followed news Wednesday that sales of existing homes fell 2.2 percent from July to August, and were down almost 11 percent from a year ago. The median price also posted a record 9.5 percent drop to $203,100.
Besides the weak housing report, the government said Thursday that new claims for unemployment benefits shot up last week to the highest level in seven years. Orders to factories for big-ticket manufactured goods fell last month by 4.5 percent, far more than expected.
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