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Interest rates plunge after Fannie and Freddie rescue

Posted by Leslie Eskildsen on Thursday, September 11th, 2008 at 2:47pm.

According to this week's Freddie Mac Primary Mortgage Market Survey, 30 year mortgage rates dropped almost half a point this week, to an average of 5.93%.  What does this mean to you?

"Interest rates for 30-year fixed-rate mortgages are down almost 0.6 percentage points over the past 4 weeks, which will help to spur home purchases and loan refinancing in coming weeks," said Frank Nothaft, Freddie Mac vice president and chief economist. "This means that the monthly principal and interest payment on a new $200,000 loan is over $76 lower than a month ago."

As Real Estate blogger Matt Carter points out, this makes money cheaper, not easier - lenders are still applying stringent guidelines to applications.

Fannie Mae and Freddie Mac are both giant "government sponsored" private companies, created by Congress to encourage home ownership by providing liquidity in the "secondary market".  They buy loans from lenders, then package them as "mortgage backed securities" to Wall Street.  Now the Federal Government has essentially taken them over completely, and has pledged to infuse them with up to $100 billion each.  The long term impact is subject to much debate, but it's the short term reaction of the market is a positive sign.

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