Mortgages Becoming More Expensive

With the housing industry still trying to recover from the losses suffered because of the mess in the subprime market, it is indeed surprising that the government-sponsored enterprise Fannie Mae has announced that it is making an effort to boost finances. Unfortunately, this effort comes with a high price for consumers.

Because of the $2.3 billion loss incurred, Fannie will have to change mortgage pricing and liquidity. The federal enterprise actually plays an important role in the mortgage industry. Fannie Mae usually purchases home loans, secures them and sells them once again to investors.

Adjustments that the public can expect include charging a higher risk premium in the purchase of loans in a declining market, stopping the purchase of high risk loans and increasing certain fees. These changes will certainly have an impact on mortgage credit costs and availability.

For the National Association of Realtors, the actions taken by Fannie Mae could mean the loss of many potential buyers who will be turned off by the additional fees. To make matters worse, Freddie Mac is also considering the same measures in order to cover their losses as well.

The ones who will be hit hardest by the added fees will be first time home buyers who have been standing on the sideline for so long, hoping that market conditions will allow them to purchase an affordable home. If the number of first time buyers entering the market will decline, it could signal another fresh wave of decline in home sales activity.

Sellers, on the other hand, will also be adversely affected by these measures especially since market competition is already tough. With a reduction in the number of potential buyers, home prices may decline even further.

Measures taken by Fannie Mae is considered to be necessary since it has to satisfy its shareholders, maintain profitability and avoid a situation where the government will have to rescue them.

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