Two Major Mortgage/RE Headlines – Fannie/Freddie, Silver State Bank

     

***UPDATE (9/7/08): It's official… Feds seize Fannie Mae and Freddie Mac

It was looking like it would be a fairly quiet week when it came to mortgage news. But then Friday afternoon rolled around… Two huge headlines were made yesterday – the likely government take-over of Fannie Mae and Freddie Mac and Silver State Bank being shut down by Nevada regulators.

It looks like the government will take over Fannie and Freddie, possibly as early as this weekend. Rumors have been flying for weeks now, but this one looks like it's the real deal.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The government take-over is of no surprise to many, me included. There's no way Fannie and Freddie could have kept going without help. The two companies combined lost $3.1 Billion between just April and June.

So what will the Fannie and Freddie bail-out cost taxpayers? An estimated $25 Billion. But who's counting…

As for Silver State Bank, regulators shut down the bank because it failed due to losses on soured loans, mainly in commercial real estate and land development. Nevada regulators closed Silver State and the Federal Deposit Insurance Corporation was appointed receiver. The bank had $2 billion in assets and $1.7 billion in deposits as of June 30.

Silver State Bank is the 11th failure of a federally insured bank this year.

The question I have is how much does the FDIC have left in their reserves? Rumors have it that IndyMac alone wiped out 23 percent of the FDIC's reserves. How much did the other 10 banks that went under wipe out?

How will all this affect you and I, the common man?

Some say that the government take-over of Fannie and Freddie will calm the nerves of investors worried about the collaps of Fannie/Freddie and that rates will dip down, at least temporarily. On the flip side, it'll cost you and I money out of our pocket on the back-end (when the government spends money, they bill you and I for it).

And if there's not enough money left in the FDIC's reserve to cover your bank should it collapse…well, then you're just outta luck.

Keep a close eye on rates and other reactions to this news next week.

UPDATE: Fed expects more bank failures, Blair warns banks to expect premium increase

Fannie Mae Doubles Fee To Borrowers

The cost of obtaining a loan just went up for a large number of borrowers. This week, Fannie Mae announced that it will double a fee that it introduced in December to compensate for the risks of doing business in what it calls an "adverse market."

Fannie Mae first introduced the "adverse market delivery charge" eight months ago. At that time, it was $250 per $100,000 borrowed. Lenders paid the fee and passed the buck on to borrowers, either as a charge or as a slightly higher rate.

Fannie just announced that it will be doubling the fee to $500 per $100,000 borrowed, or one-half of 1 percent. That translates (roughly) into an increase in the rate of one-eighth of a percentage point.

The higher fee will be added onto loans sold to Fannie beginning October 1. Because it takes time to sell a loan, lenders will start passing along the higher cost to borrowers almost immediately. Industry professionals say that Freddie Mac will follow Fannie’s lead and introduce higher fees as well.

Mortgage Rate Round Up – July 12, 2008

This week started out well with mortgage rates dipping down as the week went on. But then IndyMac got shut down by the Feds, the Fannie and Freddie fallout happened and the stock market tumbled. Because of that, 30-year fixed rate mortgages jumped up yesterday to an average of 6.375 percent. The mortgage rate spike happened so quickly that BankRate didn’t even have a chance to incorporate the spike into the graph above.

With everything hitting the fan so late in the week, expect the turmoil to carry over into next week.

Hat tip: Darran Anthony; Photo Credit: BankRate.com

Mortgages Just Got More Expensive For Buyers, But It May Be Sellers Who Pay The Price.

In a post on real/diaBlog, we talked about how Fannie Mae has begun charging an up-front fee of 0.25 percent on all new mortgages bought or guaranteed by them. Freddie Mac will also begin assessing a similar fee. On a $400K mortgage, that’s an extra $1,000 in fees. Based on the fact that Fannie and Freddie own or guarantee over 40 percent of mortgages outstanding, this will directly affect a huge number of future home buyers.

But will it really effect buyers?

Some buyers will have the additional money to pay for this fee. Others may not. Those that do not have the money may wait to buy, unless someone else will pay for the fee. Those that do have the money may still buy, but they will also want someone else to pay for it.

That someone else is the seller.

Much like seller concessions were non-existent in the boom days, but quickly became a tradition once the market turned, the passing of the buck for this fee from buyer to seller will become tradition as well. Sellers will see their net proceeds drop because buyers will want that extra fee paid for by the seller in the form of a concession.

Along with this extra up-fron fee by Fannie, don’t forget about the 500 percent increase in the Virginia Grantor’s Tax. These two fees will increase the cost of selling a residential property going forward.

Let’s look at an example…

Here’s the criteria:

• $440K sales price
• the buyer is obtaining a $400K Fannie Mae-backed mortgage
• the seller is picking up the cost of the new Fannie Mae fee
• the property settles on or after March 9, 2008

Here’s the effect on a seller:

• the seller will have to give an additional $1,000 in seller concessions to cover the Fannie fee
• the seller will pay an additional $1,760 for the Virginia Grantor’s Tax
• a total decrease of $2,760 in net proceeds

As you can see, it’s not exactly small change and the seller ends up taking the hit in the end.