Housing Data, Fannie Mae And Freddie Mac’s Lower Interest Rates Send Mixed Messages by Amanda Maher
According to RealtyTrac, there were only 133,811 U.S. properties that started the foreclosure process in the third quarter, down 12% from Q2 and 14% from a year ago. Even more importantly, new foreclosure proceedings are at their lowest level since Q3 2005.
It seems like the economy is indeed improving and more people are able to afford their mortgages.
Yet at the same time, Fannie Mae and Freddie Mac have just dropped the standard modification mortgage rate from 4% to 3.875%, the lowest rate since the programs’ inception. The new interest rate took effect on November 5th for the Freddie Mac program, and is set to take effect on November 13th for the Fannie Mae program.
When the programs were first launched in January 2012, interest rates for standard modifications were 4.625%. Since then, the interest rates had never dipped below 4%. Until now.
“By adjusting the interest rate from time to time, [lenders] will have the ability to provide borrowers with a rate that aligns more closely to current market conditions,” says the Freddie Mac website.
The changes do not affect those utilizing the Home Affordable Modification Program (HAMP); the lower rates apply to standard modifications only.
Modifications are intended to make loans more affordable for borrowers who are ineligible to refinance, face long-term hardship or who are several months behind on their mortgage payments or likely to fall behind soon. The terms of the loan may be changed to lower the payment amount, length of the loan, interest rate, etc. The goal is to help more people stay in their homes and avoid facing foreclosure.
Except, data shows that fewer and fewer people are now facing foreclosure.
That Fannie and Freddie are lowering loan modification interest rates, yet again, sends a worrisome message to homeowners and investors—the economy is not as strong as we all imagine it to be. Lower intererst rates are needed to keep homeowners afloat and to stimulate economic growth.
It is also disconcerning that FHFA, which oversees Fannie and Freddie, continues to implement rules and regulations that hamstring banks into issuing loans to people at higher risk of default. By lowering the standard mod interst rates, again, it sends a message to homeowners that the government will continue to bail them out – much like it bailed out Fannie Mae And Freddie Mac – if they are unable to meet their debt obligations. No longer are we to expect personal responsibility or sound fiscal management, from homeowners and the government alike.