Bill Kamboukos

FANNIE AND FREDDIE TAKE OVER

• The two mortgage giants are now operating in a government conservatorship that will be administered by the new Federal Housing Finance Agency (created under the same Congressional authority that authorized the Treasury Department to shore up Freddie and Fannie. James Lockhart, former director of the Office of Federal Housing Enterprise Oversight which had responsibility for the two government sponsored entities (GSEs) is the new director of the Finance Agency.
• The Conservator will control and direct the operation of the Company and will have all the powers formerly held by the shareholders, directors, and the officers of the Company and conduct all business, collect all money due to the company, preserve the assets and property of the company, and contract for any assistance necessary.
• In return for providing funds to guarantee their debt the Treasury Department will immediately receive $2 billion in preferred stock that will pay a 10 percent dividend. $1 billion of the stock will come from each of the two companies and the Conservatorship will purchase additional stock, perhaps as much as $100 billion worth, if the GSE's capital reserves fall below an agreed upon level. This preferred stock will take president over any claims by holders of common or the existing preferred stock.
• According to Secretary Paulson, the GSEs will modestly increase their mortgage backed securities portfolios through the end of next year "through prudent mortgage purchases" and will then reduce those holdings by 10 percent per year after 2009. The portfolios shall not exceed $850 billion for each company. An Associated Press article quoted Mark Zandi, chief economist for Moody's Economy.com, as saying this will effectively make the federal government the nation's mortgage lender.
• It appears that Treasury is primarily interested in protecting holders of GSE debt. This class of creditors includes many large investment companies and a number of foreign governments.
• The Treasury Department is establishing a new secured lending credit facility which will be available to the two GSEs and to Federal Home Loan banks.
• Both CEOs - Fannie's Daniel Mudd and Freddie's Richard Syron - have lost their executive positions and mammoth salaries although it appears that each has agreed to stay on to assist in an orderly transition.
• The conservatorship is open-ended in terms of time. The conservator alone will make the determination that the companies have returned to a safe and solvent condition.

MORTGAGE RATES HEADING LOWER?

While it is yet to be determined the full extent that this take over will have on the housing market. This latest move from the government should help borrowers looking to refinance or purchase a home, as interest rates on conventional loans will decrease.

The final numbers of how much this will affect interest rates is up in the air, but the average rate on a 30 year fixed loan will decrease from the national average of almost 6.5%, where rates stood when this action was taken.

The government bailout is aimed at making mortgages easier to obtain and afford. By shoring up the mortgage financing giants, they can continue buying mortgages from lenders and injecting much-needed cash into the system.

"Fannie Mae and Freddie Mac are crucial to turning the corner on housing," said Treasury Henry Paulson. "Therefore, the primary mission of these enterprises now will be to proactively work to increase the availability of mortgage finance. Our economy and our markets will not recover until the bulk of this housing correction is behind us."

However, the news is not all good. As foreclosures and delinquencies are at all-time highs, Fannie and Freddie are expected to maintain - if not ratchet up - tighter lending standards. And the fees they have introduced for borrowers with weaker credit histories won't go away anytime soon.

When looking at mortgage rates that borrowers pay we must realize that they are dependent on the yields that investors demand when buying mortgage-backed securities from Fannie and Freddie.

Investors' doubts about the companies' viability have sent interest rates on those securities soaring. Despite regulators' July promise that they would step in to save the mortgage companies, investors are still demanding rates of 2.25% to 2.45% above Treasuries. Historically, the spread has been 1.25%.

With the government now taking over the companies and minimizing the risk associated with their debt, investors may be willing to ease off their need for higher rates.

DON'T WAIT - THINGS COULD CHANGE AGAIN

As with many recent plans unveiled by the government, there is no telling where the mortgage and housing market will move in the near future. If more negative news were to come to pass then the drop in interest rates could be a short term event. Therefore, if you were waiting for lower interest rates, now is the time to act. As these lower interest rates could potentially only be a short term reality.

For more information on changes to interest rates and the Fannie and Freddie take over, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

On July 14, 2008 HUD put into effect a risk based premium structure on FHA loans. This new structure allowed borrowers with better credit and lower loan to value mortgages the ability to pay lower rates, while riskier loans carried higher mortgage insurance rates.However, with the Housing and Economic Recovery Act of 2008 going into effect on October 1, 2008. Congress has put in place a one year moratorium on risk based mortgage insurance premiums on FHA loans. Meaning that the system that HUD and lenders nationwide had just spent millions of dollars implementing would be going away less than ninety days from its inception.

In response to this the Federal Housing Administration announced new mortgage insurance upfront premiums and monthly mortgage insurance payments across the board for all FHA loans with case numbers issued between October 1, 2008 and September 30, 2009. The new premiums are an increase to the premiums that were in effect prior to the implementation of risk based premiums (RBPs), and are also an increase for high credit score borrowers under existing RBPs. However, the premiums are lower than current risk based premiums for low or no score borrowers, and are substantially less than authorized under Section 2114 of the Housing and Economic Recovery Act of 2008.

The new upfront and monthly premiums are as follows:

Upfront Mortgage Insurance Premiums

• Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.75 Percent

• Streamline Refinances (all types) = 1.50 Percent

• FHASecure (Delinquent Mortgagors) = 3.00 Percent

Annual Insurance Premiums (paid monthly)

• On 30 year loans with LTV > 95 %, annual mortgage insurance will be .55%

• On 30 year loans with LTV < 95%, annual mortgage insurance will be .50%

• On FHA Secure loans with LTV > 95%, annual mortgage insurance will be .55%

• On FHA Secure loans with LTV < 95%, annual mortgage insurance will be .50%

• On 15 year loans with LTV > 90%, annual mortgage insurance will be .25%

• On 15 year loans with LTV < 90%, annual mortgage insurance will not be required

Prior to the implementation of risk based premiums on July 14, 2008, premiums were 1.5% upfront for all loans, and .50% annually for loans with amortization periods over 15 years. The annual premium for loan terms of 15 years or less was .25%, and no premiums annual premiums were required for LTVs below 90%.

In contrast, current risk based premiums for loan terms exceeding 15 years range from 1.25% to 2.25% upfront and .50% to .55% annually depending on loan to value and credit score. The premiums for loan terms at or below 15 years range from 1.00% to 2.00% upfront and 0-25% annually, again, depending on credit score and loan to value.

With the new premiums taking effect October 1^st and down payment assistance with FHA mortgages also going away, there are a few key things to keep in mind.

-If you are looking to purchase a home with down payment assistance, now is the time to do so, because you have a very small window to complete these purchases.

-If you are looking to refinance a home and have excellent credit and equity in your property, now is the time to do so, to save on mortgage insurance

-If you are looking to purchase a home and have your own down payment saved, you are going to want to wait to write a purchase contract until the end of September

-If you are looking to refinance your home and have less than perfect credit or little equity, you are going to want to wait until October 1st

For more information on FHA mortgages and mortgage insurance premiums, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com

Ben Bernanke, the Federal Reserve Chairman indicated the Fed should be able to keep interest rates low for some time, as the recent drop in commodity prices coupled with reduced demand for resources should reduce the threat of inflation.

"If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year," Bernanke said on Friday at the annual economic symposium in Jackson Hole, Wyoming.

As a result Bernanke's comments helped boost stocks. For the last several months the Fed has had to tread carefully to ensure its rate cuts, meant to prime the economic pump, do not spark inflation, which continues to rise at a pace not seen for nearly two decades.

Acknowledging the slowing U.S. economy and that rising inflation have combined to create "one of the most challenging economic and policy environments in memory," Bernake said turmoil in the financial markets "has not yet subsided".

In addition, he added that the Fed's decision to lower the fed funds rate to 2 percent from 5.25 percent over the last year was "conditioned on our expectation that the prices of oil and other commodities would ultimately stabilize", and said this ongoing expectation has allowed the Fed to keep the fed funds rate low "despite an increase in inflationary pressures".

However, while he called recent commodity price declines "encouraging", he said the inflation outlook is still "highly uncertain" and reiterated the Fed would "continue to monitor inflation and inflation expectations closely."

"The FOMC is committed to achieving medium-term price stability and will act as necessary to attain that objective," he said.

As Central bankers from around the world gathered in the mountain resort of Jackson Hole, Wyoming, for an annual symposium. Financial markets remain worried about more home loan losses and concern those U.S. mortgage giants Fannie Mae and Freddie Mac will need a government bailout.

It was this time last year that Bernanke told the conference the Fed would take steps to shield the economy from the U.S. housing collapse, but would not bail out investors.

In the time since then, the Fed has slashed interest rates and lined up billions of dollars in emergency credit to prevent markets from seizing up over mountainous home loan losses.

Bernanke added that the financial crisis that has pounded the country-coupled with higher inflation- is taking a toll on the economy and poses a major challenge to Fed policymakers as they try to restore stability.

"Although we have seen some improved functioning in some markets, the financial storm that reached gale force" around this time last year "has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment," Bernanke said.

As we look at Mr. Bernake's comments, these all point to the fact that perhaps the general consensus that the Federal Reserve will raise interest rates soon, will not occur. If the economy is still in a down turn and inflation is in his opinion subsiding, then discount window may be kept open with lower rates for the foreseeable future.

For more information on the Federal Reserve's actions and the current mortgage, please contact Bill Kamboukos or Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com