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Mortgage Rates Tumble On Fannie-Freddie News


This is Morning Edition from NPR News. I'm Renee Montagne. The repercussions continue from the government's historic takeover of the nation's two largest mortgage companies. In a moment, we'll ask the chairman of the Senate's Banking Committee what's ahead for Fannie May and Freddie Mac. First, NPR's Chris Arnold reports on how interest rates have gone down suddenly and sharply.

CHRIS ARNOLD: Mortgage brokers around the country yesterday were glued to their computer monitors, watching to see what the government takeover would mean for interest rates.

Mr. PAUL VAN WART (Broker, Allied Home Mortgage): We're starting to see some changes right now. So it seems to be a trend, and everyone seems to be re-pricing right now.

ARNOLD: Paul Van Wart is a broker with Allied Home Mortgage in Westwood, Massachusetts. Just last Friday, he could offer customers with good credit a 30-year, fixed-rate loan for 6.25 percent.

Mr. VAN WART: Today, we've had our second rate change. We're actually down about 5.75 right now at this point.

ARNOLD: That's a huge move in just one day of business. Basically, because of the Fannie-Freddie takeover, investors were suddenly willing to pay more to buy up U.S. home loans. And that drives down interest rates. Van Wart gets a phone call alerting him to how quickly rates are changing.

(Soundbite of phone call)

Unidentified man: This is happening. Folks, mortgage-backed securities are going crazy. They are now up 147 basis points...

ARNOLD: The problem has been that Fannie and Freddie took too many risks and got into trouble with mortgages that went bad. And investors as far away as China have been worried about exactly what would happen if Fannie and Freddie failed. The mortgage giants back three-quarters of new home loans being made in the U.S. But now the government stepped in and put itself in charge of that crucial role that the companies play, that's provided a lot of clarity. And yesterday, the market responded.

Mr. VAN WART: You're seeing rates under six percent right now, or back into the fives. These are 2005 interest rates suddenly rearing their head here. So, this is definitely a great, great sign. And it's a good thing for realtors, for home buyers, sellers, people looking to refinance, people looking to buy a second home.

ARNOLD: Some economists are optimistic too. William Wheaton is with MIT's Center for Real Estate.

Professor WILLIAM WHEATON (Economics, MIT Center for Real Estate): Well, first of all I think this is good, good, good.

ARNOLD: Wheaton says he expects interest rates to fall even further in coming months. He's hopeful that'll get more people buying homes. Also, Wheaton thinks Fannie and Freddie were having trouble backing as many loans as they needed to because they couldn't raise enough money from investors.

Professor WHEATON: There was a lot of rumor that in the last two months they were doing very, very little business, that they had really started to restrict their flows. And I think that's what - the Treasury secretary is following that data very, very carefully, and I think that's probably why they stepped in.

ARNOLD: Basically, the housing market's bad enough already. Nobody wants qualified borrowers with good jobs unable to get loans. So some analysts say the Fannie-Freddie takeover plugged a serious hole in the dam. But...

Mr. MARK ZANDI (Chief Economist, Moody's Economy.com): We still have lots of problems.

ARNOLD: Mark Zandi is an economist who's been following the financial crisis and who's written a book about it.

Mr. ZANDI: The job market's still a mess. We've still got inventory. We've still got prices declining. The financial system probably has more shoes to fall. So this isn't over, but I think this marks the beginning of the end of this very painful financial crisis.

ARNOLD: Meanwhile, there's still a lot of questions and concerns over the regulatory lapses that allowed the situation to get this bad to where the government has had to take charge of the two largest companies at the heart of the U.S. mortgage market. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Chris Arnold
NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.