Don't start spending the money you expect to save on your mortgage just yet.
Source: beazer.com
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Federal regulators stirred up the mortgage market on Wednesday by easing investment caps on Fannie Mae and Freddie Mac, the nation's biggest providers of mortgage money. That is expected to make billions of dollars more available for home loans, but most experts say it won't push mortgage rates lower anytime soon.
"In a mortgage market where lack of liquidity has been a recurring issue in recent months, this is a positive step," said Greg McBride, senior financial analyst at Bankrate.com.
"But it's unlikely to result in wholesale changes in mortgage rates overnight, and the impact will probably come at a gradual pace."
Many borrowers have been waiting to refinance their mortgages since the Federal Reserve began aggressively cutting interest rates last year. But mortgage rates have actually been going up, not down, because banks are still reluctant to make home loans even though money is cheaper.
"What people are realizing is that the interest-rate cuts haven't helped anybody but the banks," said Michael Cohn, chief investment strategist at Atlantis Asset Management. "They're taking these rate cuts and pocketing the money ... to shore up their own balance sheets."
The rate on a 30-year fixed-rate mortgage rate is currently averaging 6.1 percent, up from 5.92 percent just a week ago.
Mortgage brokers likely will be in wait-and-see mode until a clearer picture emerges on how Fannie Mae and Freddie Mac will utilize their renewed freedoms. The investment limits were instituted after regulators discovered multi-billion-dollar discrepancies in 2006.
(See an exclusive video interview on Fannie Mae and Freddie Mac with Office of Federal Housing Enterprise Oversight Director James Lockhart at left.)
"The plan is a great plan, but will it go into effect and how it will go into effect remains to be seen," said Alan Rosenbaum, president of GuardHill Financial in New York.
In fact, Rosenbaum said the loosening of restrictions on Fannie and Freddie have had unintended negative consequences for his business.
Rosenbaum said he has a client who has been waiting three weeks to refinance his mortgage. In that time, rates have gained three-eighths of a point, and soon it may no longer be beneficial for his client to go through with the refinancing.
The recently passed economic stimulus package also will allow Fannie and Freddie to buy bigger mortgages, which will provide even more money to the mortgage market. Yet that too will take time to push mortgage rates lower.
During his congressional testimony on Wednesday, even Fed Chairman Ben Bernanke acknowledged that mortgage rates remain stubbornly high.
"We have a problem, which is that the spreads between the Treasury rates and lending rates are widening, and our policy is essentially in some cases just offsetting the widening of the spreads, which are associated with signs of illiquidity," Federal Reserve Chairman Ben Bernanke said in remarks before the House Financial Services Committee.
"So in that particular area, it's been more difficult to lower long-term mortgage rates through Fed action."