Mortgage Payment Program

This past weekend the inevitable happened: the government stepped in to take over Fannie Mae and Freddie Mac. The two companies were placed into a conservatorship in an effort to bring some stability to the housing and mortgage market. Who are the winners and losers from this landmark move?

Winners: The investors. By investors I mean the companies that buy the debt or securities Fannie and Freddie created from the mortgages they funded. The federal government is now responsible for losses on these investments – a move which the government hopes will attract investors back to mortgage securities and create the much needed funds to fuel mortgage originations.

Losers: The shareholders. The shares prices have been in a steady decline and the move to take over the companies is not a move to buy out the shareholders. People who invested in Fannie Mae or Freddie Mac stocks are likely going to continue to be upside down (lose money on their investment) until the future of these entities is decided and, should they remain public, regain value in their share – meaning a long, long time.

As for homeowners… we will have to wait and see. With the government stepping in that should clear the way for mortgage rates to drop down. However, lending standards are still up in the air. We may not get a decision on how conservative or liberal the lending standards will be until after the next president is elected. My guess is we are likely to see stricter underwriting guidelines that are more inline with what these two companies used originally; requirements for larger down payments and more conservative debt to income ratios which may make mortgages more difficult to obtain for many.

The mortgage crisis seems to be headline news on a daily basis now. What seems to be driving the free fall? There are two key factors in play. First is the number of loans that are adjusting upwards. Many people took out adjustable rate mortgages with low “teaser rates” that are adjusting to market rates. Even though interest rates are low, the regular rate is still higher than the teaser rate that is causing “payment shock” for many homeowners. The second reason is that home values in many markets continue to decline. These markets are flooded with foreclosures and people looking to get out of a home they can no longer afford. This growing supply of homes far outweighs the current demand that is causing prices and values to fall.

What is a homeowner to do? Pay down your principal balance before your payment jumps up! Paying down your balance on an adjustable rate mortgage will lower the amount of your new mortgage payment when your rate adjusts – often times lowering your payment amount even when rates move up. Paying down your balance also helps to maintain equity in your home.

No one knows for sure how long this poor mortgage market will last, but it will not last forever. When markets finally adjust to normal growth rates, those who have paid down the principal will benefit most by having more available equity to use on moving up to a bigger home or leverage for significant expenses like college or home improvements.

Equity Plus is a great, safe, and easy way to significantly reduce the principal in your home. The program can be tailored to exactly meet your personal budgets and meet your financial goals and objectives. To find out how you can reduce the risk of a bad market by using Equity Plus, visit www.equityplus.net or call 1-800-251-1315.