In addition to the rate reduction, Fannie Mae and Freddie Mac won government approval to reduce their required capital reserve by 10%.  Fannie Mae and Freddie Mac are subject to larger reserve requirements than other purchasers of mortgages.  They had been required to keep an additional 30% of the required amount in reserve, but that has now been reduced to an additional 20%.  This may not sound like much of a big deal, but it is just as important, possibly more so when talking home loans, than the rate cut.

By reducing the capital Fannie Mae and Freddie Mac (the two largest purchasers of mortgages) must keep in reserve, it effectively is pumping $200 billion into the mortgage world.  By not being forced to hold this money in reserve, Fannie Mae and Freddie Mac are free to use these funds to purchase more loans.  This reduction should add some liquidity to the mortgage market, which is very important when talking about making loans available at the best rates possible.  If the market that purchases loans on the secondary market is not very liquid, less loans can be written, and they will have to be written at higher rates in order to ensure buyers. 

Speaking of rates, 30 year fixed mortgage rates are again on a downward trend, again, available in the mid 5% range at wholesale rates.  Mortgage rates had been much lower early in the year, but have been creeping up over the past month or so, due in large part to an illiquid secondary market.  With the additional action taken this week, rates have been falling again.  I expect this to continue, with rates hovering near historic lows for the foreseeable future.  Additional help could come with more action on the governments part.  We are not out of the woods by any stretch of the imagination, and additional action could continue to add liquidity and help restore confidence in the secondary market.  With all of the uncertainty in the market and large institutions failing, Additional action seems certain.

Now is an excellent time to look into financing options, whether for a purchase or a refinance.  Feel free to take advantage of my online loan calculators, whether comparing the cost of renting versus buying or to see if today’s rates could save you money.   There are still many loan options available, and terms are again near historic levels.  For California home loans, or financing questions of any kind, please contact me.