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How does the bailout potentially help mortgages?

Posted on September 30, 2008 by Ray Williams (NMLS #216267).

As we all know the day after the failed vote on the bailout plan in congress, there is a huge push to get this back in front of congress for passage. The Dow dropped 777 points in it’s largest single day drop. There is concern about our retirement funds. mutual fund guarantees, credit or lack there of. So I wanted to give you a spin on the bailout bill and how it would affect mortgages.

Mortgages are packaged into Mortgage Backed Securities and resold on the open markets. One problem that has existed is the banks have been tight on credit because of bad mortgages and illiquid positions on these securities. Part of the proposed bailout is for the government to insure these mortgage backed securities. What that would do immediately is to allow the big banks to immediately free up capital to relieve the chokehold they are feeling right now. This would then help with mortgage financing and banks would potentially start back down the road of relinquishing the tightened lending guidelines.

For example~ fannie mae has always had a position that if you were buying aninvestment property and had good credit and low debt, you were eligible to put down 10% on that rental home. Coming here soon you will be required to put 15% down minimally.

However~ You can still buy a home with FHA and put 3% down and with rates at around 6% right now (yes in today’s financial market) it is a great loan in today’s financial markets.

You can also qualify for the $7,500 first time buyer credit if you are buying your first home.

So while the financial markets are in tough shape. Make sure to learn as much as possible to understand what the bailout means and how we need it.


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