Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart.
Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.
"Even if you have good credit, you don't know if they are going to give you a loan or not," said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania.
And for those who can still get a loan, the tremors in the mortgage-backed securities market has made loans more expensive for borrowers. As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates.
The national average rate on a 30-year fixed-rate mortgage was 5.96% Thursday, after jumping to 6.08% earlier this week, according to Bankrate.com. Rates on a 30-year fixed mortgage were about 5.90% a week ago. A borrower looking for a 5-year adjustable-rate mortgage would pay 5.71% today, up from around 5.03% a week ago.
The real estate market has been close to falling apart for sometime and the two enterprises that have kept the market somewhat stable, Fannie Mae and Freddie Mac, are being ignored by investors. This development will make it harder for people, even those with strong credit histories, to get a home loan. For those people who can somehow receive a loan, the price of receiving that loan will be more expensive. Because mortgage-backed securities have fallen, yields have risen, therefore, mortgage rates are higher.
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