Real Estate Newsby Peter G. Miller
Peter G. Miller
OurBroker®
As this is written the Dow is above 10,000 and that"s great news for anyone
buying or refinancing a home. As more money flows into Wall Street, more money
is generally available for mortgages, a process made possible through something
called the "secondary market." It sounds mysterious, but here"s how it works.
Organizations such as Fannie
Mae, Freddie Mac, and
Ginnie Mae raise money by
going to Wall Street. They do this by selling mortgage-backed securities
(Fannie Mae), pass through certificates that generate monthly payments for
investors (Ginnie Mae), and mortgage-backed bonds (Freddie Mac).
Money on Wall Street is in constant motion, some going into stocks, some for
bonds, some into options, some held in cash, and some used for exotic
investments few people understand. The bonds, securities, and certificates sold
by big players in the secondary market compete for investor attention with
stocks and bonds. The more investor money that flows into the secondary market,
the lower interest rates. But if other investments look better than holdings
related to mortgages, dollars flow away from the secondary market and rates can
rise.
The upward rise of the Dow and high tech stocks have created enormous investor
interest. That interest, coupled with a continuing supply of cash from
retirement plans and mutual funds, has been good for the mortgage market
because people like to have a variety of investments.
What do Fannie, Freddie, and Ginnie do with all that Wall Street cash?
In essence, when a lender originates a mortgage that meets the standards of the
secondary market (a "conforming" loan), the loan can be sold to Fannie,
Freddie, or Ginnie. Fannie and Freddie buy FHA, VA and conventional mortgages
that meet their standards, while Ginnie buys only FHA and VA loans.
After selling a loan, the local lender gets cash in return. With dollars in the
vault, the lender can turn around and loan again.
In this process everyone gets something.
*Borrowers get loan money at the cheapest possible cost anywhere in the
country.
*Lenders make money from the fees they charge for originating loans. They
may also get addition profits if they originate a loan which can be sold at a
premium. Being able to sell loans in the secondary market means that lenders
can recycle cash and make additional loans that generate new fees and profits.
*Investors who buy bonds, certificates, and securities get interest and
possibly higher market values.
*Fannie Mae, Freddie Mac, and Ginnie Mae get fees for their work, and also
interest from the mortgages they hold.
What happens if stock values fall? Assuming that cash keeps streaming into Wall
Street, falling values would likely drive investor dollars to more conservative
choices -- which often include the very certificates, securities, and bonds
that underwrite much of the mortgage marketplace, thus forcing down rates.
And what happens if stock values fall and huge volumes of cash do not
flow into Wall Street? Then the likely result would be rising mortgage rates.
But for the moment, at least, it"s a very good time to be a borrower,
Question Of The
Week
Q We are not home during the day
and have an uncomfortable feeling that our building manager has often entered
our apartment without permission or notice. Is the manager allowed to do this?
A A rental unit is not "your"
property in the sense of ownership, but it is your property in the sense of
usage and control.
In the general case, a manager has little or no business or authority entering
a unit without prior notice or permission -- except in the case of an
emergency.
If a repair is required, for example, that can usually be arranged with the
knowledge of the tenant and often (but not always) at a time convenient to the
renter.
It may be worthwhile to speak with the manager and ask about his or her
policies -- and to explain your policies as well.
Weekly Resource
Ever sorry you didn"t tape a TV news show? Ever need to do research that
requires a review of TV news coverage? Not to worry, the Television News
Archive at Vanderbilt University has more than 30,000 network news
broadcasts as well as more than 9,000 hours of news-related programming.