Charleston-area mortgage experts said Monday they expect the federal government to succeed in working out a plan to support mortgage backers Fannie Mae and Freddie Mac because of the vital role the two companies play in keeping home loans available and affordable.
"Fannie and Freddie are unique organizations," said Tom Hood, president and chief executive officer of First Federal Savings and Loan Association of Charleston, the largest banking company based in the Charleston area. "I have every expectation that there will be some kind of additional capital provided to them."
Dan Butts, a vice president and top Charleston-area loan officer for Winston-Salem, N.C.-based Bradford Mortgage, generally agreed.
"Fannie and Freddie have to survive," he said. Some form of rescue plan for the government-sponsored lenders "is going to happen."
What the two government-sponsored companies do that's so important is provide cash to the mortgage markets by buying loans and converting them into securities that are then traded in much the same way as stocks. By keeping an ample supply of money available for mortgage companies to lend, the two companies help keep borrowing costs down, which allows more people to be able to afford to buy homes.
As a result, Butts said, even with a rescue plan in place, the problems at Fannie and Freddie are likely to raise the cost of home loans very slightly, probably by one-eighth of a percentage point on most conventional loans.
However, Butts and Hood both said they didn't expect the problems at the government-sponsored companies to have much effect on people's decisions about whether to buy or sell a house.
"I don't know that the average person would link this to their decision to buy a home or refinance," Hood said. "If you're buying a home that's going to be your residence, I think people will go about the decision-making process pretty much as they always have."
Those types of long-term buyers should be focusing on whether the house really suits them, is in the right location, is affordable, and so on, he said.
Butts noted that despite the well-publicized problems at Fannie Mae and Freddie Mac and the housing market in general, mortgages are easier to obtain today than late last year, when many lenders abruptly tightened their loan requirements after the industry's problems first surfaced.
Both companies own property in the Charleston area, acquired as a result of foreclosures, not through purchases. The number of properties, however, is much too small to affect the real estate market as a whole: Charleston County property records list 11 properties owned by Fannie Mae — officially Federal National Mortgage Corp. — and just two owned by Freddie Mac, or Federal Home Loan Mortgage Corp.
At this point, Butts said, homeowners and potential home-buyers might have bigger issues to worry about in light of the failure of California-based bank IndyMac.
"I think the higher risk is other big institutions, big banks," he said. "Folks that are worried about Fannie and Freddie should be more worried about large banks."