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| How the Fannie Mae and Freddie Mac takeover are lowering Rates |
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| Written by Rob Kosberg |
| Friday, 26 September 2008 08:23 |
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There is a basic behavior in investment choices known in the financial world as Risk Aversion. If a person is choosing between two investments with equal risk, he usually chooses one with a higher rate of return. Also a part of the Risk Aversion process is choosing the investment with the greater risk if said investment will provide greater return rates. A "spread" is the difference among investment return rates. Typically there is a 1.5% difference between government and mortgage debt. However, the spread started to grow in July 2007.July 2007 marked the "official" start of the Credit Crunch and as mortgage delinquencies grew nationwide, so did the market's perceived risk of investing in them. The "spread" almost doubled in a year. On September7, 2008 the takeover of Freddie Mac and Fannie Mae was announced by the federal government. This action offered the "risk free guarantee" for mortgage debt. After the announcement of the takeover the "spread" decreased. Mortgage rates fell on September 8, 2008 because of this action. Rates should remain low in the near future. Because the government is backing the market, there will not be risk that kept rates high for the past year. This will not mean more people will be able to get mortgages. However, those who qualify may find that financing is cheaper. About the Author: If you are in the early stages to Buy a Home then check out Rob Kosbergs' Detailed FREE Guide on Buying your Dream Home with a Zero Down Mortgage or for up to date Mortgage info visit my Mortgage Blog Kindly provided by MoneyHunter.org You are welcome to use this article on your own website, if you include the link just before this text. |
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