Thirty-Year Fixed-Rate Mortgages Dips To 6 Percent Following Fannie Mae, Freddie Mac Bailout

September 11, 2008 8:31 a.m. EST

Washington, D.C. (AHN) - The housing sector is starting to feel the effect of the federal bailout of Fannie Mae and Freddie Mac through lower mortgage rates, higher downpayments and loan caps.

The traditional 30-year fixed-rate mortgages of the two largest mortgage lenders went down this week to 6 percent from 6.5 percent, prompting applicants with pending loans to push through with the transaction to lock in the lower rate.

Meanwhile, most banks imposed a higher 15 percent downpayment requirement for home buyers, up from 10 percent. Owner of rental homes who want to refinance the unit and cash out some equity could get 75 percent of the home value if the unit will be mortgaged, down from 90 percent at the height of the housing boom.

Meantime, housing loans financed by other mortgage lenders in high-priced markets like most of Southern California will have higher maximum loan caps which went up to $729,750 from $417,000. The higher cap will be available to borrowers with a solid credit history, who would enjoy a 30-year fixed-rate loan at 5.75 percent interest if they pay 1 percent of the loan amount as upfront fee.

However, those borrowing in excess of $729,750 were given a higher interest rate of 8.125 percent and a 3.5 percent upfront fee.

Following the takeover of Fannie and Freddie, the White House budget office and U.S. Treasury Department are studying how to include the two firm's $5.2 trillion debt into the federal budget, said Corinne Hirsch, spokeswoman of the Office of Management and Budget.

In an earlier interview this week by Bloomberg, Treasury Secretary Henry Paulson pointed out the incongruities in the law which was vague if the debts of Fannie and Freddie must be part of the federal budget or if it has an explicit government guarantee. The two mortgage companies have a combined $1.7 trillion unsecured debt and $3.5 trillion mortgage guarantees.