Mortgage Market Stability in Unstable Times
“The only constant in life is change” goes the well-known expression. That’s particularly true when it comes to the financial markets. Markets fluctuate constantly, and today we’re recovering from the worst housing recession since the Great Depression.
But over the past three years, even during the toughest times, conventional mortgages have remained available and affordable. That’s due in large part to the role played in the global markets by Freddie Mac and Fannie Mae, the government-sponsored enterprises, or GSEs.
Freddie Mac was created by Congress more than 40 years ago to provide stability, liquidity, and accessibility to the housing finance market - and we’ve done just that, in good times and bad. Never has this been more pronounced than during the current housing and economic crisis, when most other mortgage funders withdrew from the market. In 2009, the GSEs funded more than 70 percent of all home loans originated in the United States. Compare this to 2006, at the height of the housing boom, when private securities accounted for nearly 60 percent of the mortgage-backed securities (MBS) issued in the market.
Percent of MBS Issuance
Our counter-cyclical presence in the market ensures that borrowers have access to affordable mortgage funding in any environment and in all geographic markets.
The benefits we bring to borrowers, especially during a crisis, are most apparent when it comes to interest rates. Mortgages the GSEs purchase are significantly more affordable to homebuyers than those we cannot because they exceed the loan limits set by Congress. That difference today is about three-quarters of a percentage point, and reached an all-time high of almost two percentage points in December 2008. That may not sound like a lot, but it can amount to tens of thousands of dollars in savings for borrowers over the life of an average-sized loan.
Effective Interest Rate on 30-Year Fixed-Rate Conventional Mortgages
Today the GSEs remain one of the few reliable sources of home mortgage and apartment funding. Our conservatorship status and Treasury’s funding commitment have enabled us to keep the market liquid and stable, and we expect the federal government to continue to play an integral role in the recovery of housing for at least this year. This will help ensure that – even as the financial markets continue to change – Freddie Mac’s ability to serve America’s homeowners and renters will remain strong.
Ed Haldeman discusses the U.S. housing finance system and the role of the GSEs in providing market stability in an interview recently posted on Knowledge@Wharton, the online business journal of the Wharton School of the University of Pennsylvania.
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