First of all, I want to say how excited I am to be part of Blog By The Bay! This is a great opportunity for me to get current and accurate information out about what is happening in the world of real estate finance. The opportunity is especially critical given all the misinformation I hear and read constantly in the media. With all that has been happening in the mortgage industry, it is vital that we keep you informed!

But let’s talk about what has been going on over the past two weeks and what it means to you as a consumer…

On Sunday, September 7^th, it was announced that the government will take operational control over Fannie Mae and Freddie Mac. The Federal Housing Finance Agency (FHFA) will be taking over the board of directors and management of the two mortgage giants while the U.S. Treasury is providing up to $100 billion in capital for each company to ensure they will be able to meet their debt obligations. 30-year conventional mortgage rates fell by as much as half a point on this news presenting borrowers a great opportunity to refinance loans at lower rates or, for those with excellent timing, buy at a much lower rate than expected.

Why is this having such an effect on rates? In order to continue to buy and securitize mortgages, Fannie and Freddie sell bonds (or “paper” as it is referred to on Wall Street) to replenish their capital. As the mortgage crisis continued to unfold and investors remained concerned about mortgage bonds, Fannie and Freddie had to offer this paper at higher and higher rates to attract buyers. Investors became concerned that Fannie and Freddie would not be able to continue to meet the debt obligations of this paper. With the conservatorship, the government is essentially backing the paper and guaranteeing the obligation will be met. Therefore, the risk profile of this paper is similar now to a government treasury bond but with a much higher rate of return. The investment becomes much more attractive on a rate vs. return basis. Buyers scooped up this paper and took prices up significantly – since bonds prices and rates move on an inverted basis, rates dropped accordingly.

We are seeing a similar move in rates this week – but for very different reasons. As of this morning, Lehman Brothers declared bankruptcy after 158 years in business and Merrill Lynch, which was also teetering on the edge of financial collapse, was purchased by Bank of America. These announcements have put more fear and concern around the stability of our financial markets and caused a “flight to quality” on Wall Street. Investors are selling equities (stocks) and buying bonds today. Again, this creates a great opportunity for consumers with mortgages because as the prices of bonds are going up, rates are coming down! So while there is undoubtedly concern about the short-term effects on our economy, the windfall for us as consumers is cheaper money for homes.

We continue to see significant improvement in the 30-year fixed rates and some improvement in ARMs, too. Currently, a zero point conforming 30-year fixed loan ($417,000 or less) will run you as low as 5.75% and an agency jumbo 30-year fixed loan ($417,001-$729,750) with zero points is near 6.0%. These are some of the best rates we have seen for all of 2008! If you are currently in an ARM and want to grab a longer-term loan, there has not been a better time to jump on a 30-year fixed. The chaos in the financial market has provided an amazing opportunity for buyers and those interested in refinancing.

I look forward to many more postings on the Blog By The Bay and keeping you up-to-date on happenings around the financial world!

-Stacey Fleece is a Marin County Loan Consultant.