The nation’s continuing credit crunch makes it tougher these days to qualify for home loans in Nevada, but the federal government’s Sunday seizure of the country’s two biggest mortgage companies could eventually mean better access to home loans here, experts said.
But how and when will the rescue of Fannie Mae and Freddie Mac, which hold or back roughly half of all American mortgages, affect the Silver State’s borrowing climate?
Observers say it’s too early to tell.
Bill Uffelman, president and chief executive officer of the Nevada Bankers Association, said consumers should eventually feel the results of the federal rescue, but he wouldn’t predict when they might see relief.
“(Fannie Mae and Freddie Mac) have suffered some substantial losses, but in effect, this will inject liquidity back into them so they are in a position to continue to buy mortgages,” Uffelman said. “In the end, we should be better off, or at least, we should be no worse off. We don’t know how long it will take (to see changes).”
The bailout could affect access to mortgages because the two quasigovernmental entities buy or guarantee billions of dollars’ worth of mortgages each month, providing lenders with assurances that the home loans they make will be covered if consumers default. That means banks can charge lower interest rates on loans to middle- and low-income home buyers in particular.
Uffelman didn’t forecast noticeable changes in mortgage interest rates following the bailout. Markets could see a “small amount” of an effect — perhaps an eighth to quarter of a percent — but he said he expects no “big swings” in interest rates, just a more stable lending environment.
Uffelman did note that his trade group is eyeing one potential unintended consequence of the bailout.
Banks holding stock in the two companies could see the value of their shares drop to nothing, Uffelman said, and banks maintaining specific investment or capital ratios in their portfolios will need to raise funds to replace their Fannie Mae-Freddie Mac losses. While they grapple with that portfolio crunch, banks could have less capital available to businesses and consumers looking to borrow.
Uffelman said he’s not sure if any Nevada-based banks have substantial exposure to Fannie Mae and Freddie Mac stock. He said his organization sent e-mails to its members Monday asking them to inform the association of any serious holdings in Fannie Mae and Freddie Mac.
Natalie Brown, a Reno-based spokeswoman with Wells Fargo, said it would be premature to comment extensively on the bailout and its effect on mortgage markets in the Silver State.
A companywide statement from the San Francisco-based banking giant noted that company executives spoke with officials of Fannie Mae, Freddie Mac and the U.S. Department of the Treasury over the weekend, and they “expect business as usual” with respect to their lending.
They added that they’re optimistic the rescue will help stabilize the market and boost liquidity among mortgage lenders.
“The Treasury’s plan is an important step in ensuring the (government-sponsored enterprises) meet their obligations, so we can make homeownership achievable and sustainable for customers with reasonable, competitive rates and within appropriate credit parameters,” the statement said.
Several other local community banks and national mortgage insurers didn’t return calls seeking comment before press time.
Contact reporter Jennifer Robison at firstname.lastname@example.org or 702-380-4512.