Making Homes Affordable Refinance: Still Not Too Late to Refinance Your Mortgage

Mortgage rates have been climbing at a fairly rapid pace for the past month or more. The federal government and the Federal Reserve are desperately trying to keep rates at record low levels in order to revive the housing industry in particular and the overall economy, which is heavily dependent upon housing activity.

The main objective for GSEs is to make credit more available while at the same time reducing costs in specific financial areas like the home mortgage market. This is the purpose of Fannie Mae and Freddie Mac. In order to understand how these two institutions operate, you must first understand what a secondary mortgage market is. Both Fannie Mae home loans and Freddie Mac work with this industry. In a secondary mortgage market the banks actually sell mortgages to securitizers. The loans then get grouped together and sold to investors as securities. In this scenario, Fannie Mae and Freddie Mac are the securitizers.

This is referred to as QE2, the second round of quantitative easing. Nevertheless, interest rates on the 10 year bond, and subsequently those for a 30 year home mortgage, have risen. As a result of these increases, making homes affordable refinance activity has dropped off fairly substantially, even though the cost of financing a 30 year fixed rate mortgage are still a bit below five per cent at the time of this writing in December, 2010.

Both of these institutions keep some of the mortgages for themselves instead of selling them. Another way that they get money is from the fees paid to them for guaranteeing mortgage repayments. These fees are their main way of obtaining income. Even though they are government controlled, neither Fannie Mae nor Freddie Mac gets federal funding.

Homeowners who have a solid job situation and who have not refinanced should consider doing this if refinancing makes sense for them. This means that they will remain in the home for at least two years and that the money they save by having a lower monthly payment will pay off the costs of refinancing in less time than that. After all, even though interest rates have risen a bit on mortgages lately, a rate of around five per cent on a thirty year loan is still very low by any historical comparison.

Learn more about Obama Mortgage Relief Plan Qualifications.