Buyers, Owners See Bailout's Silver Lining

By John Rebchook, Rocky Mountain News
Tuesday, September 9, 2008

Mark Bossard's timing to refinance his 2-year-old mortgage might be perfect, given the government's bailout of Fannie Mae and Freddie Mac.

"It could be a boon for me," said Bossard, a software engineer.

On Monday, a day after the government stepped in to prevent a collapse of the two mortgage industry giants, rates dropped substantially to about 6 percent for a conventional, 30- year-loan, from about 6.25 percent on Friday, said Peter Lansing, head of Universal Lending in Denver.
The rates could fall even more to near their 50-year low of 5.25 percent.

Bossard has an 8.55 percent mortgage that is about to adjust to more than 9 percent, so he is eager to lock in the best rate he can as soon as possible.

"If I can get another half-point off my rate than it would have been otherwise, that would be pretty significant," he said.

Although he has dramatically improved his credit score from when he locked in his current rate, he is still concerned that his home in Westminster will not appraise high enough for him to get the best deal on rates.

It will be less complicated for first-time home buyers, who some experts believe may get off the fence if rates drop quickly.

Roy Alexander, head of the Colorado Housing and Finance Authority, which primarily provides loans to lenders for low- and moderate-income first-time home buyers, said that could happen.
But more important, the government's takeover provides stability to the housing market, he said.

"This injection of capital by the Treasury avoids the worst-case scenario, at least temporarily," Alexander said. "The stability should result in keeping rates down. The alternative would be not to step in and run the risk of rates getting away from us."

But Greg Gold, a trial attorney looking to buy a home or condo in downtown Denver or a surrounding neighborhood, is more concerned about getting a great deal on a price, rather than locking in a lower mortgage rate.

"What I'd like to do is get a $700,000 home for $500,000, or a $500,000 home for $300,000," said Gold, who just launched his own law firm.

Even if rates drop, he said he is in no hurry to buy, and thinks prices will be lower next year.
"It seems improbable with all of the construction and the supply of homes increasing downtown, and demand staying basically the same, that prices won't drop," he said.

Lansing, of Universal Lending, said that while he welcomes lower rates, he is worried that the government may loosen underwriting guidelines too much in order to spur home buying.

"Isn't that what got us into trouble in the first place? It's a tough problem," Lansing said.