Q&A: What's next for home buyers

<p>What does the federal government's takeover of Fannie Mae and Freddie Mac mean for mortgage rates?</p><p>Mortgage rates fell sharply Monday as investors reacted to the takeover, and analysts say they may drop even more. The average for a 30-year, fixed-rate mortgage dropped 0.3 percent to 6.04, according to HSH Associates.</p><p>"That is a significant move in one day. And it is continuing to go down," said John Klein Jr., executive vice president of Simpac Financial, a Santa Rosa real estate lending and sales company.</p><p>A 30-year mortgage rate could fall to close to 5.5 percent because investors will be more willing to buy debt issued by Fannie and Freddie -- and at lower rates -- because the federal government is now explicitly standing behind that debt, according to Moody's Economy.com.</p><p>"You have to look at this as a positive," said Steve Cochrane, senior managing director of Economy.com.</p><p>Mortgage bankers and brokers are hoping the government will cut fees that Fannie and Freddie have been charging lenders to protect against increased losses from mortgages they own or guarantee. Those rising fees have squeezed out some potential home buyers because lenders typically pass the fees along through higher mortgage rates or higher upfront costs.</p><p>How will it affect Sonoma County's housing sector?</p><p>The government's actions might help stabilize the market by spurring buying, but it does not fix the fundamental problems, economists and real estate professionals say.</p><p>"In Sonoma County, it's worth bracing for some more bad news for the rest of this year," said Coch-rane, who prepares an annual economic forecast for the Sonoma County Economic Development Board. "I don't see any signs that we've worked through it yet. Next year will look better."</p><p>Still, banks might be more likely to lend because Fannie Mae and Freddie Mac are now secured by the government, and that could make it easier to get a loan, said Robert Eyler, director of the Center for Regional Economic Analysis at Sonoma State University.</p><p>If that happens, it could help the market reach bottom quicker as more buyers leave the sidelines and begin scooping up homes. That could help stem the downward pressure on the median home price, which has fallen 35 percent in two years.</p><p>Home sales have increased for four consecutive months, with a 21 percent improvement in July compared with a year prior.</p><p>The overall mood in the market is also a factor, but the front-page headlines noting the government's move may not resonate with home buyers.</p><p>"I would love it if people thought that way, but they don't connect the dots like that," said Steve Heideman, president of United Mortgage Financial Group, a mortgage brokerage firm in Tempe, Ariz.</p><p>The biggest factor weighing on home prices, aside from the overall jobs picture and the state of the economy, may now be the flood of homes for sale, as people try to get out from under bad mortgages or their lenders put foreclosure homes on the market.</p><p>"The sheer number of homes on the market is a problem. There are still a lot of foreclosures in the pipelines," Klein said.</p><p>How will this affect those already with mortgages?</p><p>It won't. The lower rates could affect people shopping for loans. But with the takeover, consumer groups are urging the government to place more pressure on Fannie and Freddie to help those homeowners in trouble with their loans.</p><p>What is the best way to negotiate a lower interest rate for my mortgage?</p><p>Same as always: Force lenders to compete for your business. Get multiple offers and have your finances in order to make yourself more competitive as you shop around, analysts said.</p><p>But be leery of rates well below market averages, said Marty McCormick, owner of McCormick and Co., a Santa Rosa mortgage broker.</p><p>He spent Monday answering a stream of phone calls from people wondering what the news meant. But he also heard from a woman who was offered a rate too good to be true. She was called by a Southern California firm who offered her a 30-year fixed rate of 5.5 percent with no fees, he said.</p><p>"That doesn't exist. They are liars," McCormick said.</p><p>Also keep in mind that to get a loan in this market often requires a high credit score and a significant down payment. Many lenders now want at least a 10 percent down payment, but borrowers can make themselves eligible for a better interest rate with a bigger upfront investment.</p><p>To ensure a better rate, borrowers should weigh whether their mortgage would qualify to be bought by Fannie and Freddie. Congress recently increased the limit of loans that the firms can buy to $662,500 for single-family homes in Sonoma County. If the home exceeds that limit, the borrower needs a jumbo loan, which remains more expensive.</p><p>Mortgage companies have tightened lending standards in the last year. Could the takeover affect those conditions?</p><p>Debatable. Fannie and Freddie want borrowers with a 750 credit score and a 20 percent down payment, said Guy Cecala, publisher of Inside Mortgage Finance. But the government takeover could prompt the firms to bend a bit, he said. If that happens, borrowers could see a shift by the end of the year, Cecala said.</p><p>"The underwriting standards could be more flexible. They are very rigid now," he said.</p><p>But Holden Lewis, a reporter for Bankrate, an online research site, said any change to lending standards is doubtful. Loosening standards -- even a little -- could spook investors and ultimately cost taxpayers more, he said.</p>