Natural mortgage rate reduction helps real estate

photo credit: TheTruthAbout…
The president of a leading US home loan lender has said mortgage rates in the US real estate market may drop even further and are “going down naturally”.

John Sauro, of the North Atlantic Mortgage Corp, spoke to Bloomberg on the US government’s plan to lower rates.

Rates on many American 15 and 30 year home loan deals in particular have plummeted in recent weeks.

Sauro said interest levels had dropped after the Federal Reserve and the Treasury Department bought bonds from lenders Fannie Mae and Freddie Mac.

He said:

“Doing so raises the price of the bonds due to increased demand and inversely brings down the interest rates on those bonds, thereby reducing mortgage interest rates.

“This is good for the conforming mortgage market.”

He added so-called ‘jumbo loans’ were “another story entirely” which are being written but with banks typically wanting more equity from the home owner.

Jumbo loans are typically mortgages of more than $625,500 for buyers reaching the higher ends of the housing ladder.

Sauro also said government buying of ‘Fannie and Freddie’ bonds will attract more investors from countries such as China due to new confidence in the mortgage bond market.

This could push rates even lower, he added, saying the “natural” rate reduction was better than a government bail out.

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