Fannie woes played down

Bankers, experts foresee little buyer, seller impact

Go ahead with homes, they say

Mortgage association under fire on accounting

October 03, 2004|By Randi F. Marshall | Randi F. Marshall,NEWSDAY

Homebuyers and sellers didn't need another worry, on top of the future of interest rates and the potential for a housing market slowdown.

But the news that Fannie Mae - the nation's largest buyer of home loans - was being accused of accounting misdeeds gave some consumers something else to fret about. Will bankers become leery of making new loans? Will interest rates spike?

Not likely, say mortgage bankers and other experts. Very little from Fannie Mae's troubles will trickle down to buyers or sellers - and anything that does shouldn't affect their housing plans.

"Consumers aren't likely to see any change to service levels or mortgage pricing or anything," said Keith Gumbinger, a vice president at HSH Associates in Pompton Plains, N.J., a publisher of financial information.

Fannie Mae, and its counterpart Freddie Mac, buy billions of dollars in home loans each year and then repackage them as securities, which are sold to investors. That system produces more than half the money that flows through the residential mortgage market, by some estimates.

Those funds are used to buy trillions of dollars in home mortgages from lenders, which it says provides more liquidity and lower mortgage rates to homebuyers.

Fannie executives agreed last week to increase their reserve cushion against risk by nearly $5 billion and to take other sweeping actions to correct what were noted as serious accounting problems. Some experts said that could translate to Fannie buying fewer mortgages or charging more for the ones they purchase, potentially making it harder for some buyers to obtain financing.

Still, mortgage bankers and brokers said they didn't expect their business to be significantly hurt by the events swirling around Fannie Mae, also known as the Federal National Mortgage Association.

To keep things in perspective, Robert Katz, executive vice president of Mortgage Enterprise Ltd. in Roslyn, N.Y., compared the current environment with the one in 1984.

Back then, he was advertising an interest rate above 16 percent as a good deal. Now, he said, rates might tick up a half-point to above 6 percent in response to Fannie's troubles.

And a small rate increase shouldn't have an impact on the overall housing market, according to most housing experts.

Several industry leaders note that the problems at Fannie likely will have less of an impact now than they would have five or 10 years ago, when fewer players were in the marketplace.

Now, private investors and others do some mortgage business and could do more if the federally chartered Fannie Mae and Freddie Mac aren't able to do their part.

That could fail, however, in a bad housing market.

"If we were to come into a market where private lenders got scared and left the marketplace, and Fannie and Freddie weren't there, then I think we would be in very big trouble," said Jonathan Pinard, a New York mortgage banker.

But in the long run, Fannie Mae's regulator, the Office of Federal Housing Enterprise Oversight, said its actions will "ensure the continued health of the housing finance system."

For now, Fannie needs to raise capital, which it could do by reducing its purchasing of loans. But in all likelihood, Gumbinger said, Fannie won't choose to "disturb that flow of business."

Instead, it will pinch profits or reduce other costs.

The Associated Press and Bloomberg News contributed to this article. Newsday is a Tribune Publishing Newspaper.

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