Fannie, Freddie, and Mortgages in the Real World

For most folks (and I include myself in this) the agonies of Fannie Mae and Freddie Mac, now being salved in Washington, are a tad abstract. But the story comes home when people say that the Fan-Fred woes will limit homebuyers’ ability to get mortgages. Already, some say, the crisis has increased mortgage rates.

But is that really true? A story in the New York Times includes a chart from HSH Associates, which tracks mortgage rates around the country. The chart has several prominent features, but in total the data can be read to minimize the importance of Fannie and Freddie.

First, while rates have been rising in recent weeks, they are still lower than they were when they spiked in mid-2006 and again in mid-2007. Rates move for many reasons, and there’s no reason to assume that panic about the secondary buyers of mortgages is currently the most important one. Second, there is a widening spread between conforming mortgage rates and jumbo rates. Fannie and Freddie have nothing to do with jumbo mortgages, so one would assume — all other things being equal — that the conforming rates should be rising faster. Also, HSH itself reports that last week, when the Fan-Fred panic was going great guns, rates were stable.

The larger point is that while these “mortgage giants” play a role in housing and mortgages, it’s a limited one, and they are not the prime movers.