Mortgage Lenders Fear Loss of Safety Net, Rising Cost
By RICHARD NEWMAN, STAFF WRITER
Local lenders said Friday they continue to sell loans to beleaguered Fannie Mae and Freddie Mac but are worried about what the future may hold for the mortgage giants that keep funds flowing to the nation’s lenders and homeowners.
“We don’t know what’s going to happen,” said mortgage banker Michael Laheney of All American Mortgage Inc. in Paramus. “This is uncharted territory.”
Laheney originates loans in exchange for commissions from wholesale lenders who provide the funding and sell the loans to Fannie and Freddie.
The mortgage giants own or guarantee about $5.2 trillion in home loans, which is almost half of the outstanding mortgages in the country. They are running short on capital because an increasing number of loans are going bad.
Shares in Fannie and Freddie fell 22 percent and 3.1 percent, respectively, Friday, as federal officials contemplated ways to keep the government-chartered enterprises afloat.
Their shares had fallen much lower during the day, but rallied after Treasury Secretary Henry Paulson and President Bush scrambled to reassure the market about the companies’ health, and after Sen. Christopher Dodd raised the prospect the companies could be given access to emergency Federal Reserve lending.
Many bank stocks were dragged down with Fannie Mae and Freddie Mac.
Wachovia, which has about 80 branches in Bergen, Hudson, Morris and Passaic counties, fell about 10 percent.
Shares in New York City-based JP Morgan Chase & Co. which has nearly 100 branches in the four-county area and a mortgage division based in Iselin declined almost 6 percent to $32.58.
“Fannie and Freddie are important for creating liquidity in the marketplace,” said Tom Kelly, Chase spokesman. “They are still buying loans, and if they continue to buy loans over the long term, it shouldn’t affect the [home loan] market,” he said.
The sell-off suggests the mortgage business has “deep underlying problems that need to be unwound,” said Marty Cunningham, chief executive officer of Hudson Securities in Jersey City.
It is unclear what the future holds for Fannie and Freddie.
If the government-backed mortgage funders privately take on more debt to stay afloat, such as by issuing bonds, the interest cost would likely be high and that expense would surely be passed on to consumers, said Keith Gumbinger, vice president of HSH Associates, a mortgage data tracker in Pompton Lakes. “The price of mortgage money will increase,” he said.
Mortgage loans are already harder to get and more expensive than they were a year ago.
Fannie and Freddie tightened lending criteria in the past year. “Every month or so they get a little bit tighter,” Laheney said. Generally, customers must put more money down than in the past, and their credit history must be cleaner than before, said Laheney. His business is down 40 percent from last year.
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This article contains material from The Associated Press. E- mail: newman@northjersey.com
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