The Next Shoe to Drop in Housing

CNNMoney (03/13/08); Luhby, Tami
The conventional mortgage market remained active well after the subprime and jumbo markets ground to a halt, kept alive by investors' continued interest in securities backed by Fannie Mae and Freddie Mac debt. However, investors were scared away by a combined fourth-quarter loss of $6 billion recorded by the government-sponsored enterprises as a result of rising defaults; demand for their securities has since diminished. A jump in yields on mortgage-backed bonds pushed up mortgage rates and, coupled with new fees and higher credit-score and down-payment requirements by Fannie Mae and Freddie Mac, the mortgage research firm Wholesale Access says 30 percent to 40 percent of conventional borrowers no longer qualify for financing. While the prime mortgage market likely will not shut down, experts worry that restricted access to credit will put a damper on housing market recovery. According to Wholesale Access managing director Tom LaMalfa, "The absence of an increase in demand will put further pressure on prices."