CHICAGO (Reuters) - There was no panic on Main Street but bankers and home buyers eyed ominous storm clouds on Friday as the mortgage companies that own or guarantee almost half of all U.S. home loans fought a funding crisis.
With the American dream of home ownership already in peril from the housing market’s worst downturn turn since the Great Depression, the fresh turmoil at government-backed Fannie Mae and Freddie Mac injected new fears that borrowing for a home may become farther out of reach for many.
“My gut feeling is that it’s going to make it more difficult” to get a loan down the line, said Jeff Wherry of Westlake, Ohio, executive director of the Ohio Mortgage Bankers Association.
“It will balance off somewhere but unfortunately more bad news makes everyone a little more gun-shy,” he added, saying it may take another two months, four months or even a year for the fallout to land.
Shares of the two government-backed mortgage finance companies fell amid worries that they may run short of capital, faced with billions of dollars in losses from a spree of high-risk borrowing that fueled the housing market for years.
Mark Gorman, chief executive of Gorman & Gorman Home Loans in St. Louis, a mortgage banker, also sees tighter days ahead.
“There’s been product elimination and the end consumer is paying more for, if it’s a higher-risk loan they’re paying more. That’s going to continue,” he said.
And if the two mortgage giants “continue to struggle and it doesn’t get corrected, then it’s going to affect the end consumer by having less product, less liquidity into the market, which is going to create more of a housing problem,” he said.
There is great concern about what could happen to the liquidity or the mortgage market, said Matthew Locke, president of the mortgage division for Pulaski Bank in St. Louis.
“I believe there’s not any lender in the country that wouldn’t be affected by Freddie or Fannie, even a hiccup or a delay in funding or any type of a miss, would greatly affect everybody in this country that’s selling loans or attempting
to do mortgages,” he added.
“We’re certainly concerned about it and watching it very closely,” he added. “You look at all the other things happening with our economy and inflation, things like that, it certainly has the potential to be a very devastating effect on people and the economy.”
While some worried about the future, several bankers said they saw no immediate impact.
“Right now it’s business as usual ... I think everybody feels strongly that the federal government will step in if they get to a serious problem. There’s no panic that I can tell, just cautiously full steam ahead,” said Ronald Steinhofer of M & I Bank FSB in Madison, Wisconsin. Steinhofer is past president of the Wisconsin Mortgage Bankers Association.
In Minnesota, Joseph Metzler, senior mortgage banker at Metzler Mortgage Group at Mortgages Unlimited in St. Paul, said the company has yet to see a montage seeker asking about the Fannie Mae-Freddie Mac problems.
But he added: “If Fannie Mae and Freddie Mac end up having dramatic issues, this country is going to have huge problems. It’s very easy and clear to see that from the industry point of view. Maybe the customers can’t see that yet.”
Arthur Hilliard, president of the Illinois Mortgage Bankers Association and a vice president at the Federal Home Loan Bank of Chicago, said, “If Fannie Mae and Freddie Mac start making changes affecting the suitability of loans, especially if they make it more restrictive, that’s when we’re going to feel it.”
Real estate agents and many bankers contacted were bullish on the home sales market, calling it a good time to jump in.
“Buyers are definitely getting mortgages. Every single buyer I’ve worked with this year has been able to get a mortgage.” said Lisa Peck, an agent with @properties in Chicago.
Melinda Boehm, president of Mortgage Bankers Association of Maine, said: “You are seeing that first-time home buyers are able to afford new houses now because they are priced better. So am I seeing the mortgage business stop? Absolutely not.”
Additional reporting by Karen Pierog, Roz Krasny, Ben Klayman and Erin Zureick in Chicago and Jonathan Spicer in New York; Editing by Eric Walsh