DEAR MR. MYERS: We saw a report on TV that said that Fannie Mae and Freddie Mac have agreed to loan more money to borrowers at low interest rates. We have never heard of these two banks. Where can we find them?
ANSWER: First, let’s clear up a popular misconception: Fannie Mae and Freddie Mac are two quasi-government agencies, and they don’t make loans directly to borrowers. Instead, they buy the mortgages that independent banks make to consumers, pool those loans with others that they buy, and then sell shares in those pools to private investors.
By selling their loans to Fannie or Freddie, banks get a lump sum of cash, which they can use to issue even more loans to future borrowers. About half of all outstanding mortgages in the U.S. today are owned by one of those two companies, even though borrowers of those loans are required to send their monthly payments to the lender that originally issued the mortgage.
The mortgages that the pair purchase are called “conforming” loans because each borrower must meet pre-set lending standards. Consumers who meet those requirements are rewarded with an interest rate that’s typically 0.25-0.5 percent below those charged for larger, non-conforming loans.
The key change that Fannie and Freddie recently announced involves the size of the loans that they will purchase. In 2017, they wouldn’t buy a single family home loan of more than $424,100 from banks. But the ceiling rises to $453,100 on Jan. 1, allowing more than 1 million borrowers or home refinancers to qualify for the best interest rate or for larger loans to buy a nicer house.
In even costlier housing markets – such as Los Angeles, San Francisco and New York City – the limit will be raised to $679,650 from $636,150.
The new limits aren’t a big deal for folks who live in areas where home prices are below the national median of $248,000. But they could trim hundreds of dollars from the monthly payments for buyers and refinancers in pricier areas, such as the West and Northeast, where even a modest home can cost more than $700,000.
The bad news for buyers and home refinancers alike in 2018 is that mortgage rates are likely to climb. As I recently wrote, some economists forecast that today’s 4 percent interest rate on a 30-year loan will jump to 5 percent 12 months from now, adding $119 to the monthly cost of a $200,000 mortgage.
REAL ESTATE TRIVIA: “A banker is a fellow who lends you his umbrella when the sun is shining,” author Mark Twain wrote, “but wants it back the minute it begins to rain.”
DEAR MR. MYERS: The TV weatherperson in our area is always talking about how much “acre feet” of rain is created after each storm, but never explains what that term means. Can you?
ANSWER: Sure. An “acre foot” is the amount of water, sand or even coal that’s needed to cover 1 acre of land to the depth of 1 foot.
Your weatherperson is talking about rain, so that equates to about 325,850 gallons. That’s roughly enough to cover an entire football field with water that’s one-foot high – and barely enough to support the water usage of just three American families each year, according to the federal Environmental Protection Agency.
DEAR MR. MYERS: I recently read that baseball star Cole Hamels has donated his estate in Missouri to a group called “Camp Barnabas.” What do you know about this organization?
ANSWER: The nonprofit, Missouri-based Camp Barnabas operates two large, Christian-oriented camps in the picturesque Ozark Mountains for children with special needs and chronic illnesses. It also hosts the kids’ siblings.
The All-Star pitcher for the Texas Rangers and his wife, Heidi, started building their lakefront, 32,000-square-foot mansion near Branson, Missouri, in 2012. They briefly put it up for sale in August 2017 until deciding to donate it, they said, after visiting Camp Barnabas and seeing the work being done there “really pulled on our heartstrings.”
The Coles also donated the 100 acres that the mansion sits upon.
It’s refreshing to see that at least some star athletes are selflessly giving back to communities across the nation: On Dec. 13, a massive park that’s been renovated to make it more accessible for disabled and non-handicapped children and adults alike opened in New Orleans, thanks in part to what city officials called “a very generous donation” from a fundraising group lead by New Orleans quarterback Drew Brees and his wife, Tiffany.
And let’s not forget Houston Texans defensive end J.J. Watt, whose fundraising efforts netted almost $40 million in barely a month to help rebuild some of the area’s homes, restore child-care centers, and provide food and medical help in the areas affected by Hurricane Harvey in late August.
Watt started the program just days after the storm hit, with a goal of raising a relatively modest $200,000.
David W. Myers’ column is distributed by Cowles Syndicate Inc.