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According to First Financial Services, Inc. (a Charlotte-based mortgage brokerage firm),government loans (which include FHA, VA, USDA-RD, FNMA and FHLMC loans)account for over 80 percent of mortgages currently being originated in the marketplace.FFSI reports the following current loan terms for FNMA mortgages (which make up the majority of government loans. Favorable loan terms for government mortgages tend to inflate market values. This is because borrowers, with a specified monthly income, can borrow more using favorable government financing than with conventional financing.Consider the following example. Assume that Buyer A earns $5,000 per month and is pre-qualified for up to a $1,600 monthly payment (PITI / Monthly Income = 32 percent). Buyer A begins looking for a home but does not desire to pay more than $1,500 per month for his/her new home. The buyer finds a home in which he/she is interested and makes a $271,000 offer. As the accompanying table illustrates, this is the maximum offer that Buyer A can make with conventional market rate financing (assuming propertyt axes of 1.00 percent of value and insurance of $50 per month). Buyer B, who earns $5,000 per month, is also willing to pay up to $1,500 per month for the same property. Buyer B learns about the favorable FNMA interest rates and offers$297,500 for the home. As the accompanying table illustrates, Buyer B is able to purchase the property for 9 percent more than buyer A because of the favorable financing terms under the FNMA program.
This competitive situation is played out thousands of times each day throughout the United States, propping up home values and resulting in government loans representingt he overwhelming majority of mortgages being originated in the marketplace.
Government's reach into mortgage markets is not limited to just FNMA mortgages,however. Indeed, the US Treasury recently purchased $1.2 trillion of mortgage-backed securities, injecting public-sector funds into the private sector. Here's a couple links to articles regarding this:
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