BluefoxToday blog : October 2008

Fannie Mae and Freddie Mac on target

When the government took over a few months ago the two giant mortgage industry players there was a collective sigh of relief in the housing market. Up until that point they had been struggling under severe liquidity problems and were ready to collapse. If that had happened the residential real estate market would've faced even more serious problems besides falling prices and decreasing sales.

They are now managed in a government conservatorship by a newly-created entity Federal Housing Finance Agency. After the takeover both were injected with a $100 billion credit facility behind which the U.S. Treasury stands, so the money is pretty safe. The purpose of the action was to bring stability to the highly volatile mortgage market and it is starting to have a positive effect. A certain degree of uncertainty still prevails but things seem to be on the right track.

Fannie Mae and Freddie Mac are now able to do what they were so successfully doing before, namely purchasing assets and guaranteeing mortgage-backed securities. They have the means for it and are instructed to fully engage in this support task. Actually, strings have been loosened a bit more as they are even urged by FHFA to become creative. Yet, knowing what excessive innovation in mortgage products just did to the market, hopefully they understand where the limits are.

Storm clouds were gathering over these institutions already some time ago but the regulators chose not to intervene at that time. If they had, the current volatility might be of softer variety. But obviously political and regulatory forces were not in alignment to do anything about it until there was no other course. No one was willing to make tough decisions when they were needed.

 

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 5 commentsEsko Kiuru • October 30 2008 11:16PM
Fannie Mae and Freddie Mac on target
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