BluefoxToday blog : Fannie Mae and Freddie Mac thoughts

Fannie Mae and Freddie Mac thoughts

For a while it looked like the two main players in the secondary mortgage market just might be able to somehow successfully navigate the rough seas they were caught in the middle of. But it wasn't to be. When large investors, among them many foreign central banks, began unloading bonds issued by Fannie and Freddie because they were fast losing value, the writing was on the wall. That trend seemingly convinced Washington that it was time to act decisively and a rather swift takeover was engineered over the past weekend.

Thus far the effect of the major move has been positive. The financial markets world over are now breathing a sigh of relief knowing that the U.S. government was willing, actually forced to do so to prevent a worse calamity, to jump in to bail out these two key home loan market participants.

For these two organizations, the Treasury is now taking the role of a go-to source of funds if need be. It also assumed an intriguing, and a wider, position to bolster the weak mortgage industry. The Treasury is committed to buying new mortgage-backed securities issued by Fannie Mae and Freddie Mac. The extent of that is as of now unknown, but is clearly designed to provide additional liquidity to the marketplace that has recently seen waning interest from once steady investors. This step is perhaps one of the more critical ones of the entire takeover. Healthy demand for these mortgage securities tends to push interest rates down and that in turn will spur would-be home buyers, and refinance candidates, into action and the next thing down the pipe is the residential real estate markets begins to stir in the right direction.

Of course, this bold government action isn't going to fix the much-suffering housing industry overnight. Home values in many areas are still under persistent pressure and foreclosure rates appear to be climbing, so severe imbalances are still out there causing mortgage lenders and investors heartburn and other troublesome ailments. And how much is it going to cost the tax payer? We'll know years from now. Yet, it's a positive measure that'll give the marketplace something firmer to lean on.

 

 

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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 12 commentsEsko Kiuru • September 09 2008 09:46PM

Comments

Hi Esko - What is your take on Lehman - will it fall? Doesn't look promising.

Posted by June Stark, Las Vegas Condos & Luxury Homes Expert (Elite Realty-Luxury Homes & Condos On & Off the Strip) almost 10 years ago

Esko,

The estimates for the cost to tax payers have really had a wide range. I have heard $25 billion to $200 billion, and even more. We really do not know how many more foreclosures are coming and how far property values will drop.

But I think everyone is ready for a turn. Will employment and the rest of the economy cooperate?

Richard

Posted by Richard Byron Smith, NMLS #184479, Mortgage Loan Officer (Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289) almost 10 years ago

I don't think the government had much of a choice.  This brings back memories of the Savings and Loan crash of a few years ago?

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 10 years ago

Esko,

A few things I would like to know....how will this effect buyers ...will there be more out there that will qualify now and how this will effect the short sale process.

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (eXp Realty) almost 10 years ago

Esko, the big question on this seems to really be what the long term effects of all this will be.  Unfortunately I don't think we will really be seeing that until this election is over and a new adminstration comes in.  Hopefully they will act quickly to set the directs government will continue to take with Fannie & Freddie.  One thing though that I would like to see disapear soon are the hits for points on Credit Scores over 620 and under 740 that Fannie instituded earlier this year when they were trying to raise their capitol.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 10 years ago

Esko, interest rates coming down as result of this action, at least short term, appear to me to be a positive.

Posted by Gary Woltal, Assoc. Broker Realtor SFR Dallas Ft. Worth (Keller Williams Realty) almost 10 years ago

June,

Lehman's prospects of staying afloat are razor-thin, unless someone buys them out which is what probably will happen.

Posted by Esko Kiuru almost 10 years ago

Richard,

Years from now we'll find out the real cost, but it doesn't look like pocket change.

Posted by Esko Kiuru almost 10 years ago

Randy,

They could not be allowed to fail, that's a fact. If so, it could have become the mother of all challenges.

Posted by Esko Kiuru almost 10 years ago

Neal,

It'll provide more liquidity to the market which will predictably keep interest rates in check, even lower, helping buyers. Short sales, I don't see much change.

Posted by Esko Kiuru almost 10 years ago

George,

The current administration seems to be leaving the mess for the next one.

Posted by Esko Kiuru almost 10 years ago

Gary,

The big investors don't have to worry about Fannie Mae's and Freddie Mac's solvency any more and that helped lower rates.

Posted by Esko Kiuru almost 10 years ago

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