Fannie And Freddie Bailout…My First Take
Posted by Kevin Kueneke | Visited 121 times, 1 so far today |
By now, most everyone has heard of the announcement made last Sunday that the government is officially bailing out Fannie Mae (FNMA) and Freddie Mac (FHLMC), the two mortgage giants that own or guarantee about $5 trillion in home loans. Both CEO’s are being replaced and the new heads will report to the newly formed Federal Housing Finance Agency which was created under our friend the Housing and Economic Recovery Act.
Although the bailout is in itself a complicated issue, it is better than the alternative which is a complete failure of the two companies. A complete failure could have led to a catastrophic freeze in the mortgage market, essentially a lack of money to fund new loans. Overall, the bailout is positive news which is what the housing industry needs right now.
There will be an injection of up to $100 billion in each of the two companies which could help lower mortgage rates and add stability to the economy. These lower rates and added stability could entice banks to become more willing to write new purchase-money loans as well as refinance existing loans.
We have already seen a dramatic decrease in rates since the announcement. From Friday 9/5/2008 to Monday 9/8/2008, Conforming 30 year fixed rates dropped about a half percent! In my fifteen years of lending, I cannot remember a time when rates decreased that much in such a short period, even during the last big refinance boom that ended in 2003. I have had many potential buyers coming out of the woodwork asking how much more they can afford at these lower rates. Their buying power has been significantly increased basically overnight and right now is a fantastic time to buy a home. The key will be if these rates can hold at these low levels.
It is still hard to tell how all of this will be absorbed in the long run. One concern is that taxpayers will shoulder the financial burden of the bailout, especially if market conditions worsen. Lower mortgage rates alone will not fix the housing crisis as there are still too many houses on the market. There have been several cries to loosen the recently tightened lending guidelines, but it is doubtful that we will see the return of the Wild West of loan guidelines from a year or so ago as those guidelines helped get us into this mess in the first place. There is obviously no quick fix to the housing situation, but combined with other recently passed legislation, this may be a start.
If you would like to discuss this further, please feel free to call me at (760)500-1919 or email me.
Glad to see that the glass is half full!
While this may appear to the casual observer as “bad news”, there are reasons to celebrate. Uncle Sam isn’t going to let anything happen to Freddie & Fannie, and had, at this late date, little choice, but to come to the rescue.
You’re exactly right, this “jump start” won’t do it alone.
Let’s hope the major players see this as the beginning of a process that gets the housing market headed in a northerly direction.
If managed properly, with the right market/home buying incentives (while limiting risk), this can serve as the proverbial “tipping point.”
[...] more information? Read Kevin’s “First Take” on the Fed’s Announcement to Bailout Fannie Mae and Freddie [...]