Fannie and Freddie: What is happening?

So I head out of town for a few days to Chicago- more on that another day.  And when I get back the two major mortgage backers are being taken over by the US govt.  What does it all mean?  Here is a press release I received from Sibcy Cline Mortgage. 

“As you no doubt know, the federal government yesterday took significant action with regard to Fannie Mae and Freddie Mac. The basic facts are below.  Yesterday, we participated in a conference call with the Department of Treasury and the new Fannie/Freddie regulator. At the outset, Treasury advised that they decided to place the GSEs into conservatorship because the GSEs would not be able to meet their mission on a going forward basis and had begun to sell assets. Treasury further advised that, as a result of the actions taken today, the GSEs will not be under any pressure to sell assets, and that Treasury’s actions today will begin to reverse the mortgage cycle and build confidence in the GSEs and the mortgage market.

NAR has closely followed the market turmoil affecting the stock and debt obligations of Fannie Mae and Freddie Mac (the GSEs). The role of the GSEs is crucial to the U.S. economy and to making fair and affordable mortgage loans available for home owners and home buyers. This mission providing stability and liquidity in the secondary mortgage market must not be interrupted.

Like Secretary Paulson, NAR had hoped that the existence of the Treasury Department emergency authority under the Housing and Economic Recovery Act of 2008 (HERA) to make loans to, and buy stock of, the GSEs, makes its use unnecessary. The steps taken by the Federal Housing Finance Agency and the Treasury Department make clear that the goverement will not allow the deteriorating conditions of the GSEs to interrupt the flow of capital to the crucial housing sector or to hurt the national and international financial system.
The GSEs guarantee more than 40 percent of the nation’s mortgages and own or guarantee more than $5 trillion worth of mortgages, so assuring their continued operation is crucial in the current economic environment. Since the credit crunch began in August 2007, the private sector mortgage securitization market has virtually disappeared and the market share of the GSEs has grown.
NAR will follow events closely and develop recommendations on the future of the missin of the GSEs to assure that there will continue to be a robust secondary mortgage market in good times and in bad. Continued liquidity in the mortgage market is essential to the health of the economy. NAR will continue to engage members of Congress and the new administration in an effort to shape the future of the GSEs and the secondary market.
The role of Federal Housing Administration (FHA) insured mortgages has never been more important, and its market share is significantly increasing. We will continue working with HUD on further improvements to the FHA mortgage insurance program.

Our view is that:

–in the short term the move will provide stability to the mortgage market by easing capital concerns at Fannie and Freddie
–Many believe, including NAR Chief Economist Lawrence Yun, that the Treasury move could reduce mortgage interest rates in the short run.
–We believe that the new management at Fannie and Freddie will keep its business partnerships intact
–Through 2010, the Dept of Treasury plans to grow Fannie and Freddie’s portfolios; i.e. the intent appears to be to expand Fannie and Freddie business, at least during the housing downturn
–We think that Fannie and Freddie may actually loosen up credit standards to help stimulate the mortgage market
–Concerns about stable domestic and foreign debt investment in the GSEs was likely the primary driver for the fed move.

Longer term: It seems that the Treasury plan basically reverts Fannie and Freddie to a facility for federally backed mortgage debt. The Treasury theory appears to be to employ the GSEs as a counter cyclical model — when times are tough they will ratchet up the companies; when the environment is more “normal” they will ratchet back and let the private market carry the ball.”

 Already we have seen interest rates fall, down to around 5.875% for a 30 yr fixed, maybe even a little lower.  Been sitting on the fence, not sure if now is the time to buy?  IT IS!!  Get out there and start looking.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s