Fannie May and Freddie Mac Takeover (Socialization)- What does this mean for homeowners?
September 6, 2008 by Admin · 7 Comments
There’s been quite a few stories this evening about the Fannie Mae/Freddie Mac Takeover(Socialization) this evening. The first question on many people’s minds is: What Does This Mean To Me?
I’m not going to muse on the repercussions of holding their stock (ask the wall street analysts, but it doesn’t look good), but I do want to look at what this means for ordinary folk like you and I that may have a mortgage backed by the lending giants.
You see, the purpose here is to PREVENT Fannie and Freddie from going under. They’ve lost over 3 billion dollars in the last 3 months, and the Government has stated they would step in to financially back them in order to prevent failure.
If the Government steps in as expected, first and foremost, the government will be financially insuring the losses here (This may add a billion or 3 to the national debt, but hey, who’s counting?).
If you’ve got a note with them now, this is designed to protect you. It will ensure that they remain solvent enough to operate. But what about people looking to possibly get a note through Fannie or Freddie? Well, this might be the biggest (perhaps only) winner out of the whole deal, and here’s why:
Government control over these entities is going to ensure, without a doubt, their financial solvency. Government regulation will likely allow mortgage rates to remain lower than they would be if the groups financial stability remained threatened.
This could become a great step in helping the housing market recover, but it’s going to come at the expense of ALL taxpayers, and the bill is certain to be in the Billions. If you’re getting ready to purchase a home, keep your eye on what happens to the mortgage rates next week, and be ready to lock in if the rate takes a dip!
~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Southern Maryland Real Estate Blog
Good read, but something out of place with:
“If you’ve got a note with them now, this is designed to protect you”.
How so? The government backing is designed to protect the lender if you don’t pay your mortgage. If the lender is “insolvent” that’s of no consequence to the borrower, you still must pay your mortgage. (OK, “must pay” is rather harsh in this day and age.)
Perhaps the word “designed” is a poor choice. Here’s where it makes a difference to homeowners:
1) Homeowners trying to renegotiate their notes to avoid foreclosure will find more flexibility due to lower rates (we’re down 1/4 point since the announcement, and we’ve got room to drop).
2) Rate drops may make it sensible to re-fi and drop one’s monthly payment (Note that I’m talking about straight refinancing here, not cashing out).
3) Owners looking to sell may find a RE sales market improvement due to increased liquidity in the mortgage market
4) If (BIG IF HERE) the move stabilizes and sales improve, owners may be within sight of the bottom of the market here. This means that we may see less declining market situations and more “stagnant market” situations, i.e.- the price isn’t rising, but it ain’t dropping, either.
You’re right, regardless of whether they collapsed or not, you’re still going to have to make a mortgage payment to someone who’s holding the note. What we’ve got here is the possibility of stabilization, albeit at the cost of the federal taxpayer. In short it means your tax dollars are helping bail out other people’s mistakes.
Possibility of stabilization. Humm.
I still find it amazing that after the fall of Freddie/Fannie, Lehman, AIG, Merrill Lynch, IndyMac, and the implosion hundreds of other lenders, that people look to bailouts as indications of, or the possibility for stabilization.
Not once have I noticed anyone in the REI mention fundamentals, and based any thoughts of stability on historic indicators such as affordability, income, or rent ratio. Hardly anyone has mentioned that prices at 4x income are by in large, unaffordable.
Home prices have been propped up by toxic mortgages and loose lending. That should be painfully obvious by now. Will these bailouts cause the return of those lending practices? Will these bailouts inject the needed income to home buyers to allow them to be able to afford a home?
Bail them out. Bail ‘em all out. But if people can not afford to make the mortgage payment, the market will not be stable.
Renter, You’re very right. Bear in mind that there is a big difference between stable and healthy. The Mortgage market at this moment is now stable for the foreseeable future; i.e., loans will still be made. It’s definately not healthy however, and we should all be worried about the long term impact on America made by these very hefty bailouts. It’s robbing Peter to pay Paul, yes, but nobody seems to have come up with a better solution.
Prices at 4x income un-affordable? perhaps, but they shouldn’t be. You’re thinking of the conventional wisdom (home price should be 3x income), correct? That 3x figure is where people should be limiting the top of their range. That number is 3x mortgage cost, not home cost. Put 25% down, and you’ve got that 3x mortgage. Also, that’s based off of a 7.5% interest rate, and going rates at the moment are 5.75%. Again, super low rates can and will skew that figure.
This from the current bailout proposal:
“Paulson also announced that Fannie Mae and Freddie Mac, the mortgage giants seized by the government earlier this month, would buy more mortgages to support the housing and mortgage market.”
How many of those mortgages are in foreclosure? How many more of those toxic mortgages can we expect to see on the MLS?
Either the government will write down the loss and the “homeowner” will keep the house or, will the government actually foreclose and put the home on the MLS?
If the government writes down the loss, for example, if the home was purchased at $400K and the home is now worth $300K, how will that loss be reported? After all, that $400k price range neighborhood/home is now no longer $400k.
So I ask the real estate professionals:
How will this loss be indicated on the MLS? The tax records?
Unconventional wisdom got us in this mess in the first place. But I agree with the 25% down! That’s what I’m talk’n about!
Now, with a negative savings rate for the past 2 years, inflation, flat incomes and a not so great economy……I have to wonder, just how many folks have $80k lying around?
yes that is right,If the lender is “insolvent” that has no effect to the borrower, one still has to pay his or her mortgage.on way out.