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Congratulations On Your Purchase Of Fannie and Freddie Stock!

Main Boise Home Loans

When the U.S. Treasury placed Fannie Mae and Freddie Mac in conservatorship on Sunday, September 7, taxpayers essentially became shareholders in the compaines. So...what does this mean going forward?

The historic seizure of Fannie Mae and Freddie Mac by the Treasury last weekend will have long-lasting ramifications on the economy and the housing market. How this ends up shaking out, as in good or bad or indifferent for us as taxpayers, remains to be seen. Putting my opinions aside on this is not easy, as I have very mixed feelings on this move. Instead, I am using my blog to give some answers as to how I think it will affect homeowners.

MORTGAGE RATES WILL MOVE LOWER

We have already seen this happening, as the rates on most comforming mortgages dropped by about 70 basis points from last week to this week! This has happened because now that the government is backing Fannie and Freddie, investor sentiment has improved dramatically. Since Fannie or Freddie mortgage bonds are now esentially government-issued debt, the returns that investors are demanding for those have come down...there isn't as much risk now.

THIS WILL NOT END THE HOUSING SLUMP

There is no golden arrow in this plan that will end the housing slump. There is still a huge amount of unsold inventory and more foreclosures are coming. However, lower mortgage rates will always bring more buyers into the mix...everyone has a price point, and basic economics say that lower interest rates bring more buyers to the table.

Again, I'm not going to enter the debate on is this a good or bad thing. Too much remains to be seen on the exact details of the Treasury's role going forward in Fannie and Freddie. However, I do know that lower mortgage rates will bring more buyers off the fence. That combined with the tax credit for First-Time Homebuyers in the new Housing Bill make this a great time for people to buy.

 
Posted by Eric Leigh at 9/12/2008 4:51:00 PM

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