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what is really going on...

This was wriiten by our in house mortgage company- Preferred Empire....Let me know if you want to speak to a mortgage broker at the empire:
Yesterday, after months of speculation, the Federal government finally stepped in to aid struggling mortgage giants Fannie Mae and Freddie Mac.  As you may know, the role of these two companies is to purchase home loans from lenders and then re-package those loans as mortgage backed securities.  They either hold these securities on their own books or sell them off to investors around the world, thereby making more money available for home mortgages and expanding home ownership.
 
Over the past year, as we have seen an increase in mortgage loan defaults, investors became less willing to buy the securities that Fannie and Freddie had to offer.  Now the government is taking action to shore up theses agencies and create some stabilization of the market.
 
The Government’s Plan
While the mortgage industry has had its ups and downs, until recently Fannie, Freddie, and the overall mortgage industry had been able to sustain itself as part of a normalized market. Since Fannie and Freddie hold nearly 50% of the nation’s mortgage backed securities, it is obviously vital to the housing market and the entire economy that their securities are brought back to triple-A status.  To do so, the government will take the following steps:

  • Fannie and Freddie will be allowed to absorb an additional $200 billion in new mortgage loans.    
  • The Treasury Department plans to purchase $5 billion in mortgage backed-securities issued by both companies.  This will be first in a series of purchases planned by the government to boost these securities.

This will make foreign governments as well as local bond buyers more willing to purchase debt issued by Fannie and Freddie at a lower rate, since the government is now standing behind that debt.
 
What This Means for Buyers
Economists and analysts agree that mortgage rates are likely to fall in reaction to this announcement, possibly by as much as one-half to three-quarters of a point or more.  Falling mortgage rates typically attract more buyers to the market. This, in turn, helps strengthen property values.
 
It seems that the ultimate goal is not for the government to permanently take over and control Fannie and Freddie for an indefinite period of time.  Instead, it is likely that the goal is to help the market rebound and create a new stable environment so that Fannie and Freddie can one day become privatized again.  
 
This is another step in the right direction toward revitalizing the housing market, but there is still a long way to go.  Your Preferred Empire Mortgage Team will continue to keep you apprised of the most recent industry updates, and is available to counsel your clients so they can determine their best course of action in this dynamic market.

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Paul Zweben, Licensed Associate RE Broker
pzweben@elliman.com
Carolyn Zweben, Licensed Associate RE Broker
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