Fannie / Freddie Taken Over, Rates Dip Further

Over the weekend, mortgage giants Fannie Mae and Freddie Mac were taken over by the federal government.  They are now under the control of the Federal Housing Finance Administration and receiving funding from the Treasury. 

These two previously private (non-government) companies play a central role in the mortgage and housing markets by purchasing residential mortgages.  This purchasing allows banks to make make loans and buyers to buy. 

However, significant losses due to higher delinquency rates and falling home values pushed Fannie Mae and Freddie Mac near the brink of insolvency.  If they were to fail, the already battered housing market would almost certainly crash and drag the economy down with it.  The government could not let this happen, hence the takeover and funding.   

The immediate impact for consumers is lower mortgage rates.  Today’s 30 year fixed pricing is down near 6.0% with no points. Buyers should take note of this because a month ago rates were nearly .75% higher.  On a $250k loan, this amounts to almost $125 month.

Looking down the line, it is harder to tell what is in store.  Underwriting guidelines could change, but this will not happen over night.  For more info on how the takeover could affect you take a look at this New York Times article by Ron Lieber. 

http://www.nytimes.com/2008/09/08/business/08consumer.html?ref=worldbusiness