3 BR, 1.5 BA Rancher. Nice home located on large, level lot. Hardwood floors in living area and hallway. Fully finished basement.
Location: 8815 Sigrid RD Randallstown, MD 21133-4012
Friday, September 26, 2008
Monday, September 1, 2008
Fannie Mae, Freddie Mac, and You
Fannie Mae, Freddie Mac, and You
Originally Published September 2008
By Al Friedman
Don’t you just love government acronyms? Some of them, like Fannie Mae and Freddie Mac even sound like your nice neighbors. Hey Jill, let’s invite the neighbors, Fannie Mae and Freddie Mac over for dessert tonight. Well we may, in fact, start getting to know them better than we ever thought we would. Fannie Mae was created as the Federal National Mortgage Association and Freddie Mac followed, as a way to provide competition to Fannie Mae. Their sole purpose was to provide mortgage loans. They don’t make them directly to you and I, but buy them from banks and mortgage companies that do.
They eventually morphed into strange hybrids known as government sponsored enterprises or (GSES), another acronym. Though government sponsored, they were held accountable to private shareholders. This odd pairing allowed them to operate with a minimal amount of capital, which worked well as real estate values went up.
The problems that arose with Fannie Mae and Freddie Mac basically came down to them not having enough capital to work with, as the markets tumbled. Current values are down by 18% around the country, since 2006. All of a sudden there was a panic in the Treasury Department at the possible outcomes, if they didn’t step in to help.
The first step was taken in July when Secretary of the Treasury Hank Paulson asked Congress for an allocation of funds to keep the companies from going under. He thought and hoped at the time that this would save the runaway train. Unfortunately, he realized very quickly that the problem was worse than he thought.
Mr. Paulsen’s next move was to bail the companies out, through the Treasury Department, to the tune of $100 billion each. In exchange for the money, the government would take ownership control of both agencies.
Both agencies will now report to the Federal Housing Finance Agency (FHFA), which will be their regulator. The two former CEO’s are out, albeit with nice severance packages. Shares of the companies continue to trade, but did plummet more than 80% the day after the take over announcement.
So, what does this all mean to you and me? First of all, in the short term, we’ve already seen an interest rate decrease of almost 1%. This is due to the market’s feeling better about Fannie and Freddie’s viability. Treasury also agreed to start buying back mortgage backed securities, starting with a $5 billion purchase in October. In theory, this move should help drive rates down even more, making home purchases more affordable. The line of thinking is that the housing market will be stimulated to gain some stability, thus stabilizing the two agencies.
As of now, we all have a stake in the guarantees up to $200 billion dollars to Fannie Mae and Freddie Mac. The housing market will determine the exact figure we may ultimately pay. In the mean time, I think Fannie and Freddie should invite us to come to their place for dessert.
For additional information on this and other housing matters, visit my website at AlChefSellsHomes.com.
By Al Friedman
Don’t you just love government acronyms? Some of them, like Fannie Mae and Freddie Mac even sound like your nice neighbors. Hey Jill, let’s invite the neighbors, Fannie Mae and Freddie Mac over for dessert tonight. Well we may, in fact, start getting to know them better than we ever thought we would. Fannie Mae was created as the Federal National Mortgage Association and Freddie Mac followed, as a way to provide competition to Fannie Mae. Their sole purpose was to provide mortgage loans. They don’t make them directly to you and I, but buy them from banks and mortgage companies that do.
They eventually morphed into strange hybrids known as government sponsored enterprises or (GSES), another acronym. Though government sponsored, they were held accountable to private shareholders. This odd pairing allowed them to operate with a minimal amount of capital, which worked well as real estate values went up.
The problems that arose with Fannie Mae and Freddie Mac basically came down to them not having enough capital to work with, as the markets tumbled. Current values are down by 18% around the country, since 2006. All of a sudden there was a panic in the Treasury Department at the possible outcomes, if they didn’t step in to help.
The first step was taken in July when Secretary of the Treasury Hank Paulson asked Congress for an allocation of funds to keep the companies from going under. He thought and hoped at the time that this would save the runaway train. Unfortunately, he realized very quickly that the problem was worse than he thought.
Mr. Paulsen’s next move was to bail the companies out, through the Treasury Department, to the tune of $100 billion each. In exchange for the money, the government would take ownership control of both agencies.
Both agencies will now report to the Federal Housing Finance Agency (FHFA), which will be their regulator. The two former CEO’s are out, albeit with nice severance packages. Shares of the companies continue to trade, but did plummet more than 80% the day after the take over announcement.
So, what does this all mean to you and me? First of all, in the short term, we’ve already seen an interest rate decrease of almost 1%. This is due to the market’s feeling better about Fannie and Freddie’s viability. Treasury also agreed to start buying back mortgage backed securities, starting with a $5 billion purchase in October. In theory, this move should help drive rates down even more, making home purchases more affordable. The line of thinking is that the housing market will be stimulated to gain some stability, thus stabilizing the two agencies.
As of now, we all have a stake in the guarantees up to $200 billion dollars to Fannie Mae and Freddie Mac. The housing market will determine the exact figure we may ultimately pay. In the mean time, I think Fannie and Freddie should invite us to come to their place for dessert.
For additional information on this and other housing matters, visit my website at AlChefSellsHomes.com.
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