Fannie Feddie Take Over information for Western New Yorkers!

It appears that Treasury Secretary Paulson and the Bush administration determined that the GSEs  were unable to perform their housing missions at a time when they were most needed.  The GSEs were trying unsuccessfully to raise capital.  By the government’s take over, the GSEs will not be under any further pressure to sell assets.

Read Also:  What the Fannie Mae and Freddie Mac take over means to Western New Yorkers»

Recently rates were rising due to the risk of the GSEs potential failure.  Now that this has been addressed, mortgage liquidity should improve and rates decline in the short term.  The extent of the decline is not yet clear.  We will have to wait and see what happens to Treasury yields in the next few days and weeks.

One of the industry consultants that we work with, Brian Chappelle,  stated, “without capital constraints in the near term and based on (Treasury)  Secretary Paulson’s comments, we believe the new Fannie and Freddie will likely rollback at least some of their price increases and loosen underwriting requirements to some extent”

Read Also:  What do you think of the Housing Resuce Bill?

Industry analysts predict a lot of debate over the next year and possibly beyond about the future size and structure of the GSEs.  That debate is unlikely to take place until after  the November elections.  They also predict that the steps taken yesterday should speed up the overall recovery of the housing industry.  This should be great news to our Florida and Arizona markets.

It seems clear that Secretary Paulson concluded that the GSEs could not serve two masters.  They were publicly traded, and therefore, had a responsibility to shareholders but they also had a mission to serve home ownership.  Secretary Paulson identified two immediate goals:  (1) increase the availability of mortgage finance and (2) lower mortgage interest rates through the government guarantee of the GSE debt.  Secretary Paulson also stated “our economy and our markets will not recover until the bulk of this housing correction is behind us.”  

One factor we don’t know is how the Mortgage Insurance industry will react to these changes.  It does appear that the growth of FHA which was on it’s way to 50% (national) market share this year will be slowed.  

David Wessel, economic editor of the Wall Street Journal  stated “the losers are the shareholders, the CEOs (that got fired) and taxpayers who have taken on a huge obligation.  The big winners are people who hold debt in the GSEs, and if the plan works, the overall economy and homeowners too.”