Fannie Mae, Freddie Mac Takeover
Yesterday, the government announced that they were taking over Fannie Mae and Freddie Mac. There are lots of people in the mortgage industry that have covered this news much better than I could do alone, so I’m going to let you peruse some of these on your own. I may add to this list as the day goes on. We’ll get to the promised market stats tomorrow.
There’s lots of rather technical jargon in these links, so let’s do the quick and dirty overview so we can understand some terms and the players involved:
Let’s start here: the company that gives you a home loan just gave you their money. Now they need more money to make more loans. So they take your loan - your paper - and sell it to someone else, so the loan origination company gets their money back and can make more loans. When the loan origination company sells their loans, they are selling it in the secondary mortgage market, which is where Fannie Mae and Freddie Mac work. Fannie Mae was invented back in 1938 as part of the New Deal, to help money flow more easily, and then later was spun-off as a private corporation, and became a Government Sponsored Entity, or GSE. Freddie Mac - similar deal.
So Fannie and Freddie take these loans that they bought from the originators, and repackage them into “mortgage backed securities,” which investors can purchase on the open market. So then when people stop paying their mortgages, there’s no money going into Fannie Mae/Freddie Mac, no money to pass on to those investors.
Now, the person that helps you originate your home loan wants to be able to sell that loan to someone like Fannie Mae, so the originator can free up their money again to make more loans, but Fannie Mae has guidelines for the types of loans that they’ll buy - the loans have to conform to certain standards. So changes to Fannie Mae can impact the loan originators, which can impact you. Not to mention that interest rates are heavily influenced by this secondary mortgage market.
You with me? If not, ask.
Here we go.
Let’s start with the Daily Mortgage Report, where Dan Green explains what the takeover could mean to rates in the most clear language of these links.
Lenderama goes a little more in depth, with Robert Ashby’s take on the takeover.
AgentGenius looks at the potential upside, where Jeff Corbett explains the ‘makeover.’
Tom Vanderwell over at the Bloodhound Blog hits the high points and probable outcomes.
And in the sideways video view, Mike Mueller lays on his driveway in the middle of the night and compares the takeover to his Porsche.
Local reaction from Phaedra Wilson of Sunstreet Mortgage:
This should be positive for buyers and sellers. This should improve public perception since there is no more fear that Fannie and Freddie will fail and the government won’t bail them out. My hope and their goal, is to see interest rates decline and see housing prices stabilize sooner.
