Freddie, Fannie & You

It’s official.  The rumors and stories that have been swirling since Friday about the government stepping to help prop up Freddie Mac and Fannie Mae have now been confirmed.

In both the New York Times and Wall Street Journal, comprehensive articles described the announcement made by U.S. Treasury Secretary Paulson this morning.  The Treasury Department is essentially seizing control of these mortgage giants and outlined a four part rescue.

So, what does it now mean for you?  Another great article in the New York Times puts this historical move into consumers terminology:

“Mortgage rates may fall a bit initially but probably not enough to halt the decline in home prices right away. Some delinquent borrowers may have a better shot at modifying their loans and ending up with lower fixed payments. And the rules on new mortgages could change slightly. ”

With mortgages, rates have not come down despite steep Federal Reserve rate cuts and have been north of 6% for a 30 year fixed for most of the year.  So if mortgage rates drop, the prediction is that home prices may find a stabilizer, but rates is not the only contributing factor to the algorithm of home values and prices.  Lower rates may draw those who have been sitting still to get their toes in the market, but there is still lots of excess inventory.  Lower rates here can only help but this is not the magic cure all for the price spiral.

If you are near foreclosure or having a tough time with your payment, there is a higher chance of loan modification.  When IndyMac, a midwest bank, went belly up, the FDIC offered troubled homeowners lowered rates.  And maybe that will be similar here.

This whole credit crisis has made the government and financial institutions re-examine what went wrong, from both the consumer and lender perspective.  Surely, there will probably new guidelines for new loans, but with the election around the corner, tough telling what they will be, but there certainly will be more regulation.

Lastly, as we are all taxpayers, guess who will be footing the bill for this one?  Whether you are a homeowner, homeseller or homebuyer, or not, this has impact on everyone.

Cartoon credit:  Daryl Cagle’s Professional Cartoonists Index