Mortgage Takeover of Fannie/Freddie: Good For Borrowers?
Government officials dropped a bombshell last week when they announced the seizure of mortgage giants Fannie Mae and Freddie Mac. Wall Street rallied, interest rates dropped and the politicians and pundits are claiming this will mark the end of the suffering brought on by the mortgage mess.
This is good news, right?
In the short term yes but everyone should stop and consider what the long term implications are of the government running the mortgage industry.
What's Really Going On?
In a nutshell - Uncle Sam just co-signed for all of our loans.
Officials announced the move would involve placing these mortgage operations into a "government conservatorship" in hopes of stabilizing the housing / credit markets. In a conservatorship, like bankruptcy, common stockholders are expected to lose their investments.
Essentially this is the equivalent of a giant "bail out." Investors have been scared to death of a worsening "meltdown" and this move basically puts the governments money (your and my money) behind the mortgage industry to make sure it doesn't fall down.
With the housing and credit markets continuing to slump and with fears of the "meltdown" getting worse this move was the governments best bet to shore up markets.
Impact For Borrowers:
Good News:
1. Lower interest rates in the short haul. Who doesn't like lower rates?
2. Investors get a shot of confidence. Now that Uncle Sam is the co-signer investors feel more confident that the mortgage backed debts will remain solvent.
3. The government owns your loan. How bad can that be?
Bad News:
1. The government owns our loan - uh, oh. Ever tried negotiating with the IRS? While the government has had FHA, VA and other programs it does not have experience managing the type of operations that Fannie and Freddie run.
2. Future uncertainty about management / guidelines. Our inside sources are telling us that the future of guidelines......
3. Long term implications.....
What Should Borrowers Do?
Borrowers should be looking to capitalize on the temporary drop in rates and stabilization of credit markets. In the week since the announcements rates have steadily declines as investors are feeling the relief of the government bailout.
Our suggestions:
1. Make sure your mortgage in process can drop down to the new rates
2. Make sure your loan officer is fully educated about the changes and how it might impact your loan.
3. Check your Good Faith Estimate (GFE) and Truth in Lending (TIL) to make sure your mortgage company is not "up selling" your loan to take advantage of the lower rates to make a higher commission.
What Does the Future Hold?
We believe that the housing market recovery will probably determine when the credit markets regain their health. Why? Because decreasing home values resulted in the inability of homeowners to sell or refinance their house to get out of financial trouble - which is how this mortgage issue all got started.
Here are some recent facts:
Maybe the housing marketing isn't so bad in many areas. The Office of Federal Housing Enterprise Oversight's (OFHEO) House Price Index (HPI) reported in May that 35 states saw a positive home value price change in the first quarter of 2008. In addition, 164 MSAs showed positive first quarter appreciation when compared to the same quarter of 2007.
California, Florida, Nevada, and Arizona are still the largest statistical problem areas for home prices. Industry experts acknowledge that these markets were the most speculative during the 2000 - 2005 mortgage mayhem. And because the values in these areas are very high relative to the rest of the country it has a larger impact on the overall numbers.
Just because four states are still falling, and 11 other states continue to try and stabilize doesn't mean the entire market will continue to take the plunge. According to PMI Mortgage Insurance Company's "Economic & Real Estate Trends" recent report, almost 68% of the nation's 322 remaining MSAs experienced positive appreciation everywhere other than California, Florida, Nevada, and Arizona.
So while no one has a crystal ball it appears things are not quite as bad as the media would have us believe. If the credit markets can begin to stabilize and home prices hold steady we may yet see the end of this "mortgage crisis."
Andre Savoie. A Professional Internet Marketing Firm and Writer. A WSI SEO Expert Providing information with regards to Marketing loans. Trusted Mortgage Advice a perfect site that give Mortgage Advice for your Peace of Mind
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