The Treasury took over Fannie Mae and Freddie Mac

WASHINGTON - DECEMBER 9:  Former Fannie Mae CE...
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The Treasury took over the mortgage giants, now what?

So the Federal government did sweep in yesterday, fired the two top people at Fannie Mae and Freddie Mac and took over control of the two. This will probably come as mixed blessings in the industry.

1) This will shore-up the two insuring they will not implode, which is very good for the industry as a whole since it will guarantee the flow of money to banks and lenders to fund new loans.

2) The take-over has renewed Wall Street‘s interest in mortgage bonds and because of this we’ve seen rates drop significantly today and the word on the street is they’ll drop further. Low 5’s could again be the norm.

3) Shares of home improvement companies Lowes and Home Depot are up over 5% with the infusion of confidence in the real estate market.

The bad news:

1) For the short term it doesn’t look like there will be much change in underwriting guidelines, but everyone expects them to get even more conservative than they’ve become in the past few months. This means that it may become even more difficult for some to qualify for a loan. At a minimum it will mean that more documentation and conditions to be met before closing will be required.

2) Shares of Fannie Mae (FNMA) and Freddie Mac (FHLMC) are down. Way, way, way down. As of this writing Fannie Mae is down from last night’s closing of $7.04 to just $0.73 and Freddie Mac is down from $5.10 last night to $0.88. Far shot from $68.60 and $65.88 respectively in the 52 week high for both. Obviously there in investor confidence somewhere on Wall Street, just not with Fannie Mae and Freddie Mac.

Other than that, I think overall – if the Feds handle this correctly – this will be very good for the industry and may be what we need to get the market started again. Lack of consumer confidence, fueled by sensationalist media, has been dealing a death blows to the industry for the past nine months. Maybe we’ll get back on track sooner than we had hoped.

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  1. #1 by Justin Robins on March 27, 2011 - 10:49 am

    Great site and great info! Thanks for sharing!

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