Fannie & Freddie Takeover: What’s It All About?by Tim Manni
Every homeowner has heard about Fannie Mae and Freddie Mac; odds are they own and/or service your home loan. So what’s all this about a bailout?
Fannie and Freddie purchase mortgages from lenders as part of the never-ending cycle of the mortgage market. The two GSEs either own or guarantee about $5 trillion of mortgages, but their portfolios have suffered as much from the year-long credit crunch as many mortgage lenders. Thus, on Sunday, the government decided that the two giants couldn’t go on and took them over.
The markets have anticipated this move for over a month, and the response has been immediate. Thirty-year fixed rate mortgages have been dropping all day, and we’re likely to see a fall of a quarter percent from Friday’s national average of 6.55%.
“We saw rates rise about a quarter percent in July when this bailout plan was first unveiled,” said Keith Gumbinger, VP at HSH. “There was a lot of market uncertainty about what was going to happen. Now that uncertainty is gone, so we’ll see rates drop in response” as the markets react.