Fannie Mae & Freddie Mac: US Government Bailout
Few outside Washington and Wall Street may understand what Fannie Mae
and Freddie Mac do, but the government’s bailout of the two will likely be
felt in cities and suburbs across the USA.
The takeover will be good news for those looking to buy a home or hoping to
refinance their mortgages if it leads to lower interest rates, as experts
expect.
Fannie Mae and Freddie Mac play a critical and increasingly dominant role in
the mortgage market. The companies buy mortgage loans from banks and package
those loans into securities that they either hold or sell to U.S. and
foreign investors. That allows traditional lenders to make more loans.
By placing Fannie and Freddie into a conservatorship, the government is
promising investors that the companies’ debt is as safe as the Treasury
Department’s.
While not a cure-all, the bailout is still a step in the right
direction, industry observers say. It will at least “keep the lanes in the
mortgage freeway open,” said Greg McBride, a senior financial analyst at
Bankrate.com, possibly putting the market on the road to recovery. If
mortgage rates fall, that will attract more potential buyers into the
market, which, in turn, will help to prop up home prices, he said.
Posted: 8 September 2008
Source: Florida Association of Realtors
Click here for complete article
