Fannie & Freddie Failure is Good News for Homebuyers

(props to Rick Soukoulis for the great thoughts):

It seems like more has been written on Fannie Mae and Freddie Mac in the past 48 hours than has been written in the past ten years. Confusing? Probably so.

Lifesaver Looking past all the double-talk by the politicians and the Secretary of Treasury, there are some very elemental truths to the whole failure of these two giant companies with strange names.

First off, let’s make a bold statement here: for homeowners (and people like myself), this is all very good news.

Fannie and Freddie only failed in the sense that their shareholders took a beating.  The government action came in and rescued them and is strengthening them as you sit there reading this.

The shareholders, unfortunately, were the losers.

The winners are people buying homes.

The morning began with a monster stock market rally on the news of that they were seized.  Well, markets hate uncertainty, and this rally was a reaction to the steps the government has taken. The uncertainty is now gone. Fannie and Freddie will not fail or file for bankruptcy.

But let’s forget about the stock market for a minute.

What about interest rates?

The bond markets were more than a bit ecstatic to hear the news about Fannie and Freddie being rescured. They responded with rates falling as much as 3/8ths of a point today.

This was a strong vote in favor of the stability that will come with a government infusion of capital into Fannie and Freddie.

It’s also a vote of support for the Federal Reserves statemnet that they and the Treasury Department will now buy mortgage backed securities to help drive down mortgage rates.

There’s a huge amount of firepower at the Fed and at Treasury, and if they’re in there buying mortgage-backed securities, that will cause mortgage rates to fall.

Anyway, here are some key truths:

Fannie Mae and Freddie Mac have been rescued and strengthened. And, they will only get stronger. This is fact.

Rates have started to come down. Tis is a fact.

Now is the time (no, this really isn’t a shameless plug) for people uncertain about buying a home to get off the fence and, as Nike says “just do it”.

Just the facts, m’am.


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Filed under mt. carmel, real estate, redwood city

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