Federal Rescue for Fannie and Freddie
The government has taken over mortgage companies Fannie Mae and Freddie Mac to help lower mortgage rates and allow more Americans to get affordable loans.
The federal rescue, announced by Treasury Secretary Henry Paulson on Sunday, September 7, gave homeowners a glimmer of hope amid the long-running housing market crisis. Both Freddie and Fannie have taken a beating over the past months due to a drop in home prices, rise in foreclosures, and increase in delinquent mortgages. Government intervention to save the housing market seemed necessary.
Benefits
Federal assistance is set to provide as much as $200 billion to help both mortgage giants cover their losses. This, hopefully, will restore confidence among investors, resulting to lower interest rates.
While this is not a permanent cure for the ailing housing situation, the government takeover will stop it from declining any further. By restoring faith in both Fannie and Freddie, it would help calm financial markets and make mortgage loans easily accessible.
It would eventually benefit consumers by helping them refinance to a more feasible mortgage payment scheme, get a better rate when they buy a home, and have an easier time in getting their mortgage loans approved.
It's a win-win situation that will lessen foreclosures and improve the housing market.
Conservatorship
The government placed Fannie and Freddie under conservatorship or under temporary management by the Federal Housing Finance Agency (FHFA). The agency will oversee operation of both government sponsored enterprises (GSEs) until they are stable enough to manage themselves. In keeping with the general overhaul, two new CEOs have been named: Herb Allison for Fannie Mae and David Moffett for Freddie Mac.
Future moves
The government aims to save about $2 billion annually by getting rid of profits from common and preferred shares. Those who own common shares get a part of a corporation's stocks plus a voting power, while those who own preferred shares are given priority in payment of profits or dividends.
The Treasury Department is trying to come up with more ways on how to improve the housing and financial market, and that includes buying mortgage-backed securities and stock from Fannie and Freddie.
MortagesForEveryone.com ( http://www.mortgages-for-everyone.com ) is a site that aims to provide information about mortgage-related concerns like refinancing your home, interest rates, using your home equity, down payments, home improvement loans, and many others.
Related Tags: mortgage, loans, mortgage rates, fannie mae, freddie mac, bailout
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