Another big day for the mortgage industry. On Sept 7, Treasury Secretary Paulson announced plans to place Fannie Mae and Freddie Mac in a conservatorship governed by their regulator, the Federal Housing Finance Agency (FHFA). As part of the announcement, both companies’ chief executives will be replaced and the government will provide up to $200 billion in capital to restore the firms to financial health.
What does this mean? Essentially, both Fannie Mae and Freddie Mac are effectively government agencies now, from being private companies that were established in 1968 and 1970 resepectively. What's the implication for the consumers? And, why did the mortgage rates go down are a result?
As the U.S. government steps up to gaurantee both Fannie & Freddie's maturing bond payments, more investors are becoming interested in buying their bonds. With more investors buying their bonds, there will be more liquidity into the market to extend mortgages to consumers. More liquidity = lower rates. Yeah!
With what has just happened to Fannie and Freddie, and the fact that the conforming Jumbo limit of $729,500 going away by the end of this year, it makes it a really good time to refinance or buy your next home, especially if your loan amount is in the range between $625K - $729,500. For more detail info and a free consultation about how to take advantage of the current situation, you know where to find me!
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