The following post is from Stephanie Hanna, a lender we work with. It provides an inside the lending industry view on the latest government actions to save Fannie and Freddie.
It’s official. On Sunday, Treasury Secretary Paulson placed Fannie Mae and Freddie Mac into the conservatorship of the Federal Housing Finance Agency (not be confused with the Federal Housing Administration, better known as FHA). The term conservatorship used in this context refers to a statutory process designed to stabilize a troubled institution. So what does this all mean to the mortgage markets?
- Well, the announcement alone meant that we saw a large decrease in mortgage rates. For the first time in a couple of months, I can now offer borrowers an interest rate below 6% with no points.
- Before the month is over the Treasury Department will become a major buyer in the conforming mortgage-backed securities market — it’s this action that will steadily to fractionally lower mortgage interest rates.
- Business will go on as normal for both companies — with the added strength of the U.S. government directly backing up all financial transactions.
- Both companies will be allowed to grow their book of business that guarantees mortgage-backed securities without limits while also operating with the authorization to purchase about $20 billion per month of new production to replace run-off in their portfolios.
- The U.S. government assumes control over the Board and management.
- Current Fannie Mae and Freddie Mac CEOs are being replaced, but will stay on through a transition period.
- There will be limited initial management actions — they will work with the current management team, and the vast majority of employees should be asked to stay on in their respective positions.
- There will be no dividends paid on preferred or common stock.
- All lobbying/political activity by the GSEs will cease.
It would be unrealistic to expect that this transition will be completely flawless. But the resources of the Federal Housing Finance Agency, the Treasury Department and the Federal Reserve will come together to support and promote the dream of American home ownership. While this step by the government brings one era to an end, it also shines some light on a promising new one.
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shanna [at] platinum1st.com