Given the historic and unprecedented action by the US government this weekend in taking over Fannie Mae and Freddie Mac, we want to make sure you, our readers, know what is going on and how this affects you.  Fannie Mae and Freddie Mac have been placed into conservator-ship immediately.  This amounts to a government take-over of the two companies.  To promote market stability, the companies will be allowed to buy more mortgages through the end of 2009.  However, starting in 2010 the number of mortgages they own will gradually be reduced at a rate of 10% per year, eventually stabilizing at a much lower size.

 

The US Treasury will ensure that each company maintains positive net worth by buying their stock as well as providing a new lending facility to serve as an "ultimate liquidity backstop."  This facility will expire on December 31, 2009.  This morning, the companies are expected to resume normal business operations.  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.   All lobbying/political activity by the companies will cease.

 

What does this all mean?  These actions will provide stability to the market that many experts think will be the turning point in the housing crisis.  Interest rates will fall (they already have) and there will be plenty of money for mortgage financing.  We may see a mini refinance boom as borrowers take advantage of rates we haven’t seen in a while.  We will likely see some financing guideline changes in the future, but it is just too early to tell what these might be.  So far rates have fallen 1/2% and our mortgage broker experts expect rates to continue to drop. Yippee.