Fannie, Freddie bailout: What it means for you.

September 9, 2008 · Dean Rizzi

On Sunday morning the US government took over the ailing mortgage giants. Below are what I believe are the Pros and Cons to this historic event.

Pros:

Interest rates immediately took a positive outlook to the news. The benefit to consumers is clear. Cheaper money makes homes more affordable and refinancing into a 30 year fixed a better option for those who qualify.
The move will strengthen the US housing market.
Line of Credit – the two firms will have an unspecified line of credit… essentially, they’ll be able to operate without the looming threat of running out of money and collapsing!
In an effort to provide even more liquidly for the credit strained market, the fed will be purchasing mortgage-backed securities issued from the two firms later this month.

Cons:

This won’t make it any easier for borrower who can’t qualify for a loan now.
We could see guidelines get a little tougher… especially regarding limited documentation and low down payment loans.
If you owned common stock of either of the two firms… you just lost big.
No silver bullet – the credit crisis isn’t over because of the move.

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One Response to “Fannie, Freddie bailout: What it means for you.”

JJ on September 10th, 2008 1:08 am

Thanks for boiling down the impact of the latest news regarding Freddie and Fannie for the everyday consumer. This will be a help to me in addressing the questions that my clients have, and I’ll be pointing to this blog on my own website. Here’s to hoping that this latest move by the government will get us even further on the road to recovery and make it possible for more people to afford homes in this area.

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