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What the Fannie & Freddie bailout means for consumers
by Tina Kells | September 8, 2008 at 09:25 am
207 views | 4 Recommendations | 3 comments
The Fannie Mae and Freddie Mac bailout gives new meaning to the phrase, "your tax dollars working for you," with the U.S. government set to foot the bill for the corporate made subprime mortgage disaster. The takeover is an unprecedented move in United States history, but what does it mean for the average American?
Mortgage rates may fall a bit initially but probably not enough to halt the decline in home prices anytime soon. Some delinquent borrowers may have a better shot at modifying their loans and ending up with lower fixed payments. And the rules on new mortgages could slightly change.
To be able to predict the impacts of the takeover it is important to understand how the whole mess happened in the first place. It is a confusing little circle of events.
So first, what happened here, and why? In order to provide capital to banks that lend money to aspiring homeowners, Fannie and Freddie need to be able to sell the mortgages, packaged as securities, to investors around the world once the two companies have bought the loans from the banks.
All this worked fine until foreign investors got nervous about the housing market and the uncertainty over how a theoretical federal takeover might affect their holdings. When concerns emerged about the viability of Fannie and Freddie, the government thought it had no choice but to step in and take over.
Since the Fannie Mae and Freddie Mac bailout is uncharted financial territory experts are having trouble predicting exactly how it will impact U.S. consumers. There are some ideas, but few concrete expectations.
Mortgage rates are expected to dip and then stabilize. Home prices are also expected to level out and hold. Finally, foreclosures may subside, as new mortgage deals are struck with delinquent homeowners and new rules are set out for lenders.
As to what the future holds for current Fannie Mae and Freddie Mac stockholders... that is something only time will tell.
September 8, 2008 at 09:25 am by Tina Kells, 207 views, 3 comments
Most RecentMost Recommended Comments (3)
at 09:52 on September 8th, 2008
Tina Kells, I like this story. It's good stuff. the investor side seems to get a final break: "
INVESTORS While it is not yet clear whether stockholders in Fannie Mae and Freddie Mac will be wiped out entirely, Mr. Paulson did say on Sunday that the entities “will no longer be managed with a strategy to maximize common shareholder returns.
at 15:54 on September 8th, 2008
It means a 300 billion tax hit to John Q. Taxpayer and shareholders will be wiped out when the government buys the shares for a set price of $1.00 per share.
The failure of these two huge bastions of US capitalism and the ensuing socialist buyout actually means that capitalism itself is failing.
at 15:55 on September 8th, 2008
Tina Kells, I like this story. It's good stuff.