There has been a lot of buzz in the air with Congress passing and the President signing the new housing bill into law on July 30^th, 2008.

I have not read the bill itself, but have seen numerous analytical articles - both pro and con on the topic.  One of the big provisions has to do with the government guaranteeing an amount of up to three hundred billion dollars to help Fannie Mae and Freddie Mac.  These two entities guarantee roughly half the loans in the United States. 

Being in the real estate industry it is easy to forget that everyone doesn't have the same knowledge and understanding of what I consider to be basic knowledge.  Truth is, only those of us in the real estate industry really have a need to know as much as we do on the topic. (What really amazes me is how little some of my peers actually understand on this and other topics - but that's another discussion all together.) 

Since the signing of the new bill, I have been stopped several times in conversation to clarify just who these two household names are and how they affect the everyday homeowner. 

In 1938, Congress created the Federal National Mortgage Association which became known as Fannie Mae.  In 1968 Fannie Mae became a shareholder owned company that is financed with private money.  At that point, Congress created a competitor known as Freddie Mac, or the Federal Home Loan Mortgage Association. 

Both companies buy loans directly from the banks and other lenders who make the loans.  They package them in bundles with different grades of loans, based on credit worthiness, debt-to-income ratios, loan to value ratios and just about every other aspect of a loan. 

Bundles are created with both strong and weak loans together and sold on Wall Street and other financial exchanges to investors, freeing up money to purchase additional loans.  These bundles of loans are known as mortgage backed securities. In the current real estate market there are very few investors who are willing to buy loans without some sort of government guarantee. 

The new law puts the United States Treasury on a big white horse coming to the rescue, allowing the government to offer Fannie and Freddie unlimited credit and even has provisions for the Treasury to buy the stock of these companies, if need be. 

Critics have been loud claiming that both Fannie Mae and Freddie Mac should be replaced by private companies.  Because Fannie and Freddie are backed by the government, their operating costs are lower than they would be as true private entities.  There is very little evidence that these savings are passed on to the end consumer, according to the critics..  The claims is that both companies spend much too much money on political campaigns, executive salaries and bonuses, and lobbying activities. 

The jury is still out on how this plan will unfold.  The Congressional Budget Office reports that the rescue plan might cost the American taxpayer twenty-five billion dollars.  Talking out of both sides of their mouth, the same budget office also says there is a 50/50 chance the plan might not cost us a cent

Blessings to all who read, 

John Occhi, REALTOR®
Century 21 Crest - CrestREO
CrestREO.Com
Hemet - San Jacinto Valley
951-927-9473

Servicing THE REO Needs of Asset Managers, Banks and Lending Institutions in the Hemet - San Jacinto Valley, Temecula, Murrieta, Winchester, Wildomar, Menifee, Sun City, Perris, Lake Ellsinore, Moreno Valley, Romoland, Homeland, Nuevo, Banning, Beaumont, Cherry Valley, Yucaipa, Redlands, Mentone, Loma Linda and throughout South West Riverside County and The Pass Areas of The Inland Empire in Southern California.  If you are a buyer, investor, first time home buyer or are just interested in REO real estate, please contact us at the above website or phone number. 

This blog and the contents written here is the intellectual property of John Occhi, Hemet California REALTOR®.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. This blog is part of the ActiveRain Real Estate Network, which is a social network highlighting the best of Web 2.0.  Information is provided with the intent of educating and assisting home owners, home sellers, home buyers and real estate investors with information the can be used to make better real estate decisions. I am proud to be a full time REALTOR® with Century 21 Crest and the CrestREO Division who is proud to be a contributing member of the ActiveRain community.