Within the last 48 hours, dozens of articles, perhaps scores of posts, have been written detailing the U.S. Treasury Department takeover of Mortgage Giants Fannie Mae and Freddie Mac. Here in Chicago, it's all the buzz as well!
But . . . what happens now?
Beginning last night, experts predicted the greater security created by a U.S. Government-headed Fannie and Freddie will filter down into lower interest rates. Indeed, they apparently have - earlier today, the Average 30-Year Fixed Rate dropped to 6.04%, from 6.34% at the start of the day, according to HSH Associates.
Several mortgage experts, including Mark Zandi, Chief Economist at MoodysEconomy.com, predicts the same rates could fall to near 5.50%, as investors might now be more willing to buy Fannie and Freddie mortgage-backed securities, at lower interest rates, because the Treasury is standing behind the debt. It wasn't all that long ago that 30-Year Fixed Rates approached 6.50%, although they backed off a bit, for conforming loans anyway, from that lofty summit.
And now, U.S. Taxpayers are directly exposed to future trouble in the mortgage market. Inflation can result if the costs of the takeover escalate beyond expectations. There can be a weaker U.S. Dollar abroad as our Budget Deficit grows.
Further, the takeover offers no additional help to homeowners already behind on their mortgage payments, or who owe more on their homes than they are worth in today's real estate market.
According to Rich Cosner, President of Prudential California Realty, "The bailout will give the mortgage industry a stability that we haven't seen in a couple of years. But, frankly, no, it won't help (struggling borrowers) to refinance" their existing mortgages.
Also, many of the tactics just implemented by Treasury can be modified or adjusted by the next U.S. Administration, beginning next year.
Mortgage security investors around the world, along with homeowners and prospective homeowners here at home, will be watching things closely in the coming weeks and months for further developments.
See our post today via BlogChicagoHomes.com for more info, as well as links to extensive coverage in The Wall Street Journal and The Chicago Tribune.
DEAN & DEAN'S TEAM CHICAGO
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