So now that Fannie/Freddie have been taken over by "Big Brother", what is going to happen next? Is this move by the government supposed to fix the housing problem?
This has been on the news for the last few days and I wanted to put my feelings into it. Does the average consumer really know who and what Fannie/Freddie are? NO.
I will sum it up for you quickly, F/F buy mortgages from banks such as Countrywide, Wells Fargo, WAMU, etc, once they buy the mortgages, they package them into MBS (Mortgage Backed Securities) and sell them on the secondary market. This in turns re-starts the lending process over again. Now if they have no more money to buy the mortgages, then more banks will not be able to sell their loans and they will continue to go out of business.
At the end of the day, this will NOT stop the mortgage/housing meltdown because it is up to the banks/financial institutions to start lending again at a fair underwriting standard. The local and national banks have made it difficult to obtain financing for the average American citizen, unless you have 700 credit scores with at least 10% down, with enough income to qualify for the repayment of the loan, you will not get the financing for your purchase or refinance.
Fannie/Freddie set the underwriting guidelines for which the banks use to qualify potential loan applicants. Maybe they need to re-think some of the guidelines that might need to be upgraded to fit the average working American in 2008-2009.
The only way to fix this mess that we are in is for it to play itself out. The foreclosures are still at an all time high and we need to bleed and let the poison out....
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