Sep8 Written by:David
9/8/2008 11:33 AM
What does the federal government’s takeover mean for REALTORS®?
This weekend, the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into conservatorship and removed the CEOs from each of these government-sponsored enterprises (GSEs). As part of the government’s takeover of Fannie and Freddie, Treasury Secretary Henry Paulson announced these measures:
1. The Treasury Department will buy senior preferred stock from the enterprises to make sure they maintain a positive net worth. The American taxpayer now owns 79.9 percent of each of the GSEs.
2. The Treasury Department has set up the structure for the GSEs to borrow from Treasury if needed to maintain their regular business activities.
3. The Treasury Department will purchase GSE mortgage-backed securities (MBSs) to support the mortgage market. GSE MBSs are pools of mortgages structured as securities with a GSE guarantee of the prompt payment of principal and interest. The GSEs either sell the MBSs in the financial markets or retain them in their portfolios.
NAR announced in a statement today that it would “work with the Administration and Congress to assure that there will continue to be a robust secondary mortgage market in good times and in bad. Continued liquidity in the mortgage market is essential to the health of the economy.” For more information from NAR on the government action with Fannie and Freddie, click here.
Meanwhile, the California Association of REALTORS® expressed concerns today about the new direction that government control of Fannie and Freddie could take.
“While the short-term impact of the Treasury’s actions over the weekend served to calm the markets and restore confidence, in the longer term these entities need to be able to fulfill their historic mission,” said C.A.R. Executive Vice President Joel Singer. “A privatized Fannie and Freddie will short-circuit the countercyclical role the GSEs have played during precarious times in real estate markets.
“Without an institutionalized mortgage-backed securities market, mortgage capital will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements,” he said. “The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.”
C.A.R. is concerned that the Treasury, and Fannie Mae’s and Freddie Mac’s new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.
The GSEs hold or have securitized nearly half -- roughly $5 trillion -- of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.
Tags: