The End of Fannie Mae and Freddie Mac

Is this the end of Fannie Mae and Freddie Mac?

Treasury Secretary Timothy Geithner told Congress yesterday that they must proceed with housing finance reform legislation, including winding down of Fannie Mae and Freddie Mac, within the next two years or else risk another financial crisis. “The administration is committed to a system in which the private market – subject to strong oversight and strong consumer and investor protections – is the primary source of mortgage credit,” Geithner said in his prepared opening statement. “We believe the government’s primary role should be limited to several key responsibilities: consumer protection and robust oversight; targeted assistance for low- and moderate-income homeowners and renters; and a targeted capacity to support market stability and crisis response.”

What does this mean?

It will likely mean that private interests will return to the mortgage investment market creating new programs and individual guidelines that are based on the credit risks established by those institutions. Fannie Mae and Freddie Mac have been the largest pool for purchasing loans. Because of their strength they created guidelines that are uniform for most banks to follow. If they longer exist who will set guidelines for Wall Street to purchase loans?

Where will rates go?

It’s not likely that rates are going to drop. However, after rates moving up they have subsided again and remained consistent. It’s still an incredible time to purchase.