The White House announced on Friday that Fannie Mae and Freddie Mac, the two largest sourcesof US mortgages in the Country where they are jointly responsible for approximately 70% of new loans, will be taken over by the federal government. The plans place the companies in a conservatorship, similar to a bankruptcy that smaller companies use to clean up their balance sheets and emerge stronger than before. Shareholders will be wiped out however the companies will still continue to function with the government standing behind their debt.
What this means is that effectively, the Federal government will be guaranteeing all loans and covering all loan losses for the two mortgage giants. The CEO's will be forced to resign, bu the staffs will remain in place to carry business forward. This is good news as now all the speculation and fear of a collapse of these organizations, similar to the Bear Stearns collapse earlier this summer is gone. Buyers and sellers can rest assured that financing to buy a home in this country is here to stay and will be regulated with more oversight and balance backed by the full faith and credit (and printing presses) of the United States Government.
In a darker turn however, the Mortgage Bankers Association said Friday that more than 4 million American homeowners with a mortgage - a record 9 percent - were either behind on their payments or in foreclosure at the end of June.
As the economy falters and home prices keep falling, concern is building that a second wave of foreclosures, n ot by subprime borrowers, but by people with good credit who took out loans with ballooning payments, will flood the market through 2010.
For the first time since the mortgage crisis started, delinquencies on subprime loans has declined. What's driving up the delinquency rate now is the number of homeowners with risky adjustable rate prime loans made with little or no proof of the borrowers income or assets.
Stay tuned....
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