Feds Now in Control of Fannie Mae and Fredie Mac By Will Kotter At Isnare.com Ezine Articles

WIth the perils of the sub-prime lending led the government taking over Fannie Mae and Freddie Mac. The two companies were quasi-government entities, but are now under complete control of the government.

The take over was in an attempt to stabilize the the downward housing market and the desperate financial markets. Properties across the nation are in a downward spiral and the feds have stepped in to correct the downward spiral. Banks are being forced across the nation to sale wholesale properties for pennies on the dollar and are taking huge losses.

Legislation was passed in July which gave the government the power to save companies that were sponsored by the government. That is what gave the government the authority to bail out Fannie Mae and Freddie Mac.

The government didn’t just make a rash decision. It was a result of analyzation of what is happening to property values across the nation effected by the financial market and current economy. After a careful study of the current real estate situation and lending situation the government decided that it was necessary to take over these quasi-government lending institutions.

Some careful reconstruction has taken place in these lending institutions including the replacement of the chief executive officers. The new chief executive officer for Fannie Mae is Herbert Allison, a form CEO of TIAA CREF. Freddie Mac now has David Moffett as the new chief executive officer. He was the vice chairman and cfo of U.S. Bancorp. The former CEO’s of Fannie Mae and Freddie Mac are staying on board to make the transition a smooth one.

The effect on the interest rates have resulted in a nearly an entire point decrease on some loan interest rates. That is huge. If an individual buys a house for $300,000 that is a difference of $3000 a year in payments. That is a huge deduction that will effect the purchasing power and refinance power of property owners.

Wholesale property owners aren’t necessarily effected by this change in the market because many purchasers of wholesale property pay cash for real estate. Banks are sure to increase in business with refinances and there is a possibility that the market will improve slightly because of the increase in interest rates.

The government is taking measures to guarantee that the lending institutions will be stabilized. They promised to use tax dollars to keep the companies afloat. They have said that they will pay up to $100 billion dollars for each company to maintain their mortgage backed status.

Even with the government taking over the entities, there will still be shareholders equity. They will loose a significant amount of priority, but they will still have claims to assets.

The stock market showed changes as the lowering of interest rates and the confidence of government backed lending raised confidence in certain aspects of the market. Over all the move has been a positive one and will be one that we will look back on in the future as a decisive moment in the real estate hardships the market has faced in the last several years

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