What Do Fannie and Freddie Mean to You?

You may just be getting to know this housing market duo, but the chances are good that you’ll be getting to know them a great deal better. Their names have been in the news a lot lately. Over the weekend, U.S. Treasury Secretary Henry Paulsen announced that the government had placed both entities into a conservatorship.

Together, Fannie Mae and Freddie Mac own or guarantee roughly half of the $12 trillion in outstanding mortgage debt. National Public Radio quantified Fannie and Freddie by stating that they have more economic impact on the global economy than the United Kingdom.

How will the takeover impact consumers? The news instilled confidence into investors, which lifted stock markets. As a result of the conservatorship, the government now explicitly guarantees the obligations of Fannie and Freddie securities. This has increased demand for mortgage securities, helping the housing market overall.

What remains uncertain is where Fannie and Freddie will go from here. The takeover may help to facilitate new deals on old loans (affecting homeowners who are now in trouble with their mortgages) and new rules on new loans (affecting homebuyers thinking of purchasing a home).

The most immediate change is that mortgage rates are likely to go down. Last week rates were down .15% on average; this week, they are down .35%. That’s a substantial change that makes it cheaper and easier for homebuyers to purchase a home.