Wow. This is a big deal. Who knows what the long term fallout will be in the mortgage business. But this is a big deal. Here is a link to the recent AP article on the subject and a few quotes:
The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation’s mortgage debt, a person briefed on the matter said Friday night.
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The news also followed a report Friday by the Mortgage Bankers Association 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.
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Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.
But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.
A HUD spokesman recently spoke and warned Americans not to expect a housing rebound any time soon. Here are some quotes from a recent Reuters article on the subject:
A recovery in the U.S. housing market from the worst slump since the Depression is unlikely until “well into 2009,” Housing and Urban Development Secretary Steve Preston said today.
“I think we’re right in the middle of it, and I think we have a ways to go before we start seeing a turnaround,” Preston said today in an interview at the agency’s Washington headquarters. “We’ll be well into 2009 before we see some real energy in this market.”
There was an interesting article over at Forbes recently looking back at the utter failure of the FHAsecure program the Bush administration proudly unveiled around this time last year. We have posted on this failure here and here in the past .
At the time the FHAsecure plan was hailed as a way to help struggling homeowners avoid foreclosure by loosening the standards on getting into FHA loans. The problems with the program were manifold. First, the restrictions were very tight so only a small percentage of hopefuls could apply. For instance, a candidate had to already be 30+ days late on their mortgage to apply but the had to prove that they were late because an ARM reset and not because of other factors. Then the candidate had to find a bank willing to participate and most banks ended shrugging their shoulders and said “nah, no thanks” to the voluntary program. As a result only about 1% of the FHA loans over the last year had anything to do with the FHAsecure program at all.
Yet in recent press release from the White House we got this ugly bit of deception (as quoted from the Forbes article):
In a press release Friday, U.S. Housing and Urban Development Secretary Steve Preston bragged that his agency had helped more than 325,000 American families refinance into affordable mortgages since the housing crisis began.
“One year ago, the Bush Administration proactively provided an affordable safety net to homeowners who wanted to stay in their homes,” said Preston. “Today, with the expansion firmly in place, hundreds of thousands of families are in a better place thanks to FHA [Federal Housing Administration].”
Specifically, Preston cited the success of the FHASecure program intended to help borrowers who missed mortgage payments.
Will the “hope for homeowners” program be any better? It is actually law and was passed via some bi-partisan effort so there is that going for it. But we still have no word from banks on their policies concerning FHA short refinances. They have until October 1st before the program kicks in so with any luck we will see some positive developments on that front in the next 30 days.