With each new election cycle in the United States comes new economic policies and regulations. Different cabinet members, new federal department heads and secretaries, new Congress, House, etc...politics come into play and affect our daily economic lives.
Most people here are familiar with the names Fannie Mae and Freddie Mac. They are essentially two Government Sponsored Entities (GSE) who were originally established by Congress in order to ensure that there is always a flow of mortgage funds for consumers. Officially known as the Federal National Mortgage Association (Fannie), and the Federal Home Loan Mortgage Corporation (Freddie), the two companies purchase home loans made by private firms, and either keep those loans in their own portfolios or sell them in the secondary market through mortgage backed securities. In essence, Fannie Mae and Freddie Mac are in place in order to ensure that lenders such as banks, credit associations, and savings institutions always have capital they can lend out to homeowners.
During the 2008 crisis after the housing bubble burst, the pair lost a combined $265 billion due to bad investments, requiring a taxpayer bailout. The two companies were then legally taken over by the federal government through a process known as Conservatorship, and all subsequent profits were funneled directly back to the government.
But what happened to all those mortgages the companies held at the time of their bailout? President Elect Donald Trump’s pick for secretary of the Department of the Treasury, Steve Mnuchin, has recently announced that the administration plans on taking away government control of the two companies, allowing them to become privatized entities once again. He was quoted as saying, “getting Fannie and Freddie out of government ownership” is one of the Trump administration’s top priorities. This means that profits can now be given to shareholders, and investment companies and hedge funds can now begin investing in the two companies once again. Since that announcement, shares for the two entities have gone up 40%!
Still, Mr. Mnuchin has expressed that the administration does plan on “restructuring” the two companies, but has not yet given details on what that will look like exactly.
However, we must also consider what may happen if Fannie and Freddie are not in place. Without the implicit guarantee of mortgages in securities to that they sell to investors, lenders will have less overall funds they are able to loan out, which will also cause an increase in the interest rate of any funds they do loan out, since the burden of a default now falls on private investors and institutions, not the government.
A large portion of government foreclosures found on InvestorsMLS and other sites are owned by Fannie Mae and Freddie Mac and are usually available for a great price or great loan rate. Fannie Mae uses www.HomePath.com to resell foreclosed properties, while Freddie Mac uses www.HomeSteps.com. Simply go onto the sites, search by area, and you can then see pictures and a map of the exact location, as well as the property details and contact information to get in touch with the listing agent. As of now, only Fannie Mae is offering 3% down payment, no mortgage insurance, minimum 660 credit score, and no appraisal required as an incentive to move the real estate properties they own through foreclosure, but be sure to check specific offers for the area you are searching for a house.
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