Real-world implications of bailing out Fannie and Freddie
The government's takeover of mortgage lenders Fannie Mae and Freddie Mac very real effects on mortgage holders and seekers, and taxpayers.
The Asian markets reacted well to the announcement of the Fannie Mae and Freddie Mac bailout earlier this week, but what are the real-world implications for consumers?
Treasury Secretary Henry Paulson said this of the importance of the bailout: "Fannie Mae and Freddi Mac are so large, and so interwoven in our financial system, that a failure of either of them would cause great turmoil in the financial markets here at home and around the globe."
How does this affect a person trying to get a loan? Guest Ron Lieber, reporter for the New York Times says, "If Fannie and Freddie failed, there would not be money for the banks that you and I go to get our mortgages. That is why they couldn't be allowed to die. And so now that the government has stepped in and essentially backed their securities, that means foreign investors and others who gave money to Fannie and Freddie are now more confident and there will continue to be money for our loans."
Lieber continues, "That mean that Fannie and Freddie don't have to give as much away in creating those loans. That savings gets passed on to you and me. And what that means is that mortgage rates will probably fall a little bit in the coming months."
"Fannie and Freddie have tightened their rules in a variety of ways in the last six to twelve to eighteen months. So, that has made it harder for people to get some of those funny mortgages with lower credit scores and lower down payments."
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