Treasury Gives Fannie Freddie New Power

Posted by  on Aug 08, 2010

Top Mortgage News Story

Back in July of 2008, Congress gave the Treasury the power to bail out Fannie and Freddie without any limitation on the money they use. To date, the Treasury had set its own limit of $200 billion for the bailout of the two mortgage giants. After the market closed early on New Year's Eve, the Treasury announced that it was removing the $200 billion cap on assistance for Fannie and Freddie. This equates to a blank check for the mortgage loan giants.

How Fannie and Freddie Can Keep Today's Mortgage Rates Low

Right now, mortgage rates are being kept artificially low by the Federal Reserve's mortgage backed securities (MBS) purchase program. The government has been the largest buyer of MBS for some time in order to keep shares trading at low yields. This purchase program is set to end in March of 2010. Analysts have repeatedly expressed concern that without the Federal Reserve buying MBS, mortgage rates would quickly increase to greater than 6%.

By the Treasury giving Fannie and Freddie a blank check, they are now in the position to take over buying MBS once the Federal Reserve exits the market. By all estimates, the bailout of Fannie and Freddie will not require more than the $200 billion originally allocated to them. So this move by the Treasury obviously has some other design.

Refinance While Refinance Rates Are Low

There is no guarantee, even considering this top mortgage news, that Fannie and Freddie will buy MBS at the same pace as the Federal Reserve has been. Refinance rates could still increase. It would be smart to take advantage of today's mortgage rates and not risk higher rates later in the year.


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