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What the Takeover Means for Your Mortgage

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Monday, September 8, 2008

Fannie Mae and Freddie Mac are the largest buyers of U.S. mortgages. Their takeover is expected to ripple through the economy, affecting U.S. home buyers directly and indirectly. Here are answers to common questions about the mortgage finance giants and explanations on how you might be affected by yesterday's news.

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Q What does the takeover of Fannie Mae and Freddie Mac mean for mortgage rates?

A The government takeover is expected to push mortgages rates down.

District-based Fannie Mae and Freddie Mac of McLean do not set mortgage interest rates, but they hold significant sway over the market. The firms buy mortgage loans and sell them to investors. The government's backing is expected to make investors more willing to buy the loans and bring rates down as demand increases, analysts said.

"It will make investors more comfortable with the risk of buying these mortgage-backed securities," said Holden Lewis, a reporter for Bankrate, an online research site.

Fannie and Freddie's fees, which are incorporated into interest rates and have become more expensive recently, will also be reviewed as the firms come under new management, said John A. Courson, chief operating officer of the Mortgage Bankers Association, the industry lobbying group. "It is going to have a positive impact on the costs to borrowers," he said.

I already have a mortgage. How will this affect me?

It won't. It could affect people who are shopping for loans.

How have Fannie and Freddie's troubles over the past year affected mortgage rates?

As the companies' troubles mounted, investors demanded artificially higher interest rates, said Guy Cecala, publisher of Inside Mortgage Finance. "They required a higher yield to buy the securities," he said.


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