Fannie Mae And Freddie Mac Takeover: What Does It Mean?

So on Friday it was leaked that the government is taking over Freddie Mac and Fannie Mae. On Sunday it was official. Freddie Mac and Fannie Mae have now been taken over by the federal government. But what does it mean for the real estate market, mortgage interest rates, and the US economy.

First let's look at what it means for mortgage rates. I would expect that the government takeover will result in lower mortgage rates, possibly a full point lower. Why? Basically the Fed has been struggling to lower mortgage rates for the last year in an attempt to assist the troubled real estate market. The Fed has lowered prime rates several times in an attempt to pull down mortgage interest rates, with mixed success. Now with full control of Freddie Mac and Fannie Mae (which provides insurance for most mortgages in the US) they will have much more control over the mortgage market and mortgage rates. As long as their objective stays the same, we can expect lower rates.

What does the takeover say about the current situation in the real estate market? This should have been obvious from all the events that preceded this but the takeover shows that the real estate market is in serious serious trouble. The federal government doesn't just take over large companies on a whim, especially an administration with a Republican president that believes strongly in free markets. This is not simply a government takeover. This is the largest takeover in US history. Basically the takeover happened because it was believed if nothing was done we were headed for economic catastrophe.

How is this going to effect the real estate market? Although the takeover is a bad sign about our current situation it should have a positive effect on the real estate markets moving forward. First lowering mortgage interest rates should be quite a boon for the real estate market. Lowering rates lowers the effective cost of a house. And historically lowering rates has a positive effect on real estate values.

Additionally, if the Fed is smart they will reduce some of the mortgage restrictions Freddie Mac and Fannie Mae have created in the last year. While I would not like to see the mortgage market return to the free-wheeling lending of a few years ago, some of the current rules are bizarrely restrictive. The lending environment typically works like a pendulum moving from one extreme to another. Currently lending restrictions are not just stricter than what we saw during the real estate boom a few years ago but they are more restrictive than anything we have seen in the last 15 - 20 years. Hopefully a federally controlled Fannie Mae and Freddie Mac can help return us to normal as far as lending restrictions.

Lastly the government takeover could put taxpayers in the lurch for billions in loan losses. In the short term the government is going to have to infuse money into Freddie Mac and Fannie Mae. They have been losing money for quite some time and that is not going to change overnight. If the market improves over the next year or two, which was likely before, and the takeover improves the outlook for the real estate market, the government will have to infuse maybe a total of 20 to 30 billion into Fannie Mae and Freddie Mac to get them back to financial solvency. That sounds like a lot but to put the number in context, the cost of the Iraq War has been running at about 100 billion a year for the last 7 years. So a 20 billion dollar expense is an unpleasant but manageable expense. But if real estate market gets a lot worse over the next two years, I can't think of the adjective to describe how expensive things could get.

Fannie Mae and Freddie Mac provide insurance for 5 trillion in loans or about half of the residential loans in the United States. Because of the takeover, the federal government now provides insurance for 5 trillion in loans. If we are just on the cusp of severe real estate problem that means that the federal government is on the hook for 5 trillion in loans. That's more than double the entire federal budget for 2007 and 10 times what the US has spent on the Iraq War. So as taxpayers we should hope things improve soon because if the rate of foreclosures skyrockets over the next 2 or 3 years, we are basically going to be paying for it.

Does this mean the federal government is insane? It depends on how you look at the issue. This was certainly a risky move. But on the other hand allowing Fannie Mae and Freddie Mac to fail would have devastated the US economy and likely lead to a severe depression. So doing nothing was equally risky. And while taking over Freddie Mac and Fannie Mae was a risky move for taxpayers, in a depression those that keep their jobs have to make up for all the lost tax revenues for the large number of people that lose their jobs. So in summary the federal government found itself in a tight spot and decided to bet the farm they can fix the real estate market and for our sakes, let's hope they are right.

Fannie Mae and Freddie Mac's Current Financial CrisisFannie Mae and Freddie Mac's Current Financial Crisis

Mortgage giants Fannie Mae and Freddie Mac are presently undergoing a tough time. With confidence level and shares going down significantly for the past week, some people think that a government bailout is about to happen.

Fannie had a 28 percent drop in shares, while Freddie slid 26 percent. The loss in value now totals to 80 percent since the start of the year. It’s alarming how -two financial institutions holding half of the country’s mortgages are starting to crumble in the midst of the housing crisis. Failure in both government-sponsored enterprises (GSEs) could have a devastating effect not only here in the United Stated but in other countries as well.

Foreign governments own money used in both companies’ operations. Investors, companies, mutual and pension funds abroad also have money utilized by Fannie and Freddie.

To prevent further damage, the government came up with measures to help Fannie and Freddie get billions of dollars in the form of a "rescue package". The rescue package aims to buy the company stocks using public money. Aside from that, the Federal Reserve will allow both companies to borrow money at a special rate, and would make one of its short-term lending programs available. Aside from that, the administration is seeking the Federal Reserve’s permission to let Fannie and Freddie secure liquidity.

The Federal Reserve is closely working with the Congress and Treasury to try and put these rescue measures into effect. The Treasury is also seeking to stretch the credit line for both institutions to $300 billion, and buy equity directly from both GSEs to prevent liquidity problems in the future.

The rescue plan was put into effect after close monitoring of both Fannie and Freddie. The government immediately sought precautionary steps to ensure that both mortgage giants have enough money to stay afloat.

MortagesForEveryone.com <> is a site that aims to provide information about mortgage-related concerns like refinancing your home, interest rates, using your home equity, down payments, home improvement loans, and many others.

Romaine lettuce recall 2010: Freshway and Imperial Sysco romaine lettuce recalled

A recall of Romaine lettuce dubbed "Lettuce recall 2010" has been announced for 23 states because of an identified outbreak E. Coli bacteria. At this time 19 people have been confirmed to have been affected by consuming the tainted lettuce, and of those cases three individuals are in what has been characterized as a life threatening state. The FDA has confirmed that 12 people were hospitalized due to the outbreak on Thursday, May, 6, 2010.

The tainted lettuce has been traced back to Freshway Foods of Sidney, Ohio. At this time all lettuce sold under the brand names of Freshway and Imperial Sysco are being recalled. The FDA is currently investigating the source of the lettuce which is now thought to have been grown in Arizona, but a full confirmation is still pending. At this time it is believed that the outbreak is limited to romaine only, but consumers are advised to take extreme caution with all varieties of lettuce sold under the Imperial Sysco and Freshway brand name for the time being.

At this time, the recall has been implemented in 23 states: Alabama, Connecticut, District of Colombia, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia, West Virginia, and Wisconsin. It is not known at this time if the FDA will expand the recall, but the possibility does exist.

The FDA has advised that all romaine lettuce sold under the Freshway or Imperial Sysco names be thrown away, and to further avoid “Bagged salads.” Bagged salads have not been recalled, but it is still considered the safer route to err on the side of caution until the FDA announces the outbreak has ended. It is known that the following Supermarket chains do carry lettuce from Freshway and Imperial Sysco: Kroger, Giant Eagle, Ingles Market, and marsh. The recall is applicable to all romaine lettuce and products containing romaine lettuce with expiration dates through May 12, 2010. If you or someone you know has eaten romaine lettuce within the past 48 and is showing symptoms of a reaction E. Coli bacteria, it is strongly advised that medical attention be sought.

For further information please visit the Freshway Foods website where full details of the recall including any updates are being posted on this voluntary recall. Freshaway Foods also stresses that for the time being it is best for all people to avoid eating romaine lettuce until they are certain that the outbreak of E. Coli O145 has been contained.