Fannie/Freddie

As many of you may have heard, Fannie Mae and Freddie Mac, which own, or guarantee, roughly $5 trillion in U.S. mortgages are on the verge of being taken over by the federal government by way of conservatorship. (Source: WSJ)

This raises many issues:

Is this merely semantics? It is my understanding that both agencies are usually classified as quasi-goverment agencies. I suspect the stockholders may suffer, but what effect will this have on the average consumer applying for a mortgage? There will likely be a shakeup in the corporate hierarchy, but, again, what will the practical consequences be in the functionality and viability of these agencies?

I suspect that there will be a stabilizing effect on the mortgage industry and that rates will improve slightly over the short term. Of course, the converse could also hold true. The need for a government takeover could affect the psyche of the general public and institutional investors in such a way as to have a negative impact on the economy as a whole, including the availability and affordability of mortgages.

The practical implementation of this takeover in conjunction with the changes that follow should be closely scrutinized by anyone who has an interest in the subjects covered in this blog. This may be a non-event or could reverberate through the housing/mortgage industry for the next few years.