What will be the effect of mortgage giant’s takeover on consumers?

September 9, 2008 · By ProfitEdition News Filed Under Features

Government took over hold of the two U.S. mortgagee giants Fannie, Freddie as preventive measures to cure the mortgage market from a collapse. But what does the federal takeover of two mortgage finance giants mean to consumers?

In the recent weekend when mortgage specialists think over what will be the probable impacts of this bailout on consumer some themes emerged out such as - new mortgage rules could be changed with changed regulatory authority of mortgage giants. Initially mortgage rates may fall a bit but possibly not enough to halt the decline in home prices in early times.

However the results could not be determined immediately due to the extraordinary nature of the rescue.

Emerged worries regarding the viability of Fannie and Freddie, prompted government to take a step ahead and takeover mortgage giants. According to analyst this historic bailout might result drastic change in financial market.

According to analysts some delinquent borrowers may have a better shot at modifying their loans and ending up with lower fixed payments. Additionally if a consumer already has a fixed-rate mortgage nothing will change.

Emerging consensus is that the government takeover will help calm down rates if someone is thinking of buying a home or refinancing a mortgage.

Chief operating officer of the Mortgage Bankers Association- a trade group John A. Courson stated that Fannie and Freddie would inspect the fees they charge banks for loan securitization services and any decrease in those fees could help bring mortgage rates down a bit if the banks pass on the lower costs to consumers.

According to analysts stabilization in home prices rate could help as the home prices rates surely matter in influencing people on the sidelines to step in and start shopping for a home.

Law professor at Chapman University in Orange, Calif., and a former member of the Federal Reserve Board’s Consumer Advisory Council Kurt Eggert stated that government doesn’t have a great deal of interest in foreclosing on a ton of homes.

In addition of all above interest rate rules could change as mortgage interest rates depends in part on the rules that Fannie and Freddie set for the kinds of loans they will buy and now they have new administration that could change the rules.

There is no clear vision that whether stockholders in Fannie Mae and Freddie Mac will be exhausted completely. According to Mr. Paulson now the two mortgage company would not work with a policy to maximize common shareholder returns.

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