Filed under: Market matters, Money and Finance Today, Countrywide Financial (CFC), Personal finance, Housing
Almost like white knights riding out in the storm, Fannie Mae and Freddie Mac are filling the void left by private investors no longer willing to buy mortgages until this mortgage mess is clearly defined and cleaned up. Not too long ago, many were calling for their heads and declaring that the mortgage market would be better off if these government-sponsored entities were restricted from further growth. Fannie and Freddie were also under investigation for accounting violations and fined by federal regulators.
But now everyone is glad they’re alive and well and helping to ease the pain from the growing mortgage crisis. Even Countrywide (NYSE: CFC) is looking to them as its savior. According to the Wall Street Journal, 80% of all new loans [subscription required] being made by Countrywide are eligible for sale to Fannie or Freddie, which is up from about one-third last year.
What’s the difference? Fannie and Freddie have much stricter guidelines lenders must follow before they’ll buy a mortgage. Borrowers must prove their income and they must make a down payment of at least 10% or 20%. All those creative mortgages the private markets invented in the early 2000s — no interest loans, no downpayments, no documentation, option ARMs and other innovations — could not be sold to Fannie or Freddie. Those creative lending practices produced the loans at the heart of this mortgage mess.
Continue reading Fannie and Freddie to the rescue
Read | Permalink | Email this | Comments
Entries (RSS)