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Bright Spots: A story of Fred and Fan

Posted on Sep 18, 2008


Water cooler conversations, the media and your pocketbook make it hard to escape the fact the economy is affecting personal finances. Grocery prices are climbing, gas and oil are near all time high and goods and services have increased across the board. If these concerns are on your mind you are like most Americans.

There is a bright spot on the horizon. In the past few days, the U.S. government has taken over mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). The rescue puts the companies under the control of their regulator, the Federal Housing Finance Agency, and includes a plan for the Treasury to purchase these mortgage bonds as well as the firms’ senior preferred stock.

The government’s plan should alleviate growing concerns about the financial sector in general now that two of the most troubled companies enjoy the explicit backing of the U.S. government. Fannie Mae and Freddie Mac own or guarantee more than five trillion dollars in mortgages and play an essential role in supporting the U.S. housing market. This will provide a sizable boost to the market for mortgage bonds guaranteed by Fannie Mae and Freddie Mac.

In a nutshell, this is a positive step meant to stabilize the mortgage industry and in turn the housing market – and its working! Interest rates – already great – have gone down even more and the housing market showing signs of improving! More good news – the Buyers Market is prevailing. If you are considering a move or buying a second home or investment property, there is plenty of available inventory and the low interest rates mean you will either have a lower payment or qualify for more home – either way you win! With these changes, it might be a good time analyze your home mortgage. The recent events may put you in a position to lower your mortgage interest rate, reduce the amount of your monthly mortgage payments.

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