With
the government taking over lending giants Fannie Mae and Freddy Mac, many
assume that mortgage rates will lower and the credit crunch will ease. Are
homeowners celebrating prematurely?
According
to an article on CNNMoney.com, Treasury official Henry Paulson believes that
the much-needed financial relief will take longer than expected. Paulson
states, “The primary mission of [Fannie Mae and Freddie Mac] now will be to
proactively work to increase the availability of mortgage finance. Our economy
and our markets will not recover until the bulk of this housing correction is
behind us.”
Yet,
Paulson encourages homeowners to remain hopeful. Because the government has
taken over these lenders, mortgage rates are poised to drop. Additionally, the
lower rates will potentially increase borrower applications, which are down 27%
from August 2007.
As federal
regulators took over the mortgage buying companies, both institutions are
currently placed under a conservatorship, which is similar to a Chapter 11 bankruptcy
code for businesses. Amongst other organizational changes, the conservatorship
calls for the replacement of CEO of Fannie Mae, Daniel Mudd, and CEO of Freddic
Mac, Richard Syron.