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Mortgage Groups Supported
SHELBY TOWNSHIP — The Federal Reserve and Treasury Departments actions to help ensure the continued availability of Fannie Mae and Freddie Mac home mortgage credit has the full support of the Michigan Mortgage Lenders Association and the Michigan Mortgage Brokers Association.
The Fed granted the Federal Reserve Bank of New York on July 13 the authority to lend to Fannie Mae and Freddie Mac “should such lending prove necessary.” Under the measures announced then, any lending would be at the primary credit rate and collateralized by U.S. government and federal agency securities. Treasury Secretary Henry Paulson said the two companies will get a temporary increase in their line of credit with the Treasury as a protection against liquidity problems. The plan also gives Treasury authorization to buy equity in either of the two companies, if necessary, and includes regulatory reform legislation that’s now winding its way through Congress.
Both Fannie May and Freddie Mac are government-sponsored, privately owned enterprises.
Since Fannie Mae and Freddie Mac play such a central role in the U.S. housing market, their failure would devastate an already destabilized market.
Dan Grzywacz, MMLA president, said the Fed actions will help restore market confidence in the two institutions and preserve options for affordable mortgage loans for current and prospective home owners.
Grzywacz doesn’t think the Fed really had any other option. They had to bring back and build confidence in the housing market and the whole finance system. There were concerns about Fannie and Freddy stock dropping 80 percent and some investors fell into panic mode, which is why the Fed stepped in, he said.
“I was surprised at the speed with which they did it,” Grzywacz said. “I think they were quick and they were prudent, and I think what they did will go a long way to help stabilize the housing market. It sent a strong message to the market that Fannie and Freddie are pivotal to the industry and that they’re going to stick around.”
Grzywacz said the failure of Fannie Mae or Freddy Mac would have a devastating impact on the economy and the already crippled housing market.
There will be some regulatory reforms for Fannie Mae and Freddy Mac to strengthen them and shore them up, and those reforms should occur, Grzywacz added.
Michigan Mortgage Brokers Association President Audrey Acquisti said she believes the Fed’s decision to increase Fannie Mae and Freddy Mac’s credit line it was the only decision the Fed could have made.
“Fannie Mae and Freddie Mac hold approximately half of the $12 trillion of outstanding mortgage loans in this country,” Acquisti pointed out. “If one of the other would fail, it would severely affect our mortgage market and the U.S. economy as a whole. Without a secondary mortgage market, the consumer would suffer as fewer program choices would be available, guidelines would be even more restrictive.”