Fannie Mae and Freddie Mac Placed into Government Conservatorship
Fannie Mae and Freddie Mac, government sponsored enterprises (GSEs), were placed into a conservatorship Sunday by the U.S Dept. of the Treasury. The Federal Housing Finance Agency (FHFA) will serve as the conservator, and the CEOs of each company were relieved of their duties. Replacing them are Herbert Allison, former Merrill Lynch vice chairman, and David Moffett, former U.S Bancorp CFO, who will now lead Fannie Mae and Freddie Mac, respectively.
MAKING SENSE OF THE STORY FOR CONSUMERS
Under the conservatorship, the FHFA has the authority to take up to an 80% stake in the companies, and will review both GSEs' financial condition quarterly. The federal government may inject capital into Fannie Mae and Freddie Mac if needed. Both GSEs will be allowed to increase their mortgage funding over the next year and a half, and their stock will continue to trade, with stockholders retaining all rights in the stock's financial worth. However, the plan does call for a 10% reduction per year to GSEs portfolios, beginning in 2010, until they have been reduced to 250 billon.
Although the conservatorship has resulted in lower interest rates for consumers, and restored investor confidence, C.A.R is concerned that the Treasury and new CEOs will change the mission of role of GSEs. Without GSEs, mortgage capital eventually will be less predictable and more expensive. This may result in adjustable-rate mortgages becoming the standard for home buyers, as well as higher down payment requirements, and the possible disappearance of the 30-yr fixed rate mortgage.
C.A.R supports a structure that maintains GSEs in their current countercyclical roles and is urging lawmakers to support continued government involvement in supporting the institutional secondary market. As a result of these concerns, C.A.R will be asking Congress to enact legislation to ensure GSEs continue to fulfill their congressional mission of supplying an affordable and stable flow of capital for home loans.
Additional Articles
CNN Money
Your home: When it's wise to downsize
As a result of reaching retirement age and becoming empty nesters, more baby boomers are choosing to downsize from large, multi-room homes to ones with less square footage. While some buyers are choosing to downsize to save money, others--especially those still in the workforce--are opting for a lifestyle change, such as a shorter commute; the convenience of an onsite fitness center, often found in condominium communities; or energy savings.
MAKING SENSE OF THE STORY FOR CONSUMERS
Some buyers are choosing to downsize to condominiums, as they are often located in close-proximity to sops, restaurants, transportation; and everyday needs such as grocery stores, dry cleaners, or the pharmacy. Although this is convenient, buyers who wish to save money by downsizing should weigh all the facts before making the decision to downsize. While most single-family homes incur costs such as property taxes, utilities, and home maintenance, most condominium communities require owners to pay monthly homeowner association (HOA) fees, and sometimes special assessments. The monthly dues and special assessments are generally used for items such as replacing a swimming pool, upgrading the community clubhouse, or adding new amenities. Buyers concerned about these costs should ask how much HOA fees have risen over the past five years, and whether the association has plans for new assessments in the near future.
Even with the added costs, many buyers will realize an annual savings when downsizing. Some experts estimate that the average annual savings in utility costs and property taxes could be as high as $3,900 if a buyers downsizes from a 2,800 sq-ft residence to one that is 1,800 sq ft.
Buyers who are at or near retirement should consider acquiring a mortgage loan with a 15 yr maturity or a traditional 30-yr fixed rate loan that does not charge a prepayment penalty. Although payments on a 15-yr mortgage are higher and the interest rate is only about .10% lower than a traditional 30-yr fixed rate loan, borrowers can save approximately $141,000 in interest over the life of the loan.
If a borrower elects for a traditional, 30-yr fixed rate loan, they should consider one without a pre-payment penalty. This allows the borrower to make extra payments each month and pay off the mortgage more quickly, without adding additional pressure should their financial situation change.
San Francisco Chronicle
Negotiating Skills Vital to Home Purchase
With the high inventory of homes on the market, and an average time on the market of about 50 days for an existing single-family home in CA, buyers have more room to negotiate. Although sale price is a large factor during the negotiation process, many REALTORS are advising their clients that the motto of "it doesn't hurt to ask" can be used to negotiate other contingencies, such as inspection reports, closing costs, and the like.
MAKING SENSE OF THE STORY FOR CONSUMERS
While there are many homes to choose from, buyers should understand that homes in many affluent neighborhoods are still selling quickly and in some cases also are garnering multiple offers. Experts advise that a buyer should work with their REALTOR when negotiating the sale price, and also to ensure that the offer is realistic when serious about purchasing a home in one of those communities.
Buyers who are looking for the best-deal possible should consider homes that have been on the market for longer than is typical for their area and whose listing price has remained unchanged. Buyers also should consider making second offers on homes that the seller may have intitially rejected. Due to seasonality and the length of time the home has been on the market, some sellers may accept a lower offer than they originally planned.
In addition to the sale price, some REALTORS are advising sellers to negotiate on inspection reports. In today's market, some sellers may be more willing to pay to repair, or negotiate credit for repairs that arise during home inspection.
IN OTHER NEWS...
LA Times
The Mercury News
Market Snapshot
This week C.A.R is introducing Market Snapshot, a new feature that will appear monthly in Market Matters. Created by C.A.R's research and economics team, Market Snapshot offers REALTOR information about the current market, and provides consumer-friendly charts and graphs. CLICK HERE to visit C.A.Rs website, where you can view Market Snapshot.
brought to you by California Association of Realtors (C.A.R)
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