Fallout From Freddie And Fannie

Just days after the announcement that the federal government would bail out Fannie Mae and Freddie Mac comes news from California, a state that has been hit hard in the foreclosure mess. Hopefully we will see a similar healing effect in Minnesota.

The federal government's takeover of Fannie Mae and Freddie Mac sent mortgage rates tumbling in California, raising hopes that the state's severely ailing housing market will get a boost.

After the federal action Sunday, consumers with outstanding credit Monday were offered rates as low as 5.375 percent on 30-year fixed mortgages, which is down nearly a full percentage point .

However, some experts cautioned that the long-term implications of the government's action remain uncertain and that it could take months, if not years, for housing prices to recover.

Edward Leamer, an economist and director of the University of California-Los Angeles Anderson Forecast said the takeover was not a silver-bullet solution. He said the overall drop in mortgage rates will probably be modest and not enough to jolt the housing market awake anytime soon. Nonetheless, if the federal government hadn't stepped in to rescue the mortgage finance giants, the housing mess would have worsened, Leamer added.

That view is widely shared by economists, who say the housing market is proving difficult to stimulate because of a combination of factors.

Banks, burdened by the mortgage crisis, have been reluctant to lend money to prospective home buyers, causing home prices to drop precipitously. At the same time, financially strapped homeowners whose property values have dropped have been unable to refinance their fast-rising, adjustable-rate mortgages at more affordable rates.

Many homeowners have been forced into foreclosure, causing a financial loss for their lenders and making banks even more skittish about offering housing loans.

Fannie Mae and Freddie Mac support the housing market by either buying mortgages directly from lenders, or guaranteeing their repayment, which helps increase the amount of money available for home loans. Courtesy Mercurynews.com