Sorting out the takeover

By RON LIEBER, New York Times

Last update: September 7, 2008 - 9:28 PM

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So what does the federal takeover of the mortgage finance giants Fannie Mae and Freddie Mac mean to consumers?

MORTGAGE RATES

If you have a fixed-rate mortgage, nothing will change.

If you are thinking of buying a home or refinancing a mortgage, the emerging consensus is that the government takeover will help stabilize rates. They might even fall a quarter of a percentage point or so, said Kevin Iverson, who has been in the mortgage business for 30 years and is president of Reed Mortgage Corp., a loan brokerage firm in Denver.

John Courson, chief operating officer of the Mortgage Bankers Association, a trade group, also pointed with relief to the statement by Treasury Secretary Henry Paulson that Fannie and Freddie would examine the fees they charge banks for loan securitization services, "with an eye toward mortgage affordability." Any reduction in those fees, he said, could help bring down mortgage rates a bit if banks pass on lower costs to consumers.

HOME PRICES

Rates matter in persuading people to step in and start shopping for a home, so any stabilization there can only help.

But headlines noting the government's move may not resonate with home buyers. "I would love it if people thought that way, but they don't connect the dots like that," said Steve Heideman, president of United Mortgage Financial Group, a mortgage brokerage firm in Tempe, Ariz.

DEALS ON OLD LOANS

Both Fannie and Freddie have already provided additional financial incentives to the companies that service the loans to modify some of the troubled ones. It remains to be seen how much further they can or will go to bail out homeowners.

RULES ON NEW LOANS

The interest rate you pay for a mortgage depends in part on the rules that Fannie and Freddie set for the kinds of loans they will buy. Now that they have new bosses in the federal government, the rules could change.

Courson, of the Mortgage Bankers Association, said in theory at least, credit score requirements, loan-size-to-home-value ratios and down payment requirements could come up for review.

Decisions on loan rules changes may be pushed off until after the November election.

INVESTORS

While it is not yet clear whether stockholders in Fannie Mae and Freddie Mac will be wiped out entirely, Paulson did say Sunday that the entities "will no longer be managed with a strategy to maximize common shareholder returns."

It's a lesson in the importance of diversification. If you invest in mutual funds, those funds may have lost a bit of money on Fannie and Freddie. But that is the whole point; it was just a bit, because most funds hold many securities.

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