RateAPY

There is controversy over whether or not the US government backs Fannie and Freddie. Mortgage rates could be affected.

Posted by: RateAPY Bank Rates News
January 15th, 2010

This March, the government is going to stop buying mortgage-backed security (MBS), which some analysts say will cause mortgage rates to go above 6.0%. In response to the recession, the government had been looking for ways to support MBS sales to keep mortgage rates low. Low mortgage rates are important because the housing market has a long way to go until it is fully recovered.

How Far Does Government Support of the Mortgage Market Go?

Enter Fannie Mae and Freddie Mac, the largest home mortgage lenders in the country. In 2008, they were taken over by the U.S. government into a “conservatorship.” Does that mean they have the full guarantee of the U.S. Treasury against investors’ losses? If you invest in MBS issued by Fannie Mae, and Fannie Mae fails, will the U.S. Treasury back your investment? The Fannie Mae prospectus says, “no,” and the current presidential administration says, “no.” But as Mortgage News Daily points out, the Congressional Budget Office–in its financial projections–makes the assumption that these two entities operate with the implicit backing of the U.S. government. With significant uncertainty still in the air about the direction of the housing market, keep an eye on mortgage rates through 2010.