Wednesday, September 10, 2008

Fannie and Freddie
I will be the first to admit that I am not sure of the full ramifications of the Federal takeover of the two mortgage giants. I do know that it is huge news. And I do know that the next Presidential administration and Congress will be left to fix the two firms, if there is anything left to fix. (It does not give me comfort having politicians of any political party involved.) My first impression is that if the takeover lowers mortgage rates it may not be such a bad thing given the state of the housing market. If lower rates spur home buying that will be good, too, because any loans made today will likely be of higher quality in terms of borrowers and asset valuations than loans that are going bad on Freddie's and Fannie's books. Whether this takeover is good or bad won't be known for at least six to nine months. The market's reaction (up and down) shows it has not quite figured out the takeover either.

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