Who the Heck are Fannie and Freddie?
A lot of talk has been circulating the news cycle lately about dropping stock market prices, HUD budget cuts, Fannie Mae and Freddie Mac needing a financial bailout, and other vaguely intimidating titles which can lead some people to believe the housing market is in crisis. While there has certainly been no shortage of bad news, there is also plenty of good news on the horizon. One of those good news stories, oddly, is also one of those intimidating headlines we mentioned earlier, specifically: Fannie Mae and Freddie Mac have been fishing for funds. Fortunately, this is not the harbinger of the apocalypse many homeowners think it to be. This week, we’re breaking down what it is Fannie Mae and Freddie Mac actually do, why they’ve been receiving extra government assistance in the past few months, and what this means moving forward.
What are Fannie Mae and Freddie Mac
That’s right, Fannie and Freddie aren’t so much whos as they are whats. More directly, they’re government-sponsored enterprises, also known as GSEs. These institutions were built to safeguard liquidity in the housing market and promote housing affordability. Freddie Mac’s about page explains this pretty succinctly, saying, “we don’t lend directly to borrowers but buy loans that meet our standards from approved lenders. With the money that lenders receive in return, they can make loans to other qualified borrowers.” Basically, these two privately-owned buy properties with government aid and keep them in holding so that lenders can give better rates and longer terms to individuals buying a home.
So Why Did They Need More Money?
When a housing institution needs funds, some Americans start to get antsy. The fear of repeating the 2008 housing crisis still looms large over many potential homebuyers, and the thought of a budget to bail out two stabilizing institutions of the housing market fuels that fear. Fannie Mae and Freddie Mac both received a certain degree of assistance in their fourth quarter last year, whether in the form of modified provisions or borrowing directly from the government. However, these were all to cover losses incurred in the fourth quarter alone. These extra funds and provisions are the result of one bad quarter, it seems. According to Mortgage News Daily, both companies stated they are not nervous about the losses, and both actually saw larger comprehensive incomes than in 2016. (This is true for the pre-taxed numbers only, however. Both GSE’s post-tax income numbers were smaller. The
Trump tax plan has had a few unexpected side effects). Unfortunately, the scare of large fourth quarter losses were enough to perturb quite a few, including a writer from Forbes who worries for first time homebuyers in a market of rising prices. This leaves us to wonder, should we really be worried about losing affordable housing in the US?
The Big “So What?”
That question leads us to the big “so what?” What does this all mean for 2018’s housing market? The short answer is that you’re still probably going to be able to afford the mortgage on a single family home throughout most of the country. That same article from Mortgage Daily News we cited above also quoted Fannie Mae CEO Donald Layton who stated confidently that the organization is executing on their mission to help keep affordable homes affordable, and we’re inclined to believe him. However, with large cities running short on housing, places like Boston, LA, San Francisco, New York, and DC will still have housing rates far exceeding the budget of most first time buyers. These expensive rates aren’t uncommon, as a shortage of supply and high demand are key factors in creating a “seller’s market.” This is not news-worthy, however, since anyone living in or moving to those areas is well aware of the housing issues. In fact, San Francisco has been creating affordable housing for the city’s teachers to stop them from moving to different, less expensive cities. All in all, however, these metropolises are the outliers, and homes throughout America should remain somewhat affordable into 2018.
What other concerns do you have when buying or refinancing your home? Contact Oceanside Mortgage to learn more about mortgage options, home refinance options, or to learn which type of home loan is best for you!