conflict in the GSE structure and minimize the near term costs to the taxpayer.
“The taxpayers will have to come up with some of this bailout,” says Joy Jamison, president of the National Association of Black Mortgage Brokers. “It helps to destabilize the market and that is very important to us because it will allow us to continue the programs in the community. Those would have been affected the most.” According to Jamison, consumer confidence will get a boost. “People are afraid in the market right now. They are afraid to buy and do refinances. They will look to buy houses again and will help to energize folks and bring this whole market back.
“Half of the loans in this country are backed by Fannie Mae and Freddie Mac,” Jamison says. “It affects all of the industries. They are all down right now-the appraisal and title industries, mortgage insurance, and individual mortgage companies.”
In recent months, the housing crisis has shattered many banks and reduced the amount of consumers seeking mortgages. The Federal Reserve reported recently that consumer borrowing grew at a rate of just 2.1% in July, the slowest pace since a 1.9% rise last December.
Since the announcement was made, Wall Street has responded favorably. The Dow Jones industrials gained more than 150 points, and there was a rally among banks with exposure to mortgages.
Samuel D. Melvin, a mortgage planner at Dessert State Mortgage, says that although taxpayers will see an initial increase in taxes, they will receive dual benefits from the seizure, first as a decrease in new mortgage interest rates and also first with lower mortgage interest rates, and secondly with government making a profit on their investment.
“Whenever the government steps in, there’s an initial cost to the taxpayer. These activities will add to the federal budget deficit since the U.S. Treasury will use borrowed funds for this arrangement,” Melvin says. “But because there is typically a positive spread between the borrowed funds and the yield on the Freddie/Fannie bonds, the government earns a profit on the difference.”
The Treasury’s temporary authorities will expire at the end of next year and the GSE portfolios will begin to gradually run off. Fannie and Freddie will then begin to pay the government a fee to compensate taxpayers for the on-going support provided by the Preferred Stock Purchase Agreements.
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