The bail out factor behind the foreclosure crisis needs to be understood by the ordinary man on the streets of America.
With the news of the government lending a helping hand to the mortgage giants Fannie Mae and Freddie Mac the stocks rallied. The duo has in its pockets nearly half the mortgage contracts of the country. Some are roundly blaming them for the foreclosure mess.
Unfortunately critics are not very optimistic about the effects of the move on the foreclosure-dominated market. The foreclosure crisis has triggered off a closed circle of woes with one leading to another and this will not be easily snapped.
Fannie and Freddie have to provide funds to banks so that the latter can lend it to potential buyers of REO houses. To get the capital Fannie and Freddie resorted to selling the mortgages as securities to investors across the globe. It was all hunky dory until the foreign investors started feeling uneasy about the housing market. They began to mull over a big ‘if’. If the feds took over then what would be impact on their holdings? When questions arose about the solidity of Fannie and Freddie the government had no other option but to step in.
The ordinary American need not fear if the mortgage is a fixed rate contract. For them everything will be the same. For those mulling over purchasing or refinancing the good news is that the government intervention will lead to stabilization of rates. In fact these might even register a modest fall.
The next question is about the housing prices. Rates play an important role in persuading those sitting on the fence to walk in and start making purchases. Thus the stabilization factor will be a strong argument.
The general mood of the market plays an important role. The ordinary man might not be thrilled about the headlines screaming about the government intervention. In the final count it is the demand and supply factor that will hold the key. With foreclosures reigning supreme daily hundreds of REO properties are rushing into the market.
The foreclosure victim wants to know what hope is there for the individual against the backdrop of these big moves and hype. The government is not at all interested in foreclosing on thousands of houses. Rather it is going all out to see to it that people continue to stay in the houses that are their homes. As an example the instance of IndyMac is citied.
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