Some of you may recall that 45 days ago I predicted the 30 year note to get to 6%. Then 2 weeks after that I again reiterated the stance. Well after the Fed stepped in and took over Fannie Mae and Freddie Mac, we have now seen the rates drop to 6% on a 30 year fixed. That is the good news, here is the bad news.
By taking over these institutions the government has put there finger in the dam. Now they are stuck there with there “finger” in the problem that is our mortgage industry. It is going to cost the tax payers BILLIONS to rescue these two giants. Compared to what we are spending in Iraq, that is a drop in the bucket, but none the less, it is Billions in dollars that could be better used to lower our debt as opposed to raise it. If the gamble pays off, and the money the government invests in Fannie and Freddie has a return, then they have made money. But when was the last time you wanted to gamble Billions of your hard earned dollars and that of your children?
A more realistic scenario is that these two entities become part of HUD in the next 4 years and lending guidelines for the next 4-8 years are slow to loosen. Regional banks and local banks will become the place creative financing, but only for those people that have excellent credit and significant assets or equity.
For questions or comments on this please contact Chris Scheer at cscheer@cornerstonestl.com or 314.223.9824.
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