Investeens

The intent of the Washington legislators is to, if possible, remove support for Fannie and Freddie. Is it possible that this can lead to the total abolition of these two GSE's?  The housing market is already a murky and daunting place for most Americans. They've lived through an exciting housing boom, then a terrifying bust. The housing market will only become more threatening if they were to disappear.

• - a long 30-year mortgage over which the interest rate stays the same
• - a low interest rate
• - locking in interest rates months in advance of actually borrowing the money to purchase the home

Basically, the housing market would become less liquid, meaning that it would be much harder to sell homes. Home aren't sold when buyers can borrow money to buy them or if the terms make the loan very expensive! Considering that there is already a millions of foreclosures flooding the housing market, there is already a large supply and low demand for homes. If Fannie and Freddie weren't around to make attractive loans possible, there would even fewer buyers and without them, home prices would fall even more!

If Fannie and Freddie disappeared, then investors who've bought hundreds of billions of dollars of their bonds would have to invest their money elsewehre. Currently, investors can put their money into the two companies and be happy with moderate returns.  After all, there is no risk involved because if the borrowers default, the loss is made up the goverment. This another way of saying taxpayer money.  Taxpayers are not happy about this because they're losing money! 

Almost all politicians agree that Fannie and Freddie cannot stay the way they are now.  The main discussion now is what should be done with them.  Should government support be cut completely? Should there be an alternative to the GSE's?  How much time should be taken to disintegrate them?  The answers to these questions will decide the the fate of the housing market in the near future.

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