US Treasury Removes Limits on Public Money for Freddie Mac and Fannie Mae

There is little doubt that the Daytona Beach homes market has been boosted by US government actions. The home buyers tax credit,  FHA,  Freddie Mac and Fannie Mae backing mortgages supports the market. I seen estimates of FHA, Fannie Mae and Freddie Mac involved in 90% of all current mortgages.

CBS Money Watch reports:

More than 90 percent of all loans are bought by either Fannie Mae, Freddie Mac, FHA, Ginnie Mae, or USDA (rural development loans). That means Uncle Sam is taking on virtually the entire risk of the housing market. (Fannie Mae and Freddie Mac: Happy Anniversary)

The following blurb was published in the January 2nd edition of the Economist:

The share prices of Fannie Mae and Freddie Mac soared in response to the Treasury’s recent decision to remove limits on the amount of federal aid to the companies. America’s biggest “government sponsored enterprises”, were bailed out in 2008 amid huge public mortgages losses. The amount of public money each could obtain was capped at $200 billion (neither has received that amount), but the Treasury now wants to “leave no uncertainty” about its commitment to the firms.

What Does Uncapping Fannie Mae and Freddie Mac Public Money Mean?

In a word, the Treasury action means one thing – unlimited support with public money. These government agencies, and others, will continue to purchase and guarantee mortgages for the banks. The support was limited. Those limits have been removed freeing mortgage lending expansion now and in the years to come.

I’m not going to argue the wisdom of the action by the Treasury. I’m pointing out that real estate prices will gain some measure of support. Coupled with the current home buyers tax credit, they are stimulating home buying. We don’t know whether the tax credit will be extended. I’m doubting it at this time, but if the federal government continues to guarantee mortgages, that will allow more mortgage money into the market.

On the other side of the pricing equation, foreclosures and short sales continue to dictate pricing. We don’t see this ending until 2011 to 2012. That doesn’t mean that price will keep falling until then. We have seen more buyers move into the market at different price drop points. If there are more buyers than foreclosure and short sale properties, then prices will stabilize or rise.

Keep your eye on the market if you’re planning to buy anytime soon. If you are, talk to me to see if you qualify for the tax credit. It could mean $6,500 to $8,000 in your pocket that may not be there after April 30th.