Fannie, Freddie, Whatever it takes.

So Warren Buffet thinks it's a great idea. Frankly that's about good enough for me. So does the Dick Vitale of money, Jim Cramer at CNBC. In fact just about anyone you ask today is in favor of the government take over at the two lending giants Fannie May and Freddie Mac. While it would have been best that they not have to be dealt with in this way, the take over saves millions from foreclosure, nudges the real estate market forward and probably saves a run on one or several other lending insitutions.

For those of you who have their fannies and freddies confused, here's the simple version of who they are and why they matter.
Fanniemae and Freddie Mac, are the largest loan guarantors in the country. They are responsible, essentially, for the health of the loan mortgage market in the United States. They have nothing to do with a semi sweet box of chocolate or a deceased rock star.


They do have a significant impact on the health of the U.S. housing market and subsequently the American public as a whole. Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

Friends, if conventional mortgage rates begin to move towards a 5.5% rate from the mid 6% rates were seeing today, the faint light we've been imagining to see at the end of the tunnel will start to get brighter. Do not for one second think that this will cure all of our ills. There are still too many foreclosures both in the Indianapolis area AND nationwide for that to be the case. There is still far too much resale inventory for that to be the case. There is still a total trepidation among buyers that they are paying too much that won't go away anytime soon.

It will, however, add hope....which may be the most important factor in determining the direction of the market in 2009.

Virtually Green: What the Real Estate Business WILL Become (coming Monday 8/25)

Dropping the F Bomb: Recovery's Starting Point

For years real estate foreclosures have been a small percentage of the overall market place but still having a powerful affect on values. In the Indianapolis market foreclosures for many years were 7-9% of all properties sold over the course of any one year. Then came 2006....and 2007....and this year. In the latter part of 2006 foreclosures began to run rampant gobbling up a 15% share in the 4th quarter of the year. In 2007 that number rose to 23% of all properties sold and in the last 90 days here in 2008 foreclosures both nationally and locally were running as high as 30% of all homes in the market in a given price point. From a realtor's perspective, that's a stunning number.

30% is a stunning number because that means 1 in 3 homeowners who are selling have lost their property to a lender. It's a stunning number because it destroys value in other resales homes in a given neighborhood or township. It's a stunning number because it also means that municipalities have been denied the property tax revenue for those homes that's needed to provide essential community services. It's a stunning number because over a prolonged time period, it sets a totally different benchmark for comparable sales that affect the lives of many real people who are dependant upon the equity that they've created in their homes.

The crystal ball is still very murky but eventually we are going to see the foreclosure numbers turn. The recent passage of the 'housing bill' will allow many of the millions of sub prime loans made in '06,'07 and '08 to be refinanaced, thus saving them from the foreclosure wrecking ball. That will be a huge factor in any recovery from the housing depression we're in. It seems that the bottom of the trough may come late in 2008 or early in 2009 with the potential for the overall foreclosure market to begin to recede. When it does the resale market will begin to correct it's excessive inventory and eventually new home construction will begin to improve. But that's at least a year away. For now, simply saving more residences from ending up overgrown, dilapidated and depressing to many of their closest residences is a noble goal. It's one that actually may be in sight as the proverbial 'light at the end of the tunnel.' How far off that light is or how soon it becomes reality is still unclear. How soon it comes will determine whether our housing slowdown is a 'V' or a prolonged 'U.' For the sake of everyone's financial sanity, let' drop the F bomb NOW....and make certain that letter is a quick V instead of a long term U.

Questions? Comments? Donations? Greg@GregCooper.com or 317.848.GREG (4734)