Drew Sygit on the takeover of Fannie Mae and Freddie Mac

by Jerrold Bartholomew

Drew Sygit, a certified mortgage specialist from the Lending Edge Team in Rochester Hills, and author of Drews’s Mortgage News, Michigan sent me some interesting thoughts regarding the government takeover of Fannie Mae and Freddie Mac over the weekend. Drew offers several helpful points:

  1. Look for mortgage-based lending standards to become even stricter in the coming months.
  2. Look for increased flexibility in workouts and mortgage rehabilitation for distressed homeowners. Cash flow means everything under the present circumstances and policies geared toward keeping people in homes and making some payment may become more widespread. Drew explains that the irrational policies of the past that left properties vacant when the homeowner could have made substantial partial payments were largely a consequence of privity of contract. Going forward from the takeover, it appears possible that partial forgiveness of debt or debt-restructuring will be considered in order to keep people in their homes and keep some cash moving.
  3. The federal takeover is calculated to produce stability in the real estate and lending markets.

Drew Sygit’s complete email can be read in pdf here.

The fact that previous policies protected the contractual rights of the purchasers of mortgage debt on the secondary market makes me wonder whether the new policies have the potential to harm the purchasers of mortgage backed securities (MBS)—like pension funds and insurance companies. In other words, it appears likely that the mortgage meltdown will expand to other financial markets. The question for most seniors is whether the failure of Fannie and Freddie will be significant enough to impact their savings in life insurance products like annuities or whole life insurance. Comments are open.

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