What Fannie, Freddie bailout means for consumers

NEW YORK (9/15/08)--If you're about to buy a house, or trying to sell one, the government takeover of mortgage giants Fannie Mae and Freddie Mac may be good news. But if you're one of millions of homeowners behind on payments or if you now owe more than the house is worth, don't expect the bailout to bring much relief (The New York Times Sept. 8).

The bailout was designed to help stabilize the housing market, push mortgage rates lower and make sure that home loans remain available-- at good rates--to borrowers who have good credit and a down payment (Bankrate.com Sept. 8).

"The government's conservatorship of Fannie and Freddie will reduce the uncertainty in the financial markets regarding the GSE (government-sponsored enterprise) bonds and MBS (mortgage-backed securities)," says Credit Union National Association senior economist Steve Rick. "This will ensure private investors will put up capital funds for mortgages at prices households can afford."

Depending on your situation, you may want to take action now:

Move on mortgages quickly. There's no guarantee that the slight drop in mortgage interest rates immediately following the bailout will continue that downward trend.

Choose fixed over adjustable. Home buyers are advised to seek fixed-rate mortgages and stay away from adjustable-rate offerings.

Consider refinancing. If you're in an adjustable-rate mortgage and have a good credit score, ask about refinancing to a fixed-rate mortgage. If your credit score is low or you're behind on payments, though, you may not be able to make the switch.

Expect some movement in sales. The buyout is expected to make it easier for people to afford the house you're trying to sell, which is good news for sellers.

Finally, the bailout is a reminder that during rough and uncertain economic times, it pays to make sure investments are diversified. Well-diversified mutual funds, for example, help spread your risk among a variety of industries--such as financial services, health care, technology, and others--as well as among a variety of funds or securities from small, medium, large, and international companies in different industries.

For more information, read "Tough Times Series: What to Do When Your ARM Is Due" in Home & Family Resource Center.

courtesy of cuna.org