Prospective homeowners in Manatee and Sarasota counties got a boost from the federal government's stunning decision to take control of two mortgage giants.
That's the opinion of a local banking consultant, a Florida mortgage expert and a state legislator after Sunday's landmark decision by the Bush administration to shore up the two large mortgage entities.
"I think it's a good first step that will restore confidence for the first-time homebuyer," said Tramm Hudson, a banking consultant who lives in Sarasota.
Although trying to grasp the dynamics of the takeover is hard without a financial background, mortgage expert Ritch Workman of the Tallahassee-based Florida Association of Mortgage Brokers, said that without Fannie Mae and Freddie Mac, home loans in Manatee and Sarasota and around the nation could dry up over time.
"Basically, when a loan is originated, a local bank can keep it 30 years or sell that loan to a loan securing entity, like Fannie Mae or Freddie Mac," Workman said. "Let's say the local bank has $50 million to loan on mortgages. How many $250,000 loans does it take before that limit is reached? Not that many. Without being able to secure the loans, banks would run out of home loan money."
Banks in Manatee and Sarasota sell bundles of mortgage loans to Fannie Mae and Freddie Mac when they approach their mortgage loan limit, Workman said. They get paid immediately at a discounted rate, but it frees up their books to make more home loans.
This system worked fluidly until several years ago when the federal government allowed Fannie Mae and Freddie Mac to buy loans in the sub-prime mortgage market, Workman said.
"The sub-prime market is simply any loan not prime, a loan given to someone with bad credit for instance, anything risky," Workman said. "Fannie Mae and Freddie Mac got into that mortgage market and we are seeing the result of it today."
Both Fannie Mae and Freddie Mac had to write off losses, Workman said. The losses have made it increasingly difficult for them to buy more "bundles," Workman noted.
"They were becoming insolvent because of their losses due to the sub-prime market," Workman said. " The fear was that if Fannie Mae and Freddie Mac were to go bankrupt, there would be no source to secure the loans."
If that had happened, Workman theorizes, banks in Manatee and Sarasota would not be able to make as many new loans.
"We would have a catastrophe if Fannie Mae and Freddie Mac would fail," Workman added.
Sen. Mike Bennett, R-Bradenton, said the federal government had no choice but to take the action it did. But Bennett wishes the Congress hadn't passed laws about a year and a half ago allowing Freddie Mac and Fannie Mae to buy sub-prime loans.
"Congress passed laws about a year and a half ago as part of a push toward home ownership in our country," Bennett said. "The American dream is home ownership, but it took it to the point where we were putting people into homes before they were ready. We started making loans with no income verification. There were bad lending decisions. Democrats in Congress were pushing for this. But I don't want to make this a Democrat -Republican issue. What is true is that our sitting Congress decided that home ownership should be a major goal and they allowed Freddie Mac and Fannie Mae to loosen up their requirements."
Bennett said the Bush administration had no choice but to bail them out.
"If they went down, they could bring down the whole financial system," Bennett said.
Hudson said the government's move was indicative of how serious the problem had become.
"I'm very glad the federal government stepped in to shore it up," Hudson said.
E-Mail
Print
Quick Job Search
@Nyx.replyAnswerText@