Numbers still good in increasingly tight money market

IF you've heard it on television this week or read it somewhere, it's true, President Barack Obama does want out of the mortgage business.

Fannie Mae and Freddie Mac have been under fire lately simply because they are being blamed for the mortgage meltdown over the last few years.

The Federal National Mortgage Association, commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It was set up as a government-sponsored enterprise, but it converted into a publicly traded company in 1968.

The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities, allowing lenders to reinvest their assets into more lending, and in effect increasing the number of lenders in the mortgage market.

The Federal Home Loan Mortgage Corp., known as Freddie Mac, is another GSE publicly traded company. Freddie Mac was created in 1970 to help defer some of the debt of Fannie Mae.

Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties that they may be having. U.S. taxpayers were held responsible for hundreds of billions of dollars in outstanding debts. We have seen this with the Troubled Asset Relief Program (TARP) bailout initiated by George W. Bush in 2008.

Taxpayers have been financing the bailout of these troubled institutions and it has become

a very unpopular topic among politicians seeking reelection. What does the new Congress and Obama have in store?

Obama's new plan calls for increasing downpayments of

10 percent on loans backed by Fannie and Freddie. No other state aside from New York will suffer a housing price decrease as much as California. This plan will reduce the number of qualified buyers in the market and thus affect the demand for existing and future inventory.

What does this mean for buyers and sellers? Tighter money markets equal lower home prices. Buyers are already having issues getting qualified for a home that they would have been able to purchase six months to a year ago.

When you reduce the number of qualified buyers looking to purchase a home you automatically reduce the asking price of the inventory out on the open market.

But there is still some resemblance of a private, capitalistic system in place when it comes to home buying.

At the moment, Federal Housing Administration (FHA) loans require a 3.5 percent down payment. In the local market, a first time buyer can essentially purchase a home for an initial investment of approximately $12,500 down and a minimum FICO score of 580.

Those are still good numbers in this ever increasing tight money market. If you have been on the fence on whether or not to sell or buy, look at the big picture. If you're a traditional buyer and not an investor, ask yourself, do I want to be in this house 30 years from now? If the answer is yes, an important factor in that equation - interest rates - are still at 30 year lows.

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