Local opinion was split Monday on the effect of the government’s weekend takeover of Freddie Mac and Fannie Mae, with some expressing optimism and others calling it “a dark day for capitalism.”
Experts said it’s too soon to tell whether the move, which includes federal operation of the two mortgage giants and the government’s purchase of mortgage-backed securities, will help.
“It’s got to be a positive thing for the market, to inject a little more stability into the markets,” said Jody Landers, executive vice president of the Greater Baltimore Board of Realtors.
While Baltimore has not been as hard hit by the downturn in the housing market and foreclosure crisis, Landers hoped the move would loosen credit conditions and help buyers obtain home loans.
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.
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, Zandi said. “Effectively, the federal government has now become the nation’s mortgage lender. This takes a major financial threat off the table.”
But that could be a problem. The government has bailed out private investors and may have artificially inflated another housing boom, said Stephen Walters, a professor of economics at Loyola College.
“I think we will date the start of the next bubble to this weekend,” he said. “What the government has done here is to invite people to take on more risk than is safe.”
The move could also halt the gradual elimination of a glut of homes on the market, as well as the correction of home prices to a more reasonable level, Walters said.
The median sale price for homes in Baltimore City and its five surrounding counties in July was $278,000, down 2.46 percent from the year before, according to the Realtor-owned Metropolitan Regional Information Systems Inc. New MRIS numbers are expected Wednesday.
David McIlvaine, an Ellicott City agent who specializes in foreclosures, said Freddie Mac and Fannie Mae’s loan standards are widely used but that the firms themselves aren’t necessarily well-known to the general public.
Still, he said he believed the government’s action would help stabilize the housing market.
“But right now it’s chaotic,” he said. “We don’t how it will play out.”
