On Target

The Fulton Research Blog

The Next Fannie Mae

In the euphoria of a strong housing market recovery, many people are looking past a ticking time bomb reminicent of Fannie/Freddie in 2005.   Ginnie Mae, the federal agency that packages, guarantees and sells the mortgage securities backed by FHA loans, has seen its volume skyrocket in recent years — from $410 billion in guaranteed loans sold in 2006, to $680 billion in the first 7 months of 2009 and a projected $1 trillion worth of loans in 2010.  What’s the problem?  Well, there are signs of increasing defaults and the potential implosion of this agency will leave taxpayers holding the bill for these loan obligations, ala Fannie/Freddie.  This recent Wall Street Journal article, “The Next Fannie Mae”, clearly identifies the red flags that will lead to this implosion.

What does this mean to us?  If Ginnie Mae goes belly-up, the FHA mortgage engine will slow significantly, causing rates to rise and qualifying criteria to become tighter.  This will affect mostly the first-time buyer market and the outer markets where FHA mortgages are most prevalent.

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