Saturday night my wife and I ran into some friends at a party. They’ve owned their home for over 10 years and are concerned about upgrading in the wake of Fannie Mae and Freddie Mac.
Ah yes, the two names that have haunted realtors, lenders, and bankers alike. So why are they relevant in the world of real estate?
Well, imagine playing Monopoly when you were a kid. You know how the game suggested you started off with a specific amount of money, then collected $200 every time you passed “GO?” In essence, Fannie Mae and Freddie Mac helped establish those rules for the real estate market at first. They established guidelines that your lenders (your bank) used to re-sell loans. (A little-known fact: your bank might not hold your loan; they could have re-sold it to another institution.) As Fannie and Freddie packaged up these loans, they essentially changed the rules. As government regulations loosened, Fannie and Freddie freely loaned money to people who weren’t necessarily as qualified as you or I to take out a loan.
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Thus, they put more money onto the monopoly board than the game could sustain.
Now, lending practices have tightened. Banks can’t follow previously suggested guidelines for Fannie Mae and Freddie Mac; they’re having to be far-more stringent, and follow the rules of the game again. The government has taken the role of playing mom, and policing these loans so the game doesn’t get out of hand.
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Perhaps this explanation is a bit simplified. But, it’s an easy way to understand how lending practices have changed.
If you’re selling your home, this means you may not have the multitude of buyers that you saw in 2004 or 2005 who seemingly had the means to purchase your property. However, the buyers that do come through with interest in your home will undoubtedly have the means to buy it. So, while it make take a little longer to find a buyer, your buyer is more likely to be a good buyer with the ability to purchase.
A new study called “The White Pages of Real Estate” outlines some of the background of these issues a little more. If you’d like to learn how Fannie Mae and Freddie Mac have impacted us here in the Milwaukee area, take a look the attached PDF in the picture window.
