Financing

In case you haven’t had time to catch up on Interest Rate worries, Fannie Mae is taking some serious heat for what will likely be deemed "inappropriate use of company funds for the ingratiation of Management and Directors� or some such strangespeak. They’re coughing up restitution for corporate misdeeds to the tune of $400 million to settle up with Uncle Sam.

While it may not be as slight as a parking fine for the average taxpayer, it isn’t cookie crumbs either.

Many people are wondering whether or not there will be a “Fannie Mae Fallout� that will hit Real Estate Investors. This is understandable, since Fannie Mae is in the business of bundling loans. Here is a great explanation as to how Fannie Mae works, in a nutshell.

And here’s the short answer: while Fannie Mae does not have direct control over interest rates or bank loan policies, they have historically given banks a rather popular avenue to sell their current mortgages, thereby freeing up capital for them to make new loans. If this access to liquidity is compromised for the banks who originate home loans, then loanable funds will become more scarce. Banks will be much more careful about who they are loaning to, and at what rate, if the secondary market provided by Fannie Mae is somehow compromised. In other words, rates could rise a bit, along with a reduction in accepted applicants (due to shrinkage in liquidity).

But that’s only if Fannie Mae’s ability to operate is somehow hampered by all the commotion. If their operations continue as normal, and the $400 million is the worst of it, then everyone’s worries simply remain with the general economy.