On Christmas Eve, the U.S. Treasury announced that the federal government would now provide up to $200 billion each to Fannie Mae and Freddie Mac to back losses and keep them solvent. Though the amounts given the two mortgage giants to date are $60 billion to Fannie Mae and $51 billion to Freddie Mac, losses are expected to continue to rise in the near future, and this action removes previous upper limits on the amount of assistance the government would provide.
With warrants to acquire 80% of the common stock of the companies, and now preferred shares paying a 10% dividend, Fannie and Freddie are moving toward 100% government ownership. Critics of this new funds infusion promise say that it was announced on Christmas Eve to pass with little notice by the general public enjoying their holidays. Whether you had noticed it before, now you know, and the question is "how can it help you?"
If you've considered purchasing a home in the first few months of the year, perhaps to take advantage of the expanded and extended tax credit, this announcement may signal an opportunity in foreclosures by Fannie and Freddie. With an open checkbook, and a desire to reduce inventories and restore price stability, there may be a tendency to take even less in price for homes in foreclosure. After all, if you were about to sell a home at a loss, and someone else offered to cover it in total, why not dump it as cheaply and quickly as possible? Be aggressive in your negotiations for a foreclosure property, as it may be an opportunity to buy more home for less.