Sub Prime Meltdown: The Beginning of the End?

Freddie Mac announced it will buy $20B in fixed-rate and hybrid adjustable rate mortgage products to provide alternatives for sub-prime borrowers. Both Freddie and Fannie Mae are also working on developing new loan types to help distressed borrowers keep their home.

I think these announcements will limit the fall out of the subprime “meltdown”…much to the dismay of the buyers circling and waiting for the big spike in foreclosures in the DC metro area. The fact is that banks don’t WANT homes…they want viable loans. They’re not in the home foreclosure business, and they take big losses too, so the incentive is there for them to do everything they can to keep a buyer in their house, even if it’s a less profitable loan than it was several years ago.

Congress is too wary of being saddled with a “bailout” label to make any broad-scale changes, but Fannie and Freddie are already stepping in to manage the situation. I think buyers who are waiting for short sales and foreclosures in DC or close-in suburbs may be waiting much longer than they anticipated.

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