Fannie Mae Raises Billions In Debt Offering

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So far the government's takeover of the troubled mortgage company Fannie Mae has had the intended effect, boosting confidence in the mortgage market. In a new bond offering yesterday, Fannie Mae was able to raise $7 billion from investors. NPR's Chris Arnold reports.

CHRIS ARNOLD: Fannie Mae needs to borrow money so it can keep playing its crucial role financing home loans around the country. And something good happened yesterday when it borrowed that $7 billion. Brian Bethune is chief U.S. economist at Global Insight.

MR. BRIAN BETHUNE (Global Insight): The key is that they are able to raise that debt at lower rates. That's the big difference as to what's happening now versus what was happening a week ago.

ARNOLD: Fannie Mae and Freddie Mac have been hit with big losses from the foreclosure mess. There were fears that they could collapse. So investors were demanding higher interest rates when they loaned the companies money. Sort of the same way a person with bad credit pays higher interest rates to buy a house or a car, Fannie Mae's credit was messed up. But now the U.S. government will cover the company's debts if it comes to that, so it's quickly becoming cheaper for Fannie Mae to borrow money. And that makes it cheaper for homebuyers to borrow money.

Mr. BETHUNE: That's being transmitted into lower mortgage rates. In fact, the speed of adjustment there was amazingly quick.

ARNOLD: Already interest rates on 30-year fixed loans have fallen four-tenths of a percent with some lenders offering rates in the high 5 percent range. Bethune thinks rates could come down a bit more. That won't solve all the economy's problems, but it would provide a much needed shot in the arm for the housing market.

Chris Arnold, NPR News.

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