Comments on : Fannie, Freddie, Sam

This whole problem is the result of... Greed. Pur...

2008-09-08T08:47:00.001-07:00

This whole problem is the result of... Greed. Pure and simple. Greed by everybody involved. Greed by the wall street guys that came up with a whole new way to package mortgages but didn't think about the consequences. Greed by the banks and lenders who saw all this easy money to be made by completely throwing about all sensical lending standards. Greed by the Real Estate agents and all real estate people because all these rising house prices make everyone rich so why not go with it. Greed by home owners who believe that real estate values always go up and that a home is an investment and thought that they could get richer by leveraging themselves to insane levels and trading up. Greed by the TV networks that saw this trend and came up with stupid TV shows like "Flip this House"

Contrary to what Mr. Gecko said, greed is not good... Absolutely nothing wrong with making a profit, in fact that's the American way, but unrestrained greed as we have seen time and time again... not a good thing

9/7 11:58 has a good point, in the short run, MBS ...

2008-09-08T08:47:00.000-07:00

9/7 11:58 has a good point, in the short run, MBS spreads will narrow relative to treasuries, so rates will ease, but only i the short term.

IMO, the short term means until early 2009. Both Obama and McCain have called for a breakup and restructuring of Fannie and Freddie. The conservator arrangement basically leaves it to one of them to reorder things next year. With tax payers on the hook for defualts "above model" in the portfolios that Freddie and Fannie backstop, how can the next president and congress not drive a continued, major tightening of mortgage underwriting standards?

I would look for much more finegrained pricing of credit and mortgages next year. The best of the best applicants will benefit from lower than current rates due to closing spreads. The average borrower will likely pay higher rates than historical due to more stringent underwriting.

The issue for MB real estate will be how many prospective buyers will fall into very top applicant pools, and have higher percentages of down payment (probably many) vs. how many were/are stretching to buy a home they really cannot afford.

12:07Good one--but you missed THAT bubble by almos...

2008-09-08T05:01:00.000-07:00

12:07

Good one--but you missed THAT bubble by almost 500 years, methinks....

Timmy, you are truly clueless. First, you can't ev...

2008-09-07T15:54:00.000-07:00

Timmy, you are truly clueless. First, you can't even muster a coherent response to my questions, then you shift to a non-statement (and non sequitur) involving other banks.

"If they (Fannie & Freddie) get bailed out, then mortgages are easier to get than if they go under, and that's what this is all about,"
- David Wessel, Economics Editor, Wall Street Journal

"Although the US Government had made clear that it would stand behind Fannie and Freddie, the markets were so spooked by the companies’ mounting losses that the cost of their borrowing was rising. That in turn was pushing up the cost of US mortgages, more than three quarters of which are being financed by Fannie and Freddie. The US Government’s support for the companies should have an immediate impact on those mortgage rates, which may lessen the risk that US house prices “overshoot” on the way down as they did on the way up."
- David Wighton, Business Editor, Times On Line.

Timmy, I'm beginning to think you're just a no-nothing, bible-thumping boob in the COTC. If I were you, I'd start using that Power of Now by pretending you already own a home like your fellow Tolle cultist RB Dude; you don't have the smarts to own one in real life.

The downside risk is increased inflation because t...

2008-09-07T13:51:00.000-07:00

The downside risk is increased inflation because the government can always "print" more money, which it will if it has too. The winners here are real property owners, because there are only a few things that keep up with monetary inflation, real property being one. Plus,inflation causes a defacto decrease in value of the dollar, which reduces the real cost of repaying outstanding loans. Buy real estate (correctly priced), max out the loan and pay it back as slowly as possible.

Does anyone know how you go about investing in tul...

2008-09-07T12:07:00.000-07:00

Does anyone know how you go about investing in tulips?

Expect a temporary narrowing in MBS spreads, and d...

2008-09-07T11:58:00.000-07:00

Expect a temporary narrowing in MBS spreads, and drop in mortgage rates. Unfortunately the problem is too large even for the government to deal with, which is already saddled with close to 10 trillion in debt, and does not have the balance sheet to guarantee the 5 trillon in mortgages held and guaranteed by F&F. This is the fall of Rome people...you can thank the huggies of the world.

If there ever were a shining example of profits fo...

2008-09-07T09:51:00.000-07:00

If there ever were a shining example of profits for private corporations and losses for taxpayers to bear, here it is.

What this means is that you the individual tax payer was just put on the hook for the national mortgage debacle.

Press release and detailed links @:

http://www.treasury.gov/press/releases/hp1129.htm

----------------

http://calculatedrisk.blogspot.com/2008/09/statement-by-paulson-of-fannie-and.html

SUNDAY, SEPTEMBER 07, 2008

Statement by Paulson on Fannie and Freddie

by CalculatedRisk

From Treasury: Statement by Secretary Henry M. Paulson, Jr. on Treasury and Federal Housing Finance Agency Action to Protect Financial Markets and Taxpayers

* Conservatorship

* Preferred Stock Purchase Agreements

Treasury has taken three additional steps to complement FHFA's decision to place both enterprises in conservatorship. First, Treasury and FHFA have established Preferred Stock Purchase Agreements, contractual agreements between the Treasury and the conserved entities. Under these agreements, Treasury will ensure that each company maintains a positive net worth.
...
With this agreement, Treasury receives senior preferred equity shares and warrants that protect taxpayers. Additionally, under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares.
emphasis added

* Important for some FDIC insured institutions:

[C]onservatorship does not eliminate the outstanding preferred stock, but does place preferred shareholders second, after the common shareholders, in absorbing losses. The federal banking agencies are assessing the exposures of banks and thrifts to Fannie Mae and Freddie Mac. The agencies believe that, while many institutions hold common or preferred shares of these two GSEs, only a limited number of smaller institutions have holdings that are significant compared to their capital.

* Secured Lending Facility.

The second step Treasury is taking today is the establishment of a new secured lending credit facility which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

* Treasury to buy GSE MBS

Treasury is initiating a temporary program to purchase GSE MBS.

4:34 - Newport Beach, CA buddy!

2008-09-07T07:24:00.000-07:00

4:34 - Newport Beach, CA buddy!

From 5:12 to 6:06--No, you're right on that--they'...

2008-09-06T22:38:00.000-07:00

From 5:12 to 6:06--
No, you're right on that--they've ALREADY done the wrong thing there and now they can't figure out how to make it right!

Wait until the public pension problem rears its ug...

2008-09-06T18:06:00.000-07:00

Wait until the public pension problem rears its ugly head. Then say government usually does the right thing.

There's a difference between discussing what we sh...

2008-09-06T17:12:00.000-07:00

There's a difference between discussing what we should do now in this situation (Keep global
harmony? Yeah, I think so) and whether we should continue to let the wolves take advantage of the sheep (i.e., keep opening everything previously overseen/run by the government up to "privatization") because it's "better." As bad as bureaucracies can be, they don't usually rob you blind (in this country)....Yeah, there's a lot of pork being paid for our taxes, but most all of our government entities do the right thing most of the time.

10:46Water temps in the spring anywhere in SoCal w...

2008-09-06T17:03:00.000-07:00

10:46
Water temps in the spring anywhere in SoCal will be cold in the spring. Water swirls down from the north on this coast; better to go to a Carribbean beach in the spring if you want to swim.

10.46Newport, Rhode Island is SIGNIFICANTLY colder...

2008-09-06T16:34:00.000-07:00

10.46

Newport, Rhode Island is SIGNIFICANTLY colder than the other three on your list. Are you stupid, or what?

This is not a bailout. The shareholders get next ...

2008-09-06T13:44:00.000-07:00

This is not a bailout. The shareholders get next to nothing. Ask an investor who's lost 95% of their money in FNM stock if they feel bailed out.

This is a reorganization, and the bondholders will be protected, but it's important to understand that there are plenty of people who are getting hurt out there, for those of you who want your pound of flesh. The rest of us just want a stable housing and financial system.

3:39 - Privatization has worked well, silly. For u...

2008-09-06T10:46:00.000-07:00

3:39 - Privatization has worked well, silly. For us multi-millionaires who derive our wealth from multinational corporations!

Silly liberals, tax cuts our for kids.

Does anyone know if there is any discernable water temperature difference between these towns:

- MB (anywhere in South Bay)
- Laguna Beach
- Newport
- Coronado

I am thinking of renting a house for a week in the late spring and want some opinions. If they are all cold, might as well drive less, you get me?

Mookie is right about this issue. We tend to think...

2008-09-06T09:29:00.000-07:00

Mookie is right about this issue. We tend to think of these problems as local issues but they aren't. It's very tempting to tell all these guys to sink or swim on their own but the global economy is far too intertwined to allow that happen.

There have been bank panics since our country was founded and the reasons for them are all similar... a lack of regulation and oversight by the government along with convoluted schemes designed to make higher profits for financial entities and their investors.

It's easy to make housing the "goat" for the current set of problems. But it was what financial entities did with mortgages that created the issue not the mortgages themselves. The cheap money loans were not created to help Joe and Jane buy a home but rather to create another product to sell off on the secondary market.

Wall street encouraged lifting all restrictions on financial entities. Investors went along as they were making tidy profits. We saw this in the S&L debacle of the 80's. Public memories are short. I'm betting that in another 25 years we will have a similar situation.. only the names and the goat will be changed.

3:39 am - Dah. Comrade. Dah.Where is John Galt whe...

2008-09-06T09:18:00.000-07:00

3:39 am - Dah. Comrade. Dah.

Where is John Galt when we need him most?

Another nail in the coffin of the mortgage finance...

2008-09-06T08:38:00.000-07:00

Another nail in the coffin of the mortgage finance business. If mortgage lending standards go back to the way they were (stated income, 20%+ down etc), which they are doing, the floor under house prices will continue to move lower. Its about time, but man its gonna hurt.

For those that believe we should just watch Fannie...

2008-09-06T08:10:00.000-07:00

For those that believe we should just watch Fannie and Freddie blow up, you should think a little harder about what that would mean for the global economy. In essence, it would likely be worse than anything the Great Depression ever saw. Why? Who do you think owns most of the billions of dollars of debt that Fannie and Freddie have issued over the years, and that includes preferred stock... It's local banks, regional banks, money center banks, investment banks, international banks, sovereign wealth funds, etc. It's one thing to watch the equity go to zero (and in my opinion it should), but if the debt trades down significantly and the Feds walk away from it, we will see a crisis never seen before in this world. You'll see local and regional banks collapse overnight. You'll see money center banks have to write down billions and billions of more dollars. International banks will get clobbered since they own tons of this paper. Global economies will go in the tank. Be careful what you wish for bc if you get it, you'll see an unprecedented collapse in the world markets. Let's hope Paulson and Morgan Stanley (who is advising him on what to do) figure out something along the lines of the Bear Stearns bailout so we keep our economy in a rececssion instead of a depression.

Great post, MBW!

2008-09-06T03:40:00.000-07:00

Great post, MBW!

I love how deregulation and privatization have wor...

2008-09-06T03:39:00.000-07:00

I love how deregulation and privatization have worked so well: here in mortgages, energy (remember all the fun we had with Enron trading energy), etc.

Yeah, let's let everyone manage their own Social Security account, too. How many people would have bet the farm on some bubble? Maybe everyone who is up to their eyeballs now? The common person can do well as long as there is no trouble. That's why there are people who've been around the block (supposedly) managing things.

There are some things that should NOT be in the for profit business. (Churches, basic services,etc.) And when we do privatize something, the apron strings need to be cut. Otherwise, the "privatizers" get rich and leave all us taxpayers hanging in the lurch. Unbelievable....

Sounds like Freddie is getting ready to get kicked...

2008-09-06T00:28:00.000-07:00

Sounds like Freddie is getting ready to get kicked in the Fannie. Or maybe Freddie is stuck up the Fannie. In any event the shareholders of each are going to get screwed. But if we all kick in $50 bucks each, that will raise $15 billion which should get them over the hump.