Congrats, you're now responsible for FNMA and FHLMC

[dtw]

The government seized control of their pet GSE's yesterday in a move that has caused a major rebound in the market already this morning. Market confidence is up, and this should be a decisive factor in the ultimate turnaround of the housing market. In fact, mortgage rates may decline even more in the coming months.

The catch? Ah yes, the US taxpayer is now directly responsible for FNMA and FHLMC (Fannie May and Freddie Mac). Combined, we are now collectively guaranteeing around $5 trillion in mortgages. Let me see if I can spell that out:

$5,000,000,000,000.

That rivals the national debt. As a homeowner, I am not only responsible for my own mortgage, but also a share of about half the conforming mortgages in the country.

On the other hand, we must be mindful of the role these GSEs have played for decades. Without them, mortgages would be much harder to come by. If you've shopped for property in other countries, you know what I mean. And if the agencies had collapsed, it could have caused the economic cataclysm of the century.

[Rick Lee]

One of the articles I read on this said the taxpayers could actually come out ok on this. The U.S. Treasury is getting a LOT of preferred and common stock in this deal. If the bailout helps the market return, the stock price could go up and eventually pay the taxpayers back.

[Pazuzu]

What I find more frightening than the idea of *us* being in control of Freddie and Fannie is the *government* being in control. See...it smacks of Communism when the government suddenly, essentially takes over ownership of 50% of the property out there.

It depends on how you look at it though.

[Porsche-O-Phile]

No good can come of this.

[JeremyD]

Why are people not being led off in handcuffs? Why do we as a society get all engrossed in such trivial matters as the Hulk Hogan Divorce, or what Britney is wearing to the VMA's yet turn our head when FRAUD has been committed - and tax payers have to foot the bill.

These fouckers that committed fraud should be sitting in prison - produce false loan applications - you get six months!

Between this and the media's SLANT on both politics and the economy - Man - we need some changes in this world.

[dtw]

Originally Posted by jeremyd

these Fouckers That Committed Fraud Should Be Sitting In Prison - Produce False Loan Applications - You Get Six Months!

...each!

[sammyg2]

How about all the people who obtained loans they couldn't pay back and then walked away from them? They are the real culprits here and are the ones who need to suffer, but instead we are bailing them out!

[tcar]

People have been fired.

FNMA was originally a government agency, part of FDR's "New Deal". About 40 years ago, the feds, mostly to get it off the books, converted it to a private entity ('68, I think).

It's back.

[red-beard]

Originally Posted by Pazuzu

What I find more frightening than the idea of *us* being in control of Freddie and Fannie is the *government* being in control. See...it smacks of Communism when the government suddenly, essentially takes over ownership of 50% of the property out there.

It depends on how you look at it though.

Nah it would be communism if we own it. If the US govt owns it, it is socialism.

[onewhippedpuppy]

If you own your own mortgage, can you write off that debt?

[Rick Lee]

I'm not sure that Fannie's and Freddie's woes were caused by illegal acts, which is why we're not seeing execs do perp walks. If they lied about earnings or predictions or assets and liabilites, I'm sure that will come out and heads will roll. Not predicting what's been happening may be a sign of incompetence, but I'm not it's illegal.

[Rick Lee]

Originally Posted by JeremyD

These fouckers that committed fraud should be sitting in prison - produce false loan applications - you get six months!

Fannie and Freddie have absolutely nothing to do with this. They are not direct lenders. You can't just call them up and apply for a loan. They buy loans that have already closed, which were underwritten to Fannie/Freddie guidelines. If there's fraud in a loan, it occured long before Fannie or Freddie got a hold of it.

[Pazuzu]

Originally Posted by red-beard

Nah it would be communism if we own it. If the US govt owns it, it is socialism.

Or "State Capitalism" which is a term I just learned. It seems to fit quite well, and is considered the anti-point to a true free-market economy.

[Porsche-O-Phile]

Originally Posted by Rich76_911s

I have heard that the Chinese were not going to buy mortgage backed paper anymore, which forced the government into this. The good that may come out of it is that housing prices aren't going to drop like a rock instantly. Had the government done nothing coupled with the chinese actions of not buying the debt, housing prices could have dropped to frightening levels VERY quickly. Morgage rates would have sky rocketed, and things would not have been very pretty. At least that is my opinion. Maybe they will still do that maybe they won't I don't know, but at the very least it was delayed.

I honestly don't know what to make of it all.

Simply more evidence that the Chinese are smarter (or at least much more cunning) than we are.

Good lord, I have a hard time believing that this is the same United States that once was the most powerful, most industrious and most savvy nation in the world. Now we're simply collectively dumber than dogschit and handing over our childrens' futures to the squinty-eyed communists all in the name of cheap plastic crap and HDTV. We love to revel in our own perceived financial brilliance - we think we've got it all figured out with respect to market dynamics and economic cycles and how to keep a "capitalist" economy ticking, yet the Chinese are proving that they're smarter than we are by giving a "no confidence" vote to the housing market that we should have given to ourselves six years ago. And reformed accordingly. We should take a few cues from them.

I feel for the younger generation. They'll be the ones that end up in indentured servitude to their Chinese overlord masters for their entire lives. Thanks to us.

[dtw]

Originally Posted by Rick Lee

Fannie and Freddie have absolutely nothing to do with this. They are not direct lenders. You can't just call them up and apply for a loan. They buy loans that have already closed, which were underwritten to Fannie/Freddie guidelines. If there's fraud in a loan, it occured long before Fannie or Freddie got a hold of it.

Absolutely, and they do not engage in commercial property lending. The nationalization fear is unfounded, IMHO. As commercial lenders have no interest in being used car dealers, federal loan agencies have no interest in being REITs or property auctioneers.

Rick, I am not sure how the stock transaction is taking form, but it doesn't sound like the preferred stock is a public issue. The gov't is taking preferred securities that would be presumably be converted/liquidated in some sort of IPO (if they ever get spun off again, which I hope they do at an appropriate time). However, if the portfolio is shrunk to the size they're talking about, I don't see how it will be possible to redeem the value to the taxpayers. It will have been transferred to the commercial lenders that purchase chunks of the portfolios (I'm buying financial stocks this week, that's for sure). The target portfolio size is $250B - I remember mornings when Freddie had traded more than $300B before I woke up. They are talking about reducing these agencies to about 1/10 their current size. Seems like push-pull - yes, in so doing you reduce the risk to the taxpayer but what is the impact on the homebuyer? So, I think there are a lot of questions to be answered about keeping the taxpayer 'whole' while preseving the charters of the agencies. At this point, I think most people would just prefer that their charters be revoked.

With any luck, that issue is top of mind at the Fed.

After reading about the reorganization, there's one thing that's clear - the lawyers had to have been spent some serious time on the transaction. This has been in the works for months. Wonder if the SEC will be reviewing for 'suspicious' transactions in Fannie/Freddie stock this year?

[TheMentat]

Originally Posted by sammyg2

How about all the people who obtained loans they couldn't pay back and then walked away from them? They are the real culprits here and are the ones who need to suffer, but instead we are bailing them out!

How is this bailing out people who walked away from loans?

[Rick Lee]

Originally Posted by TheMentat

How is this bailing out people who walked away from loans?

I think Sammy has his bailouts confused. The fed. gov't. IS bailing out plenty of folks, but this Fannie/Freddie takeover is a whole different matter. The deal Bush inked a few mos. ago was to have FHA expand their guidelines to let a lot of folks who are in trouble with loan-to-value and resetting ARM's with conventional or subprime loand refi into FHA. There are a ton of conditions on this, but I think that's what Sammy means. I guess the two do intersect in some way, however, in that some Fannie/Freddie loans that would otherwise go into default, will be rescued by FHA, which is much better insured anyway.

[cl8ton]

“Congrats, you're now responsible for FNMA and FHLMC”

Neat, think I will give myself a Zero interest loan.

Saw a clip on the news of a new type of home buyer.
They are defaulting on their current ARM’s but before they are foreclosed on, they buy
another house with a fixed rate then simply walk away from the first!

The wanker they were interviewing that is doing this seems like there is nothing wrong with it?

[Rick Lee]

Originally Posted by cl8ton

Saw a clip on the news of a new type of home buyer.
They are defaulting on their current ARM’s but before they are foreclosed on, they buy
another house with a fixed rate then simply walk away from the first!

I wonder how many folks are really in a position to do this though. I am in a perfect position to do it, but I don't think I represent many others. I have a 5/1 ARM on my condo in VA and I'm renting it out for about $25 a month more than my total carrying costs. I have a signed lease, so if I apply for a mortgage to buy a house here in AZ, I'll get credited with 75% of the lease to offset my mortgage debt. My ratios are low anyway, so I should have no problem qualifying. Once I get into my new house, I know I won't have to worry about my credit for several more years. So, if my tenants in VA were to walk, I couldn't find new ones and I couldn't sell the house, what would prevent me from mailing the keys in? Not saying I would do that. But plenty of folks are in worse shape than I am and would have to do that.

[cl8ton]

In down times, people do what they have to to survive, as they should.

It was just the arrogance of this guy they interviewed that wanted his cake and eat it
too, made me wonder if he is representative of this new type of buyer?

He made no effort to talk to his bank, work with a Realtor or at least try to make it work
somehow. His wife was not on the title of the foreclosing house, only his name. So you
guessed it, the new house is in her name only, almost as they planned it from the beginning.