Quote:
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.
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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?
