posted
What would happen if we didnt bail them out?
WASHINGTON — A top House Democrat confirmed Saturday that the government is planning to intervene to stabilize troubled mortgage finance companies Fannie Mae and Freddie Mac.
Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said in a statement that Treasury Secretary Henry Paulson "intends to use the powers that Congress provided it" in a law passed in July to enable Fannie Mae and Freddie Mac to keep functioning.
But Frank, who spoke with Paulson late Friday, said he did not "know the details of the proposed interventions," and a Treasury spokeswoman declined to comment.
A person briefed on the matter Friday said the government was planning to take over both companies, which together hold or back half of the nation's mortgage debt.
The intervention, which could cost taxpayers billions, was expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.
Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the companies into a conservatorship as early as this weekend.
Fannie Mae and Freddie Mac have lost a combined $14 billion over the past four quarters as a record number of Americans fell behind on their mortgages and went into foreclosure. While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.
In July, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the companies if needed. Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses.
The Bush administration, however, may have little choice but to support Fannie and Freddie.
Their role in the U.S. mortgage market has grown dramatically over the past year as other lenders collapsed under the weight of bad subprime loans. The companies guaranteed about three-quarters of all new mortgages in the second quarter of this year, up from under 40 percent in 2006, according to the trade publication Inside Mortgage Finance.
Fannie Mae was created by the government in 1938, and was turned into a public company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.
-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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posted
Isnt it just great how these things can fail due to poor and unprofessional management....then the govt comes in and bails them out.
You know...in REAL business if you fail you are done. You learn from your mistakes and drive on. The government is the biggest failure of all business, and yet it never goes out out of business. It bails itself out on money it didnt have in the first place!
-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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posted
Short and sweet I heard on the news this morning that the Govt. might take the both over tosay on a sunday no less so monday they will be in control.
Things are not looking good
Posts: 6008 | From: phoenix az | Registered: Mar 2005
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posted
Close Window Fannie, Freddie blind to the bubble Saturday, September 6, 2008 WASHINGTON - Mortgage giants Fannie Mae and Freddie Mac - despite their robust cadre of economists and mortgage experts - failed to heed warnings that the most dramatic housing bubble in U.S. history would burst.
The companies - particularly Freddie Mac - didn't raise enough cash to reassure Wall Street that they would be able to withstand a severe downturn in U.S. home prices.
Federal regulators after scouring the companies' books with aid from investment bank Morgan Stanley - believe the companies pushed accounting conventions when calculating their financial cushion against losses, a person briefed on the matter said Saturday. The person declined to be named because details of the government's actions were not yet public.
As their losses started rising at alarming rates over the past year, investors gradually lost confidence, forcing the government's historic takeover of the two companies, which could be announced as soon as Sunday and was expected to include the ouster of top executives.
Democratic Rep. Barney Frank, the chairman of the House Financial Services Committee, said in an interview Saturday that the companies' financial picture was better than investors assumed, but "it just plainly became clear that elements of the market wouldn't accept that."
Investors have reason to be jittery.
On Friday, the Mortgage Bankers Association said that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.
Also on Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. In July, regulators seized IndyMac, which had $19 billion in deposits. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns Cos. by JPMorgan Chase & Co.
Treasury Secretary Henry Paulson has been in contact in recent weeks with foreign governments that hold billions of dollars of Fannie and Freddie debt to reassure them that the United States recognizes the importance of the two companies.
Nevertheless, the Bank of China said in late August that it cut back its portfolio of the Fannie and Freddie's debt by about one quarter since the end of June.
Washington-based Fannie and McLean, Virginia-based Freddie are the engines behind a complex process of buying, bundling and selling mortgages that remains a mystery to millions of Americans whose home loans pass through this system. Together Fannie and Freddie hold or guarantee about $5 trillion in mortgage debt - about half of the U.S. total.
They traditionally backed the safest loans, 30-year fixed rate mortgages that required a down payment of at least 20 percent. But in recent years, they lowered their standards dramatically, matching a decline fueled by Wall Street banks that backed the now-defunct subprime lending industry.
Armando Falcon, who clashed frequently with the companies during his six years as Fannie and Freddie's chief government regulator, said in an interview last month that the companies' woes are similar to the downfall of other major corporate titans like Enron and WorldCom earlier this decade. "It boils down to a whole lot of greed and arrogance," he said.
The companies, he said, took advantage of the perception on Wall Street that the government would stand behind them in a time of crisis, as is now the case.
With that implied government backing, the companies generated large profits for years, but ultimately took on too much risk, causing investors to lose faith in their ability to navigate the historic housing bust.
Economists who long warned the U.S. housing boom could not last are baffled that the companies were not better prepared for what they saw as an inevitable downturn.
"How could you look at an enormous rise in prices and not think there was a potential for them to fall?" said Christopher Thornberg, a principal with Beacon Economics in Los Angeles.
Another longtime proponent of the housing bubble concept is Dean Baker, co-director of the Washington-based Center for Economic and Policy Research. He recalls several occasions when he debated top Fannie and Freddie economists, who dismissed the idea that U.S. home prices could decline.
"Even if they didn't' want to listen to me, they should have at least thought this could be a possibility," he said.
Plummeting home prices are the key to Fannie and Freddie's troubles. As prices fall - as much as 25 percent over the past 12 months in Las Vegas, Miami, Phoenix and Los Angeles - the value of mortgages the companies hold on their books drops. That means Fannie and Freddie are recovering far less money through foreclosure sales.
While a government intervention had been expected for weeks, its timing came as a surprise.
The companies had been able to raise money through regular debt sales, but analysts say the Treasury Department likely grew concerned that foreign investors were pulling back.
"The main goal is to inject confidence in to the foreign debt markets to ensure that the flow of capital to the mortgage market continues," said Howard Glaser, a Washington-based mortgage industry consultant who has worked for both Fannie and Freddie.
In addition, an investigation by investment bank Morgan Stanley into the two companies' financial positions may have turned up new financial problems.
Freddie Mac in particular has had investors and analysts fearful for months. The company, led by CEO Richard Syron, promised to raise $5.5 billion earlier this year to shore up its finances, but failed to do so, and its sinking share price has since made it all but impossible for the company to raise that money from private investors.
Fannie Mae executives are likely to have resisted the proposed takeover because the company's financial condition isn't as dire as its sibling company, said Bert Ely, an Alexandria, Virginia-based banking industry consultant.
But the government would still have to take over both companies, he said, to allow them to borrow money at the same rates.
"In order to level the playing field between the two companies, you've got to take over both of them," said Ely, a longtime critic of the two companies.
Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie.
While Fannie and Freddie generally had higher standards for lenders than the subprime mortgage companies that started going belly-up at the end of 2006, the duo lowered their standards during the housing boom and bought securities linked to riskier loans.
Even as the subprime mortgage market collapsed, Fannie and Freddie kept backing risky so-called Alt-A loans, which were made to borrowers with solid credit but little proof of their incomes, or small or no down payments.
For Fannie and Freddie, these Alt-A loans made up roughly 10 percent of their portfolios but accounted for more than half of their credit losses in the second quarter. The souring loans were concentrated in California, Florida, Nevada and Arizona, where speculation was rampant, prices soared and homeowners stretched to the financial limit to afford a home.
posted
What the hell is going on? Corporate welfar?
There are two sides to this:
If borrowers of home mortgages would (or could) have kept up their payments, all would be well today. This mess would not be occurring now. Most of the blame lies here....some too greedy wanting more than they knew they could afford and a few who totally didn't truly grasp what they were getting into.
The one thing you didn't see is ANYBODY going to JAIL for cleaning us out. Who ever heard of giving loans to peole that don't have to even prove their income OR if they even have a job. Lots of loans don't even have income applications in the folders, and they say they didn't know this was going on.
-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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posted
What the hell is going on? Corporate welfar?
it's more like blackmail...
we SHOULD let all the **^**&er's fail, but if we do? then we'll go into a depression.
they know this....
then there's the issue of inflation... normally the FED would respond to infaltion by raising interest rates, but when they started raising them? all these adjustable mortgages started going high and people started failing on their mortgages...
i don't know for sure, but i BET that alot of people (retail customers) knew the rates COULD go alot higher, but they were told (by mortgage brokers) it's very unlikely, or (wink wink) it'll never happen...
and like you said? some people never even knew they were getting put into an adjustable because they trusted their broker.
i would like to be able to make a good score on on the perfect peice of property for me.. i'm basically ready, but the bailouts are still holding prices up...
alot of people will be hurt if prices drop too much... bailouts will not fix the market, but they will keep it from getting as bad as is would be, and they will make the whole thing take longer to get thru the system...
right now:
Foreclosures, Overdue Mortgages Increase Again Troubles Extend Into Prime Loans Via Option ARMs By JAMES R. HAGERTY September 6, 2008; Page A3
The rate of U.S. home mortgages overdue or in foreclosure rose again in the second quarter as housing markets weakened, particularly in California and Florida, and more borrowers defaulted on so-called prime loans.
Among mortgages on one- to four-family homes, 9.16% were at least a month overdue or in the foreclosure process in the second quarter, according to the latest survey by the Mortgage Bankers Association, a trade group. That is up from 6.52% a year earlier and is the highest level since the MBA began such surveys 39 years ago.
Among loans insured by the Federal Housing Administration, 14.87% were overdue or in foreclosure, up from 14.73% a year earlier. The portion of FHA loans going bad is likely to increase in the quarters ahead because of a surge in new loans insured by the federal agency.
most of the reasonable estimates i have seen forecast that this will last at least another whole year...
inflation can't be "controlled" because it will make more people lose their homes too...
at first? peopl were blaming sub-prime, but it isn't just subprime anymore, and if inflation keeps rising? more middle class non-prime people will be hurting...
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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quote:Originally posted by CashCowMoo: What the hell is going on? Corporate welfar?
There are two sides to this:
If borrowers of home mortgages would (or could) have kept up their payments, all would be well today. This mess would not be occurring now. Most of the blame lies here....some too greedy wanting more than they knew they could afford and a few who totally didn't truly grasp what they were getting into.
The one thing you didn't see is ANYBODY going to JAIL for cleaning us out. Who ever heard of giving loans to peole that don't have to even prove their income OR if they even have a job. Lots of loans don't even have income applications in the folders, and they say they didn't know this was going on.
did not read the article you linked to, but I can tell you first-hand that this subprime mortgage fiasco is one of the country's more shameful historic episodes.
Despite what I've been through--and nevermind my good payment history--on Friday I had to turn over nearly $100k in order to keep a foreclosure off my record.
One of the reasons I think politics is going to change fairly dramatically is that the Federal Reserve, accompanied by the Treasury Department and I think will be accompanied by the Congress, has crossed a very dangerous line in their bailout. They have essentially said, "We will put money on the table, taxpayers' money on the table, for any financial institution or business that is too big to fail." That is, if it fails, it'll send dangerous ripples through the economy.
here's what you have to ask yourself now:
if they KNOW they'll be bailed out? why not let the company bleed?
make losing trades with "friendly compettitors" and split the swag later?
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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posted
Glass, I bet they planned on bailout for a long time before announcing it. Im sure months ago they were having meetings with everyone about a green light to go public with a bail out request that will go forward.
Investors still get theirs while the taxpayers pay the burden. Damn shame!
-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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posted
Just saw something on the news...the CEOs of these companies have these "exit clauses" on their contracts that give them MILLIONS of dollars should they ever leave the company.
They spent 200 million dollars in lobbying over the past ten years....their are in bed with the devil! This is sick!
-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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Thousands of would-be home buyers without any money for a downpayment would be eligible for government-insured financing under a proposal that will be offered by President Bush in his fiscal 2005 budget.
Hailing the "zero down mortgage" as "the most significant initiation by the Federal Housing Administration in over a decade," federal housing officials said the plan to eliminate the normal three percent minimum downpayment will remove the single greatest barrier facing potential first-time home buyers.
"Offering FHA mortgages with no downpayment will unlock the door to homeownership for hundreds of thousands of American families, particularly minorities," Alphonso Jackson, acting secretary of the Department of Housing and Urban Development, said in a statement released in Washington.
According to HUD's projections, about 150,000 would qualify for the new loan in the first year alone.
FHA financing has become increasingly important in recent years as the Bush Administration has tried to increase the number of minority homeowners. He has pledged to create 5.5 million new minorities owners by the end of the decade.
-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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posted
here's the next sector looking to "wash our windshields"
GM, Ford Bankruptcy Risk May Decline With U.S. Loans (Update3)
By Jeff Green
Sept. 8 (Bloomberg) -- General Motors Corp., Ford Motor Co. and Chrysler LLC's bankruptcy risk will fall as the likelihood increases that they will get as much as $50 billion in U.S. government loans, a JPMorgan Chase & Co. analyst said.
Senator John McCain, the Republican presidential candidate, and Democratic challenger Senator Barack Obama both have said they support the appropriation. White House spokeswoman Dana Perino said last week that the administration is talking to Congress and the auto industry about the issue, without saying if President George W. Bush supports the funding.
posted
Just thought I'd pass on one of the posts from a MBS bond guy I follow. To put this in perspective, the 5.5 coupon closed Friday (prior to take over) at 99-16
quote: Green Monday ... It really is...
Posted: 9/8/2008 2:22:00 PM EST
Well, when I coined the term "Green Monday" this morning, even I thought a 2 point improvement was a slim chance, yet here it is. We are 5 ticks away from the proverbial January 23rd levels. people just can't buy 'em fast enough.
If these prices hold, 5.0's would shortly become your new current coupon.
Currently 5.5's are at 101-16
5.0's are at 99-17
6.0's are at 102-22
It'll take time for lenders to price this all in. Locking makes little sense unless you are simply tired of sitting at the table. No one could blame you for hitting the "deal" button and taking your couple hundred grand. The rest of us are playing for the million.
Wasn't there some guy around here the other day that said "money moved to the sidelines?"
Well, with the 10 year treasury nearing unchanged, Stocks up big, MBS up big, we have our proof of that and more.
Always remember Green Monday. Remember where you were. Day's like this don't come around too often.
-------------------- No longer eligible for government service due to lack of tax issues. Posts: 5178 | From: Up North | Registered: Dec 2005
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-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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Both Fannie Mae and Freddie Mac have both lost tens of billions of dollars during the past two years and both are asking the government to prop them up. Last week, Fannie Mae requested $1.5 billion after posting a loss of $3.13 billion, or 55 cents per share, in the second quarter.
-------------------- Buy Low. Sell High. Posts: 10755 | From: The Land Of The Giants | Registered: Feb 2005
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posted
it's even more obvious now that not bailing them out would have dumped US into a full blown depression.
the reason Fannie nd Freddie were created after theGreat depression was to insulate the private market from the risks to banks of declining real estate values observed during the depression. Every time a bank forclosed on another property their books looked worse which made people want to get their cash out of the bank. Hence the creation of the FDIC too...
all the "big" people claiming "let them all fail" have have plenty of cash on hand to buy up great deals for pennies on the dollar. That's why they want to see another depression. It's a great way to make a fortune on the misery of the general populace. But it's China that wanted it the most. Sec treas. Paulson went to Beijing in July of 07 to ask for more mortgage lending from the Chinese and they refused.
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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when the recesion hit the country? it didn't seem to hit here for a year. i noticed that alotof vacant commercial buildings were being remodeled and filled...
well, 2 years laters it's now here and full on...
i could buy a 1 acre commercial property today on a major divided highway with a turnaround right at the entrance for (asking) 60K....
this is 2500 sq. feet retail/warehouse with a 6 foot fence around thge full acre and full security camera surveillance.
it's not quite big enough for what i want so i am passing but if i were to make an offer i would start at 40K and prolly get it for 50K$.
housing? how does 3500 sqft custom 3 BR 2.5 baths on 1 acre witha 3000 sq ft 2 story workshop asking 159K sound? that would go at 130K... wrong location for me too.... but i can feel it coming to me
i'm just going to enjoy the lemonade and stop worrying.
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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-------------------- It isn't so much that liberals are ignorant. It's just that they know so many things that aren't so. Posts: 6949 | Registered: Apr 2004
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we had an opportunity last year to move to AZ and it fell thru.. I don't recomend this area as greatplace to live tho...
in Maricopa city, not the Co. i found hundreds of homes -- many on acreage for even better prices... i haven't looked this year, but i was ready to jump.
one place in AZ was 8 acres regular home (3-2) with 2 car attached and a 6 bay detached steel building with extra space beside the 6 18 foot garage doors.. on top of that there was also an airconitioned workshop 2200 sqft. a small barn with stalls and tack room too, all for 120K$
IMO? there's no rush on these types of deals, we are in this till 2012 for sure.
-------------------- Don't envy the happiness of those who live in a fool's paradise. Posts: 36378 | From: USA | Registered: Sep 2003
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