The Fed Takes Over Fannie and Freddie, Now What?
Already people have been contacting me about the Fed take over of Fannie and Freddie. What will that do to us or for us is the question? ………..From Dan Green who I respect: Sunday, the government announced that it will takeover Fannie Mae and Freddie Mac and assume their respective operations. Mortgage-backed debt is now government debt.But for all the front page stories today, there’s suprisingly little coverage about how the news impacts homeowners in need of a mortgage.Mortgage rates are down sharply today, and possibly forever.…………..another good article: These are potential benefits:
- Lender balance sheets will be cleaned up and thinned out.
- Mortgage rates and fees should get cheaper as a result.
- Mortgage paper will be turned into Federal paper, establishing much needed confidence from foreign investors. Its a global market, keeping foreign investment money flowing through our economy is vital to its existence in 2008 (and going forward).
- Federal paper will allow borrowers to potentially ‘work out’ their delinquent loans with far more flexibility than they could with lender owned mortgage paper.
Loan ‘work-outs’ were/are generally not in the interest of lenders, especially those who’ve retained mortgage servicing companies or run the divisions internally, since these profit centers are paid to keep homeowners in their current situation and/or handle the foreclosure process. If the business model is to keep borrowers making payments they can’t afford and/or pushing them into foreclosure, well its easy to see where the misalignment of objects and conflict of interests arise.
The government can effectively work with homeowners to restructure payment terms any way they see fit, keeping more people in their homes, substantially reducing the number foreclosures that have fostered the rapid depreciation in many housing markets around the country.
- Reduction of Wall Street volatility in what has historically been a stable segment of the bond market. Consumer confidence needs to be restored to the mortgage market, volatility and consumer confidence usually don’t coincide with each other.
Many speculators made a lot of money by short selling Fannie and Freddie’s stock, accelerating their devaluation. The SEC put a stop to this in mid July 08, by then the damage (or rewards) had been realized. Months late and billions short(ed) I will be linking other valid articles to this article over the next few days, so come back and check if you are interested. Visit Agent Genius for the completion of the text above. …..From the Garrett-Watts blog: They will still be in business Monday, but with their existing shareholders no longer owning it.We tend to think there will be minimal impact on the day-to-day selling of loans to them.We can envision three things happening after there is a thorough review by the Treasury Department of all aspects of their operations.………………………………………. FHFA Director Lockhart Remarks on Housing GSE Actions From The Big Picture:I am still working my way through the details of the GSE takeover by Treasury, but here is my initial read of the details:
• FHFA will act as conservator of the two firms — meaning the US government has day-to-day control of Fannie and Freddie;• The conservator’s goals are to (1) put the company in a sound and solvent condition, and (2) carry on the company’s business and preserve and conserve the assets and property of the company.• There is an immediate moratorium of the firms’ lobbying activities.
