Fannie and Freddie Likely to be Bought by US

[BigPapaVol]

Fannie and Freddie are in their final throes as these goofed up quasi-private entities. They've always enjoyed larger spreads than possible for a private outfit in placing their debt because of the implicit US Gov't guarantee in their paper. That's just cheating, given that the company has operated forever as a for profit outfit.

Those days are over. The companies will likely fall under the gov't now, perform the same function, but not rake the profit out of the transactions it performs.

Positive in that the savings should accrue to either the home buyer or security investor. Negative in that government style, not for profits tend to become bureaucratic holes for lazy, shiftless, unionized style slugs.

It will be interesting to see the new structure and how it impacts current ability to borrow for a single family residence.

Interestingly, people have continued buying Fannie and Freddie backed paper, while our public markets have been essentially saying the equity value of the company is worth little more than a flyer.

I actually think, against my better judgment, that this will be a positive change, at least for the short term. I think the new structure will fall under the ultimate purview of the Fed, which helps keep the entities somewhat sheltered from the political process (that's what leads me to believe this has a prayer of being positive).

 

[myrobbins7]

Ah, isn't America great...Really I think it is a postive in a way, like you BPV. in the short turn and for the same reason. I know the markets have been waiting on this, atleast the folks that talk about it on CNBC and Bloomberg.

 

[volinbham]

What? Another business bailout? What about buying every house that is in foreclosure - shouldn't the government give me money if they are bailing out CEO's...

(just getting ready)

 

[BigPapaVol]

What? Another business bailout? What about buying every house that is in foreclosure - shouldn't the government give me money if they are bailing out CEO's...

(just getting ready)

it's really hard to predict the response of the oklavol contingent. Guess you covered one angle, but you left off the trillion handle.
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[VolByBirth]

Fannie and Freddie are in their final throes as these goofed up quasi-private entities. They've always enjoyed larger spreads than possible for a private outfit in placing their debt because of the implicit US Gov't guarantee in their paper. That's just cheating, given that the company has operated forever as a for profit outfit.

Those days are over. The companies will likely fall under the gov't now, perform the same function, but not rake the profit out of the transactions it performs.

Positive in that the savings should accrue to either the home buyer or security investor. Negative in that government style, not for profits tend to become bureaucratic holes for lazy, shiftless, unionized style slugs.

It will be interesting to see the new structure and how it impacts current ability to borrow for a single family residence.

Interestingly, people have continued buying Fannie and Freddie backed paper, while our public markets have been essentially saying the equity value of the company is worth little more than a flyer.

I actually think, against my better judgment, that this will be a positive change, at least for the short term. I think the new structure will fall under the ultimate purview of the Fed, which helps keep the entities somewhat sheltered from the political process (that's what leads me to believe this has a prayer of being positive).

While Fannie/Freddie MBS's are still being purchased, the spread is significantly higher. This higher spread is passed directly on to buyers as higher interest rates. In the short-term, the gov't should provide some stability in a market that has been anything but -- ultimately providing lower rates (holding all else constant).

In the long-run, I'm more cynical. As BPV noted I worry about the ability to adapt to market changes (red tape) to free up lending when we recover. The market we are in requires some nimble adjustments -- something the gov't has never been able to do. You also have to remember, Congress lumped an enormous burden onto FHA during this downturn and their solvency won't last. FHA won't survive for many more years without serious tax dollars. Let's hope they don't just drive this into the ground as well.

What? Another business bailout? What about buying every house that is in foreclosure - shouldn't the government give me money if they are bailing out CEO's...

(just getting ready)

No bailouts of CEO's. It's already been announced that the all executives are being replaced.

 

[BigPapaVol]

While Fannie/Freddie MBS's are still being purchased, the spread is significantly higher. This higher spread is passed directly on to buyers as higher interest rates. In the short-term, the gov't should provide some stability in a market that has been anything but -- ultimately providing lower rates (holding all else constant).

In the long-run, I'm more cynical. As BPV noted I worry about the ability to adapt to market changes (red tape) to free up lending when we recover. The market we are in requires some nimble adjustments -- something the gov't has never been able to do. You also have to remember, Congress lumped an enormous burden onto FHA during this downturn and their solvency won't last. FHA won't survive for many more years without serious tax dollars. Let's hope they don't just drive this into the ground as well.




No bailouts of CEO's. It's already been announced that the all executives are being replaced.

FHA has some burden, but they're not underwriting as poorly as the trash that was out there over the past 7 or 8 years. Fannie and Freddie are reaping what they sowed in their zeal to have every human be a home owner. No PMi on 100% loans is the dumbest thing I've ever head.
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[VolByBirth]

FHA has some burden, but they're not underwriting as poorly as the trash that was out there over the past 7 or 8 years. Fannie and Freddie are reaping what they sowed in their zeal to have every human be a home owner. No PMi on 100% loans is the dumbest thing I've ever head.
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Sort of. Right now FHA is the subprime of our market -- though these loans are far more stable than the real subprime in the past. FHA has, by far, the most lenient guidelines in the market and their run rate is through the roof. Their smartest choice was getting rid of the seller-assisted down payment programs though.

Don't forget that some of the Fannie/Freddie losses were not of their own choice. HUD/FHA forced Fannie/Freddie to purchase nearly a half billion of subprime loans to facilitate home ownership -- which Fannie/Freddie initially did not want. Those loans are some of the worst ones on their books. As for the no PMI 100% financing -- that was always imbedded in the rate. They never offered 100%, no PMI, at market rate. The few of those loans that came out were put in the portfolio of many now defunct (or soon to be) lenders. That's splitting hairs though - MANY of the loan programs Fannie/Freddie bought were atrocious.