US Gov't taking Control of Fannie and Freddie

The Govt is taking them over as a Conservatorship for 1 year and then will reevaluate them after the one year.

The good news is, at least according to Bloomberg, is that it will have a positive effect on rates if not immediate, then within the following months.  That makes sense because all that bad paper that they've been trying to pay for with their current offerings, will now be backed directly by tax payers.  Good for rates; not good for the Federal debt. 

Hooray for capitalism! Now if we could just keep that Socialist Obama out of office!

'tongue in cheeks' humor there, of course.

I almost thought there was "hope" for you Jenn.   :D

tongue in cheeks.............still funny!

Oh Dear of my . . .  Did I start a craze of phase?  :-)

you should copyright it before it catches fire!

Monday is going to be a wild ride with the rest of the week hectic.  I have no idea what rates are going to do this week.  We have never been in this "soup" before.  Thank goodness I locked a handful of people on Friday who were rate watchers.  If rates get lower, that's great for new business.  The locks on Friday were really low rates so I am not worried . . .   yeah, sure.

I haven't made a real rate prediction in over 8 months because the only thing I know for sure is regardless of what I or anyone else thinks is gonna happen there is a good chance they are wrong! 

Andrew, what about my 'rates are higher in the summer theory ' ..........?

I got this from National Mortgage News a few minutes ago:

Mark Sunday morning, September 7, 2008, as the day the residential mortgage business changed forever.

In the months ahead, seller/servicers that upstream their mortgages to Fannie Mae and Freddie Mac may see little change in the way they conduct business with the two but rest assured the Treasury Department under Hank Paulson has laid the groundwork for the eventual dismantling of these once politically powerful (and once highly profitable) government chartered enterprises.

Over the long haul the takeover of the two GSEs could set the stage for housing deflation the likes of which Americans have not seen since the Great Depression and then some. With less liquidity in the mortgage market that means less home buyers and less home buyers creates intense pricing pressure on the downside. And maybe that's not such a bad thing -- in a way. In can be argued that Fannie and Freddie -- and Wall Street which pumped up the subprime sector from 2002 to 2007 -- made it too easy for too many Americans to buy homes. Too many buyers meant home prices rose ridiculously in such once hot markets as California, Florida, Arizona and New York. The days of easy mortgage money are over. Downpayments once again will become the norm as 'liar loans' and 100% financing disappear.

continued

Eventually, Treasury wants the two to whittle down their on-balance sheet portfolios to $250 billion, about one-third of where they are today. Once the two GSEs stabilize, whoever sits in the White House will move to find a long-term solution to Fannie and Freddie. They could survive as separate smaller companies with Congressional charters or they could be made into one government agency that serves only low and moderate income Americans. If that happens the mortgage business likely will shift back to portfolio lenders like savings and loans, banks, and credit unions. The loans these institutions make will be placed on their books and kept for the long haul -- which is what the business was like until S&L crisis of the 1980s.

One thing is for certain: the mortgage industry of the past two decades -- one where most residential loans were sold to Fannie, Freddie and Wall Street firms like Bear Stearns, Merrill Lynch and Lehman Brothers -- is on the road to extinction. What lies ahead could spell opportunity or death for today's surviving seller/servicers.

I can't help but think that whoever wrote this analysis hasn't got a clue starting with the fact that Paulson and the rest of this administration will be gone in a little over 4 months. Does our industry really need anymore reckless doom and gloom?  I mean come on, housing deflation the likes of which Americans have not seen since the Great Depression and then some.  Would that be on top of the deflation most of you have already seen that is the worst since the Great Depression?

Martin,  agreed that this is definitely a doom and gloom spin.  I listened this morning and obviosuly Paulson had a much different insight. We are definitely in new territory but the outcome is more likely to be positve than a major downturn. The liquidity factor with limited risk to the taxpayer (now in 1st position) is a plus.

Congress has a year to revise the GSE charters and the intent is to downsize the GSE portfolios by 10% per year thru normal attrition.  The equity side (glad I'm not invested there) will mean loss, but the bond side should help with the market. 

Depending on the Congressional decisions, it is very likely we could see a positive turn in the market becoming much more local and personal again.    

No one knows as there are too many cooks in the kitchen even at this point.  Monday will be interesting indeed to see what the rates look like.

I know I'm anxiously awaiting to see how rates go on Monday. For those that have been around in this business longer than I, do you think 'mortgage brokers' as we know it will die out? Don't get me wrong, I'm a opimist to every sense of the word. Hell, my glass is not only half full but overflowing at times.

short term, it may seem like good news, but long term of course it is another symptom of the illness: the sickness of the american housing market.

Make no mistake, if the GSE's begin reducing their portfolios, this can only happen by selling MBS or similar assets on the open market. With such selling, risk will be re-priced, and this will increase the cost of lending across the board.

Rob, they could reduce their portfolios by 10% per year just through attrition, but even if they sold MBS to do it, aren't those MBS now basically the same risk-wise as Treasuries?

Two different portfolios, one is the problem.  If fannie/freddie had stuck to their core business and simply been loan syndicators not alot of problems would be out there.  Their prime business of securitizing conforming loans is actually in pretty good shape given the premium they have charged over the years to insure their syndicated portfolio.  The problem occurred when they tried to grow themselves into hedge funds, purchasing over 800 billion in lower quality loan portfolios to goose returns all without increasing their capital base.  My problem with the plan is it doesn't get them out of that business fast enough.  

one where most residential loans were sold to Fannie, Freddie and Wall Street firms like Bear Stearns, Merrill Lynch and Lehman Brothers -- is on the road to extinction.

I think this is over-dramatization.  There will continue to be a lot of demand by all types of institutions to hold different types of loan portfolios, be they credit-card, home loan, auto loan etc. etc. etc.  What i don't see coming back are CDO's and CDO squares.  But I do see in the future continued use of securitization, just better done all around, from increased risk premiums to better underwriting.

Regards

well, one way or another, I can't see how credit doesn't tighten out of this, unless the govt just goes into direct lending.

1. the business model is flawed and losing money. You can't stop losing money unless you tighten up on riskier investments.

2. A fair number of banks hold alot of fannie/freddie preferred. taking these anticipated losses forward will stress some household name banks already stressed capitalization ratios.

3. good luck bring DPA back at this juncture. "yeah they can afford it.... errr... i mean... whatever"

Part of the new plan includes assisting smaller banks that hold fannie/freddie so they will not go under the capitalization requirements. the last thing the gov wants to do is cause failures with this action.

Rob, heard on the radio about an hour ago that the first thing they're going to do is double the fees on declining markets. This will now cost the borrower $500.00 per $100K in loan amount.

What's the spread between FNMA and FHLMC paper and treasuries? That spread should narrow or disappear. Here comes a mini refi boom! And Paulson made it VERY clear that he was taking over the agencies to solve the housing crisis. That doesn't mean tightening more (although one wonders how they would tighten more. DNA samples with loan submissions?).

This is GOOD people. Unless you own FNMA or FHLMC stock, there's no way to spin this negative. (apologies to fannie and freddie execs) 

In the short run I would agree long term I am not so sure.

These numbers are as of Friday close

Instrument See More Instruments Direction 32nds Price
Ginnie Mae 6.0% - 30 year Down 6 at 101.968
Fannie Mae 6.0% - 30 year Down 6 at 101.468
Fannie Mae 5.5% - 15 year Down 7 at 101.156
Fannie Mae 4.5% - 7 year Down 6 at 98.796
Fannie Mae 5.0% - 7 year Down 5 at 100.781
Ten Year Treasury Note Down 22 at 102.406
30-year Treasury Bond Down 26 at 103.125

I'm anxious to see what Monday morning brings. 

It's amazing how many emails I have gotten today regarding my loans in process.  "Does this mean I won't get my loan?"

I really think they should have clarified the impact, which is none, a little more clearly for the borrowers out there.

I do not know of any bailout that is really good. I think many look at it for a specific loan or pipeline or whatever, but if the currentl (loosely originated and serviced pipelines) collapsed the companies, how would guidelines loosen?  It doesn;t matter what the rates are if they will not approve anybody as a result.  Funny how HANK said the entire mess was about $100-$150BILL  1 year ago... This will blow the tab through $1tril..  CHASE tookover BSC... How is HCASE doing... BofA..?  I'm not popping any champagne corks yet and will simply leave it as:  Be careful what you wish for... it might just come true.  FERMI, we can agree to disagree, but this is NOT GOOD.  If you asked anyone in DC or WALL ST... this is not good.. not the clowns from yappin' to prop up stocks to lay them on you and me either.  Bailouts are expensive and not good. Has anyone bailed out your 401K as well.. NO.. returned your home values to 2006... NO?  This is possibly the evening of pressure like water in New Orleans from KATRINA, but this is not good.  Wait watch and see as this will be a difficult and long process to stabilize. Keep rockin'.  I guessed within a year 2-3 weeks ago, but had not idea it was already done when they structured it.  Keep rockin'.

Martin, what do you see in the horizons?  More of us out of business, rates in the 9-10's, no chance of home ownership?  What is your feeling?  I admit, I have not been through any turmoil like this.  Me, personally, I don't think rates are going to sky rocket.  Will a minimum of 10% be required to buy a home now-probably.  Will people with 580's be able to purchase homes, probably, should they be allowed-probably not.  Will people with 720's be penalized, Yes.  Should they, no.  Is subprime only to blame for this, no.  Are ARMs just to blame for this, no. Does the actual economy have anything to do with this mess?  Yes.  Have people lost their homes because of layoff's, cuts in pay, medical issues-yes.  Is that ever brought up?  No.  It's a horrible, never ending, vicious cycle. 

If people cannot buy homes or refinance their homes, who will it affect.  Let's stop and think a moment.  Mortgage brokers, more wholesale lenders, realtors, title companies, banks, appraisers, insurance agents, it's like a domino effect.  In additon to the real estate professionals, who else does it affect?  Again, lets stop and think.  Target, Burger King, Walmart, Nordstroms, Zales, your local Ford and Audi dealership, McDonalds,  Carraba's, etc. 

Do the politicans actually think about these things.  Do they realize the impact on raising rates and making mortgages so strict no one can afford them?

Former foxes; 

"David Moffett, a former top official at US Bancorp (USB.N) and Herb Allison, a former top official at both Merrill Lynch"

Guarding the hen house,

Very nice....I like...

The other part of the National Mortgage News release that I didn't include above (the factual part) stated in part:

The new CEOs will be charged with examining Fannie and Freddie's "guarantee fee structure with an eye toward mortgage affordability," Treasury secretary Henry Paulson said. "The primary mission of these enterprises now will be to increase the availability of mortgage finance," he said.

Note that the guarantee fee structure will be examined with an eye towards mortgage affordability.  I believe that is correctly read bye bye adverse market fee and LTV/FICO adjusters.

The primary mission of these enterprises now will be to increase the availability of mortgage finance (which I might add was the reason they were formed in the first place).  I believe the intent is to reverse some of the guideline changes we have seen, not make them tighter. 

The real problem as Paulson is going to learn though is that it isn't necessarily FNMA and FHLMC driving the bus further into the ditch at this point.  The MI companies are pretty clearly driving the bus with respect to every loan over 80% LTV.  When somebody takes the gun those outfits have pointed at their own heads away, we might all be able to breathe a little easier.

How this got corrupted into the doom and gloom analysis I posted earlier is beyond me.  As jal74 correctly notes the portfolio they are being forced to liquidate is composed of loans they never should have owned in the first place, not the conforming conventional loans we think of as Fannie and Freddie products.

I saw Viva Las Vegas tonight . I cant get over how hot Ann - Margaret used to be.