Government Rescues Fannie and Freddie
The federal government will take over Fannie Mae and Freddie Mac, our largest and most troubled mortgage finance companies, with an estimated taxpayer price tag of $25 billion (one source told the New York Times that the number was a modest guestimate, though). In one of the county’s most expensive bailouts, the government can put…
The federal government will take over Fannie Mae and Freddie Mac, our largest and most troubled mortgage finance companies, with an estimated taxpayer price tag of $25 billion (one source told the New York Times that the number was a modest guestimate, though). In one of the county’s most expensive bailouts, the government can put up $100 billion for each company should they need cash — they handle about half of the country’s mortgages — and will encourage them to shrink their holdings; the Treasury can buy the two companies outright for a small pricetag, and is already changing the management team. The Fed sees the buyout as the silver bullet for the housing crisis, and already foreign markets have rallied since the announcement. Will it work, do you think?
In Rescue, U.S. Takes Over Mortgage Finance Titans [NY Times]
Fannie Mae. Photo by NCinDC.
Up until yesterday, there was an unusually large spread between Treasury Notes and Mortgage Bonds due to the risk premium the market was pricing into Mortgage Bonds. Yields on Mortgage Bonds do not track the yields on Treasury securities, but based on historical ranges Mortgage Bonds were trading at higher yields, thus increasing the spread of rates offered between Treasuries and Mortgage Bonds. Yesterday’s market action showed Traders removing this risk premium and buying Mortgage Bonds with both hands as they are now looking at the government as a backer and supporter of Mortgage Bonds. Ironically, through the most part of the day, there was actual selling of Treasuries while Mortgage Bonds were enjoying their biggest one day rally since mid-March
On a going forward basis this news also tells us that the newly invigorated confidence in Mortgage Bonds will once again attract foreign investors. Foreign investors have recently pulled away from buying our Bonds and should they step back in, which appears likely, this could help keep interest rates remain relatively low.
I actually think we are back to normal or close. What went on over the past 3-4 years wasn’t normal, it was maddness. With Fannie/Freddie under the gov. thumb I think we will see some easing up over the few months.
adam – the rates dropped today due to the speculative charge this gives to mbs demand. this does nothing for how difficult banks are making it to get a mortgage. you need some sustained follow through in the mbs market before lenders start originating in a normal fashion again. until then these new lower rates are only truly available to a select few.
MacD: I am so bitter (though not a renter) that you beat me to posting re. Carl Pickens bio (he was for several years a mainstay of my fantasy football team).
I really haven’t made my mind up on the Fannie/Freddie thing. I have always thought it was a little biased that they were publicaly traded companies that were government sponsered… so right off that back they always since inception had a little help from Uncle Sam.
Aside from helping me with my business I still think that it will help the housing markets not hurt them. It will lend stability, as well as not pander to the stock holders as most corporations do. Maybe now they will be more concerned with people’s homes than corporate profit. The downside is now it will definetly be run like a government agency with all the strings attached and beauracy that goes with it. Look at the post office and DMV.
I would love to continue and believe you me I could go on for hours and hours talking (my fiance thinks it’s very boring when I talk about mortgages and housing) I’m glad you guys listen 🙂 but since I took last week off for vacation I am swamped with work.
there are also probably some spelling and gramatical mistakes in my post but I’m rushing so please don’t send the internet spelling police after me.
Let’s see what the next few weeks produce and we will all have a better idea what we are in for.
Adam…this is not a fight. It’s a friendly conversation about Brooklyn, inside and out!!!
You’d do well if you jumped in. You certainly made me look a bit foolish a few months ago on Jersey City. And there aren’t many people on here that can make me look foolish!!!
No further discussion on the latter is necessary.
Just got Intrady pricing notifications that rates improved again this afternoon.
I’m not getting involved in the fight. Just posting what I see from my end of the screen.
He meant Carl Icahn & T. Boone Pickens but trying to deal with all those names at once was too much for the What’s mind. When you’re in the middle of an Asshat mutant real estate bubble that’s about to cause the biggest depression in modern history you sometimes don’t get the details right, which is, of course where the devil lies!!!!
Denton: Good post. I think you are right that those who are not looking for a quick turnaround on their property should be fine in the long run. Thanks for being able to look at both sides of this issue and express yourself eloquently.
What–Go out and enjoy your day for sure. You deserve it. What will you do? Pull the wings off butterflies? I can’t imagine what cruelty brings you your jollies.