Fannie and Freddie --- Now owned by Tax Payers

[cute fuzzy bunny]

The stockholders will get nothing but a write off.

The bond holders should be alright.

The CEO's and any culpable management should end up in jail. If anything, the overseers of companies that "cant be allowed to fail" and hold such an important role in the economy should be held to the highest standards and operated with the public interest in mind...to a much greater degree than the average public company.

[copyright1997reloaded]

Quote:

Originally Posted by Spanky Should be prosecuted for misconduct.

This problem has been long in coming, and for a long time certain people in congress (who are now screaming about protecting tax-payers) were big supporters of Fannie/Freddie and their underlying cause of "making home ownership more affordable". For example, take a look at this 1999 article from the NY Times:

Fannie Mae Eases Credit To Aid Mortgage Lending - New York Times

Quote:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

and

Quote:

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits. In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

and the best one:

Quote:

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's. ''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Sign me "Just waiting to see Barney Frank on T.V. blaming this on the B*sh administration"

[cute fuzzy bunny]

I remember around late 2003/early 2004 all the financial porn rags and the tv screamers were insisting that everyone should make huge investments in fannie and freddie.

I mean, why not? With the booming housing market going on, the best way to take advantage of it was in the very low risk mortgage market where you'd be well paid no matter which way things went.

Right?

Wait...what?!?

[donheff]

So - those off you who have followed this over the decades how about some history. Didn't "we" originally own them, then give them away to the private sector to put them in better hands, only to have to buy them back to save the global economy from what the "much vaunted" private sector did to them?

[cute fuzzy bunny]

Is it a good time to point out that all y'all with mortgages will now be paying for them twice?

[copyright1997reloaded]

Quote:

Originally Posted by donheff So - those off you who have followed this over the decades how about some history. Didn't "we" originally own them, then give them away to the private sector to put them in better hands, only to have to buy them back to save the global economy from what the "much vaunted" private sector did to them?

Yes.

From the Fannie Mae website:
About Fannie Mae

Quote:

Fannie Mae was created in 1938, under President Franklin D. Roosevelt, at a time when millions of families could not become homeowners, or risked losing their homes, for lack of a consistent supply of mortgage funds across America. The government established Fannie Mae in order to expand the flow of mortgage funds in all communities, at all times, under all economic conditions, and to help lower the costs to buy a home. In 1968, Fannie Mae was re-chartered by Congress as a shareholder-owned company, funded solely with private capital raised from investors on Wall Street and around the world.

See:
History Of Fannie Mae

1938:
Federal government establishes Fannie Mae to expand the flow of mortgage money by creating a secondary market. Fannie Mae is authorized to buy Federal Housing Administration (FHA)-insured mortgages, thereby replenishing the supply of lendable money.
1954:
Fannie Mae becomes a "mixed-ownership" corporation owned partly by private stockholders.

1968:
Chairman and President Raymond H. Lapin joins Fannie Mae. After 30 years of business, President Lyndon B. Johnson signs legislation amending Fannie Mae's Charter Act and establishes Fannie Mae as a private, shareholder-owned company.

While I was cruising down history lane, I found this interesting tidbit circa 2004:
http://www.nytimes.com/2004/12/22/bu.../22fannie.html

Quote:

WASHINGTON, Dec. 21 - Under heavy pressure from regulators, Fannie Mae, the mortgage finance giant, forced out its chairman and chief executive, Franklin D. Raines, late Tuesday, days after the company was found to have violated accounting rules. The ouster of Mr. Raines, who turns 56 next month, may mean the end of an extraordinary political and business career. Mr. Raines, a high-ranking official in the administration of President Bill Clinton and a prominent Democrat, had traveled from a family that was once on welfare to the pinnacle of government, academia and business.

and

Quote:

In recent years, some industry and government critics, including Alan Greenspan, the chairman of the Federal Reserve, have sought to have Fannie Mae's privileges removed. They say the company could pose a significant risk to taxpayers if it became troubled. And the White House, concerned about any political fallout if Fannie were to stumble, has declined to make 5 appointments to the 18-member board.

and

Quote:

The announcement on Tuesday was a remarkable vindication for Ofheo and Mr. Falcon. The regulatory agency had long been viewed as captive to Fannie Mae and Freddie Mac, the two large government- sponsored enterprises that it regulates. In recent years, Fannie Mae in particular waged a quiet war against Ofheo in Congress, seeking to reduce its power and cut its budget. As recently as two months ago, Mr. Falcon had come under attack in Congress. At a hearing in October to explore his agency's conclusions about Fannie Mae, he faced hostile questioning by lawmakers, some of whom had been given questions by Fannie Mae. Representative William Lacy Clay, Democrat of Missouri, accused Mr. Falcon of leading a "political lynching" and a "witch hunt."

[barbarus]

Quote:

Originally Posted by windsurf Is there a partisan aspect to this mess?

Yes, both the Republican and Democratic parties conspired to create a massively corrupt and widespread system in which they further enriched the very wealthy. Those who benefited the most will walk away and on to the next scam aimed at separating the suckers and prudent both from any remaining monies.

Be sure to vote come November, hear!

[bssc]

Well, the Russians will be happy. They have over $100 Billion US in this GSEs.

I own common stock and suspect that it will recover but only after the preferreds stabilize.

[harley]

Quote:

Originally Posted by cute fuzzy bunny Is it a good time to point out that all y'all with mortgages will now be paying for them twice?

Yep, and y'all without mortgages will be paying one now, without the opportunity to use it to diversify your other holdings. A wash, IMHO.

[al_bundy]

Quote:

Originally Posted by chinaco Another article that shows that Freddie Mac was covering it up. Any new investors thinking that Freddie was beaten up to much based on the accounting data they could publicly view were screwed. They used a liberal interpretation of the accounting rules to deceive. I wonder who benefited from delaying the bad news. At at minimum company management drew their huge compensation package. http://www.nytimes.com/2008/09/07/bu...4a5&ei=5087%0A Some have speculated if these two were not taken over... it could lead to a lack of confidence in financial markets that would be similar to 1929 which lead to the great depression. If history serves me speculation was one of the big cause of the great depression. Then fear of more damage cause more contraction and kept investors away.

so people refuse to listen, but Bill O'Neill said a long time ago don't buy a stock because it's been beaten down. only buy on strength. reason is he spent most of his career before RegFD when it was normal for management to give out some details in secret to wall street analysts and the stock would fall for months with no explanation.

With RegFD there is some more volatility, but in the end it's pretty much the same. the analysts with the education and experience tell the real story to their employers who then sell the stock and tell a few of their select clients to sell the stock. the rest are left looking at the official ratings which are still useless

[al_bundy]

the details are that the government is going to be buying up a special class of preferred stock. all current dividends on the common and existing preffered stock is no more. the common isn't being cancelled but the new preferred will greatly dilute all existing stock.

and on Calculated Risk there is a posting that a lot of banks hold Fannie and Freddie stock and they will have to raise capital because of the loss of dividend

[cute fuzzy bunny]

Quote:

Originally Posted by harley Yep, and y'all without mortgages will be paying one now, without the opportunity to use it to diversify your other holdings. A wash, IMHO.

Only if you pay a lot in taxes, which as an ER with no debt, I dont.

Its all you guys with the higher withdrawal amounts needed to make those big monthly payments that are going to be footing the bill, along with those still accumulating.

Maybe something to toss into those 'arb' calculations.

SO HA!!!

[harley]

Quote:

Originally Posted by cute fuzzy bunny Only if you pay a lot in taxes, which as an ER with no debt, I dont. Its all you guys with the higher withdrawal amounts needed to make those big monthly payments that are going to be footing the bill, along with those still accumulating. Maybe something to toss into those 'arb' calculations. SO HA!!!

Yeah, but...umm...damn!

[cute fuzzy bunny]

My bad, I shouldnt hit a man when he's down.

I should kick him. Its easier!

[Andy R]

Will the next creative solution be to convert the mortgages of those defaulting to 45 years to bring down their payments to an "affordable" level?

Just think about Joe Blow (age 45) who put 5% ($50k) down on a $1 million home in California. If his mortgage is extended to 45 years his monthly payments will drop about 9%. That means after 20 years (age 65) and $1.3 million in mortgage payments Joe Blow will have paid off 15% of the original note ($150k) and have himself a whopping $200k in equity plus the appreciation of the home. He's screwed!

This might save the companies who loaned money to Joe Blow but it's not going to save Joe Blow. It's a small band aid on a cultural problem.

[cute fuzzy bunny]

I'd say "Joe Blow is screwed", but this is a PG-13 family web site.

[Retire Soon]

Quote:

Originally Posted by slouch I suspect there will be high volatility intraday Monday and although I won't even attempt to predict the Monday closing prices for the major indices, I suspect the downward trend will continue eroding stock prices in the broader US market for quite some time. Housing stabilization will lead economic recovery - MarketWatch

If the oversea's markets serve as an early indicator of their reaction to the Fed's decision, it's a positive one. Japan's Nikkei is up 3.89%, Hong Kong is up 3.93% and Taiwan is up 5.28%. Personally, I expect the U.S markets to open and close higher on Monday, but believe any rally will be short lived. As the long term consequences of our mortgage market's insane behavior sink in further, reality will prevail and the bear market will continue for some time.

[eridanus]

The futures are up huge this evening. S&P future is +2.5%.

[Andy R]

This is my short term prediction...

prediction.gif

[Running_Man]

The markets are going to respond positively since the US government has clearly shown they will do anything to insure the banks will have to endure the losses. The US government is going to pay above market prices to keep the value of mortgages higher than they deserve to be in order to prevent the markdowns necessary if the mortgages were fairly valued.

In the short term this is a big boost for financials, in the long term the US government risks losing all of it's credibility if valutions slip out of it's control. There is a limit to what taxpayers can afford.

The reality is for every bank holding mortages there was a transfer of wealth today from the US taxpayer to the holders of mortgage debt.