NOW, WE ARE ALL HOME LOAN INVESTORS

Monday, September 8, 2008

My Notes:

I'm not an economist, not a financial wizard, but the nationalization of FNMA and FHLMC causes me great concern. What else will our government have to do to keep us afloat?

The nationalization of the two gigantic secondary home loan lenders, FHLMC and FNMA, by the United States government means that we, the taxpayers, have become the owners of millions of foreclosed properties, and investors in millions of home loans across the nation.

What does the future hold for us?

I don't think this is what most people consider the "American Dream" of homeownership.

Today, in it's ususal over-exuberance (or grossly under-exuberance at other times) the stock market has gone wild. At about 11:00 am the Dow-Jones had gained 292 points; now at 12:30 pm, as I write this, it has fallen back to a 149 point gain and stands at to 11,370.

Does anyone remember the days when it was a big deal when the stock market gained or lost 100 points?

Another question that bothers me is, how will this be taken abroad? Will it strengthen the dollar? Lately, if you follow the financial news, you are aware of the sinking of the dollar in relation to the euro, and the international conversation about whether it is still prudent to purchase oil in dollars...or should the world change to purchasing this energy in euros?

It is imperative that a sound and steady currency be used to purchase this invaluable energy source.In international trade a sound currency means that tomorrow, what you bought today still has its value.

If the United States dollar can't provide that, then other countries, seeking their own stability, will look to other currencies for safety and security.And, if we don't buy and sell oil in dollars, we will lose a huge amount of currency control worldwide, investors will avoid us and invest their resources in other countries, increasing their wealth and power, not ours.

There may even be a long-term sell off of our other bonds, which is the major way the world has financed our continued spending and overstretched debt.

When I was a schoolgirl once of the first things our class learned about our government was that our safety, security and high place in the world was greatly enhanced because people wanted to invest their money in a nation that had a stable government; and a stable government's underpinning is a solid, boring, stable, secure monetary system and little or no international debt.

At that time the United States was the largest lender of money to other nations; now we are the largest debtor-nation in the world.

Just a few things to think about as we watch the unpresentdented volitility of our dollar, monetary system, stock market, and govenment that seems unable to control our security.

While the nationalization of FNMA and FHLMC may ease other nation's worries about us today, and help us stop the swirling financial tumble we are in, will it be enough to stop the long-term erosion of confidence in the United States?

Gloria

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Fannie Mae and Freddie Mac Now Government Owned Again – FHFA Seizes Control of FNMA and FHLMC Over Weekend

Submitted by Dan Wilson on September 7, 2008 (Best Syndication News)

The federal government took back control of the majority of the secondary lending market by seizing Fannie Mae and Freddie Mac on Sunday. This is one of the largest government interventions in business within the last few decades.

History of Fannie Mae and Freddie Mac

Originally Fannie Mae and Freddie Mac were created by the federal government to help provide liquidity to the mortgage market.

Banks and other lenders were able to sell their conforming loans to Fannie Mae beginning in 1938 and then later to Freddie Mac in 1970. This meant that the banks could turn around and make more loans after selling them to these Government Sponsored Enterprises (GSE).

If there was no secondary market, lenders would be forced to hold all of the loans themselves. (Then they would not have new funds to make more loans. GB)

(FNMA and FHLMC then created large pools of loans to secure bond funds that were sold around the world to large investors, investor funds and other governments as well as to the States pension investment funds. China and Russia are two of the biggest oreign investors in all types of our bonds. GB)

Fannie Mae was created as part of Franklin D. Roosevelt’s (FDR) New Deal. The government was able to increase the amount of money lent by banks by buying the mortgages from them. In 1968 Fannie Mae was spun off as a private enterprise. The government created Ginnie Mae at that time as a secondary lender.

In 1970 the federal government created Freddie Mac to bring competition to the secondary lending market. It was created by the “Emergency Home Finance Act” of 1970.
Congress chartered Freddie Mac as a private corporation at that time.

Both Freddie Mac and Fannie Mae are considered GSEs because they were originally created by the federal government. (And, have always had the full backing of the United States - which is what has made them so secure in the eyes of investors. GB)

What does Fannie Mae stand for? Federal National Mortgage Association (FNMA)What does Freddie Mac stand for? Federal Home Loan Mortgage Corporation (FHLMC)What does Ginnie Mae stand for? Government National Mortgage Association (GNMA)


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FHFA Takes Over FNMA and FHLMC Again

On Sunday September 7th 2008 the Federal Housing Finance Agency (FHFA) took over the operations of both Fannie Mae and Freddie Mac.

The passage of the Housing and Economic Recovery Act of 2008 created the FHFA and gave them the authority to regulate or take over the GSEs.

The FHFA came into existence on Thursday September 4th 2008, just a few days before absorbing the two mortgage giants. The FHFA is a combination of two other government agencies: the OFHEO (Office of Federal Housing Enterprise Oversight) which was part of HUD (Housing and Urban Development) and FHFB (Federal Housing Finance Board), an independent agency created in 1989 after the Savings and Loan disaster.

Fannie Mae and Freddie Mac hold or guarantees about half of the $12 trillion dollar mortgage market in the U.S. They buy mortgages from the banks and then sell them as securities.

Why Did the Government Take Back The GSAs?

Although FNMA and FHLMC were responsible for more than 80% of new mortgages being made in 2008, they were hit hard by the subprime disaster.

Freddie Mac also bought some of these risky subprime adjustable rate loans from banks and lenders. More and more borrowers have been defaulting on their loans compounding the disaster. The GSEs lost 90 percent of their stock value over the past year.

The secondary market is having trouble purchasing loans because they lack the money to buy them. This is the primary reason the FHFA took control of the lenders. “The goal of these actions is to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their mission, and mitigate the systemic risk that has contributed directly to the instability in the current market,” said James B. Lockhart, the director of FHFA.

“The lack of confidence has resulted in the continuing spread widening of their MBS (Mortgage Backed Securities), which means that virtually none of the large drop in interest rates over the past year has been passed on to the mortgage markets”.

Although the Board of Directors and CEOs of the companies will be leaving or be replaced, some management and other employees will stay on to keep the entities functioning.

The government does not plan on holding on to these companies forever, but they do want to make sure that investors feel secure enough to buy their securities.

The government has the funds to backup their security instruments, and this should loosen up capital for lenders.“During the conservatorship period, FHFA will continue to work expeditiously on the many regulations needed to implement the new law,” Lockhart said.

“Some of the key regulations will be minimum capital standards, prudential safety and soundness standards and portfolio limits. It is critical to complete these regulations so that any new investor will understand the investment proposition.”

The government will be able to provide the needed capital for the two companies. That was the most important reason Treasury Secretary Henry Paulson and Director Lockhart decided to take control.

“Lastly and very importantly, there will be the financing and investing relationship with the U.S. Treasury, which Secretary Paulson will be discussing,” Lockhart said Saturday.

“We believe that these facilities will provide the critically needed support to Freddie Mac and Fannie Mae and importantly the liquidity of the mortgage market.”By Steven PotterBest Syndication News Business Writer



See Related Stories:

Nationalization of Failing FNMA and FHLMC

Who are FNMA and FHLMC To The Home Loans

Treasury Announces GSE ConservatorshipFannie,

Freddie Rescue: Not a Quick Fix for Housing.


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Posted by Gloria de Gaston Boone at 9/08/2008 12:23:00 PM Labels: FHA HUD, FHLMC, FHMA, government, home loan investors, nationalization, Reverse Mortgage, stock, stock market, takeover
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