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

***************************************************************


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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URGENT: NATIONALIZATION OF FAILING FANNIE-MAE AND FREDDIE-MAC

Bush: Takeover of housing giants 'critical'

AP: Sunday, September 07, 2008 WASHINGTON -

President Bush said Sunday that the historic federal government takeover of mortgage giants Fannie Mae and Freddie Mac is needed to keep them from failing, a risk he called "unacceptable" for an economy battered by housing and credit crises.

"Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing," Bush said in a statement released Sunday afternoon."

Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth.

"The Bush administration announced Sunday it was taking control of the two institutions to avert the potential for major financial turmoil.

The companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.

The executives and board of directors of both institutions are being replaced.

In a statement, the president called the moves temporary until the appropriate role for the companies can be determined.

He said they must be reformed so that "they not pose similar risks to our economy or the financial system again."Treasury Secretary Henry Paulson said the actions were being taken because the failure of either of the mortgage companies "would cause great turmoil in our financial markets here at home and around the globe."

The huge potential liabilities facing each company could cost taxpayers tens of billions of dollars. But Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

Bush said the federal regulator for Fannie Mae and Freddie Mac determined they could no longer operate safely and conduct their public mission. He said that posed "an unacceptable risk to the broader financial system and our economy.

-------------------------------------------




"U.S. taking over mortgage giantsPlan to rescue Fannie Mae, Freddie Mac could cost taxpayers billions.

By Martin Crutsinger, Alan Zibel ASSOCIATED PRESS Monday, September 08, 2008 WASHINGTON —

The Bush administration's seizure of troubled mortgage giants Fannie Mae and Freddie Mac amounts to what could be a $200 billion bet that it will help reverse a prolonged housing and credit crisis.

The historic move, announced Sunday, won support from many sides, but some analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, increasing foreclosures, rising unemployment and weak consumer confidence.

Officials announced that both institutions were being placed in a government conservatorship, a legal status similar to bankruptcy....U.S. Treasury Secretary Henry Paulson said that allowing the companies to fail would have hurt consumers more. The failures would "create great turmoil in our financial markets here at home and around the globe" and drive up the cost of home loans and all other types of borrowing, he said.

The companies, which together own or guarantee about $5 trillion in home loans — about half the nation's total mortgage debt — have lost $14 billion in the past year and are likely to be hit with billions more in losses until the housing market begins to recover.

Mark Zandi, chief economist at Moody's Economy.com, predicted that after the takeover, interest rates for 30-year mortgages could dip from the current nationwide average of 6.35 percent to close to 5.5 percent.

That could happen because investors are expected to be more willing to buy the debt issued by Fannie Mae and Freddie Mac, and at lower rates, with the federal government explicitly backing that debt

Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."Futures on all major stock indexes rose about 2 percent in electronic trading Sunday night.

The Treasury Department said that if necessary, it was prepared to put up as much as $100 billion in each of the companies over time to keep them from going broke in exchange for senior preferred stock.The department will immediately be issued $1 billion of such stock from each company, which will pay 10 percent interest.

Further purchases of preferred stock will be triggered if quarterly audits find that the companies' capital cushion — the assets they are required to have to cover losses — is below prudent standards.

The government, which will receive warrants representing ownership stakes of 79.9 percent in each company, is hoping that its moves will reassure nervous investors that they can continue to buy the debt of the two companies...

,,,Fannie Mae was created during the Great Depression, and Freddie Mac in 1970, to help make mortgages more affordable for homeowners. The companies buy billions of dollars in mortgages each month from commercial lenders.

Some are sold to investors (world-wide) as mortgage-backed securities; others are held by the companies in their investment portfolios. This process provides banks with more money to make more home loans, which expands home ownership.

The conservatorship will be run by the Federal Housing Finance Agency, which was created by Congress this summer to regulate Fannie Mae and Freddie Mac.

That happened at the same time that Congress expanded the power of the Treasury Department to make loans to the two companies. But their financial situations didn't improve, and officials feared that a crisis of confidence could spread through the worldwide financial system....

...Analysts were split on how much the takeover could cost taxpayers, although they agreed that the upfront costs will be substantial, possibly hitting $100 billion as the Treasury has to bolster the capital cushions at both institutions.

However, if the plan stabilizes the housing market and home prices rebound, the assets of Fannie Mae and Freddie Mac should rise in value, and the government should be able to sell off the companies and recoup its investments.But it could take a long time to work through that process.

"I think the government will end up having to put in far more money than they are planning right now (given all the problems facing housing), but the important thing is the agencies have been taken over by the government," said Sung Won Sohn, an economics professor at California State University Channel Islands.

That means there will be less panic in financial markets."


See Related Story: http://reversemortgagesnow.blogspot.com/2008/09/who-are-fannie-and-freddie-to-home-loan.html
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Who Are Fannie and Freddie to Home Loan Borrowers

By: Bill Rice August 22, 2008


It seems the inevitable approaches for the US government and its "supported entities" Fannie Mae and Freddie Mac. Both, moving in tight alignment, have lost over 60% of their market value in the preceding 30 days.

Hovering dangerously between $3-$5 a share. Something is certain to break. So, where will a Fannie, Freddie meltdown leave mortgage borrowers? The hope is with lower rates.

What is Fannie Mae and Freddie Mac?

Understanding Fannie and Freddie is important to sorting out how events may unfold and the direct impact on homeowners.

The Federal National Mortgage Association (FNMA), nicknamed Fannie Mae, was a depression-era institution created under New Deal legislation. Its objective was simple--make homeownership affordable for working-class Americans.

In the face of mounting debt, the US government freed Fannie Mae to the private markets. However, to entice institutional and foreign investors to fund cheap American homeownership they were given a unique implicit guarantee of the US government with the Government Sponsored Enterprise (GSE) label.

In the most simple of explanations, this arrangement was so good they cloned Freddie from Fannie and called it--competition.

Why are Government Sponsored Entities Important?

Where does this convenient collaboration of public and private entities--call GSEs--leave us?

Quite frankly, with a very complex mess.

A tangled web of interests, nods, and casual winks of assurance.

When asked why this is important to your mortgage rate experts like Dan Green, loan officer and author of TheMortgageReports.com, will tell you "mortgage rates are based on the perceived risk of GSE-issued debt so if the government steps in to help, the debt gets an implicit
guarantee."

Although this may seem to create a direct taxpayer-funded windfall for shareholders Dan Green reminds us that "the intervention may not trickle down to Wall Street as Fannie and Freddie raise fees, which they have done recently and are likely to do again."The bottom line is that GSEs, Fannie and Freddie, guarantee or own over half of US mortgages at $12 trillion!

This concentration of mortgage financing leaves us with a couple of significant risks.

First, and foremost without it mortgage rates soar without affordable secondary market financing (think pre-1938 when FNMA was created).

Second, the implicit government guarantee was banked on by institutional and foreign governments around the world as--"good as gold." Breaking this guarantee becomes global financial crisis.

This is the complex risk map that throws us into the "too big to fail, but perhaps too big to save" debates.

Mike Shedlock, of Sitka Pacific Capital Management, analyzes the GSE's pending need to refinance current expiring debt terms, highlighting the government's looming stabilization role.

"$233 billion is an enormous amount of debt to have roll over between now and September 30," states Shedlock while predicting "there is a decent chance the bond market chokes on those rollovers." Shedlock explains this is where Paulson's (Secretary of the Treasury) "blank check to buy unlimited amounts of Fannie and Freddie bonds" come in.

What are Mortgage Professionals Telling Clients?
Where does that leave homeowners and home buyers?

Most mortgage lenders are telling borrowers time is of the essence. Although, we have seen hovering or even slightly declining mortgage rates things will change--probably with a bang, not a trend line.

Mortgage lenders are already seeing it become harder for their clients to get mortgage loans. "Mortgage and refinance qualifications are tightening on a daily basis," says Tom Vanderwell a Michigan mortgage lender, "and a lot of it has to do with Fannie and Freddie already buying less.

"The general sentiment is that regardless of how the Fannie, Freddie drama plays out it is going to drive sharp mortgage rate increases.

Kept intact, Fannie and Freddie will continue to keep housing affordability within range, but with much higher rates and qualifications.

Read Related Story: http://reversemortgagesnow.blogspot.com/2008/09/urgent-nationalization-of-failing.html
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URGENT: NATIONALIZATION OF FAILING FANNIE-MAE AND FREDDIE-MAC

Bush: Takeover of housing giants 'critical'
AP: Sunday, September 07, 2008 WASHINGTON -

President Bush said Sunday that the historic federal government takeover of mortgage giants Fannie Mae and Freddie Mac is needed to keep them from failing, a risk he called "unacceptable" for an economy battered by housing and credit crises.

"Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing," Bush said in a statement released Sunday afternoon.

"Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."

The Bush administration announced Sunday it was taking control of the two institutions to avert the potential for major financial turmoil.

The companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.

Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.

The executives and board of directors of both institutions are being replaced. In a statement, the president called the moves temporary until the appropriate role for the companies can be determined.

He said they must be reformed so that "they not pose similar risks to our economy or the financial system again."

Treasury Secretary Henry Paulson said the actions were being taken because the failure of either of the mortgage companies "would cause great turmoil in our financial markets here at home and around the globe."

The huge potential liabilities facing each company could cost taxpayers tens of billions of dollars. But Paulson stressed that the financial impacts if the two companies had been allowed to fail would be far more serious.

Bush said the federal regulator for Fannie Mae and Freddie Mac determined they could no longer operate safely and conduct their public mission. He said that posed "an unacceptable risk to the broader financial system and our economy."


U.S. taking over mortgage giants


Plan to rescue Fannie Mae, Freddie Mac could cost taxpayers billions.
By Martin Crutsinger, Alan Zibel ASSOCIATED PRESS Monday, September 08, 2008


WASHINGTON — The Bush administration's seizure of troubled mortgage giants Fannie Mae and Freddie Mac amounts to what could be a $200 billion bet that it will help reverse a prolonged housing and credit crisis.

The historic move, announced Sunday, won support from many sides, but some analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, increasing foreclosures, rising unemployment and weak consumer confidence.

Officials announced that both institutions were being placed in a government conservatorship, a legal status similar to bankruptcy.

...U.S. Treasury Secretary Henry Paulson said that allowing the companies to fail would have hurt consumers more. The failures would "create great turmoil in our financial markets here at home and around the globe" and drive up the cost of home loans and all other types of borrowing, he said.

The companies, which together own or guarantee about $5 trillion in home loans — about half the nation's total mortgage debt — have lost $14 billion in the past year and are likely to be hit with billions more in losses until the housing market begins to recover.

Mark Zandi, chief economist at Moody's Economy.com, predicted that after the takeover, interest rates for 30-year mortgages could dip from the current nationwide average of 6.35 percent to close to 5.5 percent.

That could happen because investors are expected to be more willing to buy the debt issued by Fannie Mae and Freddie Mac, and at lower rates, with the federal government explicitly backing that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

Futures on all major stock indexes rose about 2 percent in electronic trading Sunday night.

The Treasury Department said that if necessary, it was prepared to put up as much as $100 billion in each of the companies over time to keep them from going broke in exchange for senior preferred stock.

The department will immediately be issued $1 billion of such stock from each company, which will pay 10 percent interest. Further purchases of preferred stock will be triggered if quarterly audits find that the companies' capital cushion — the assets they are required to have to cover losses — is below prudent standards.

The government, which will receive warrants representing ownership stakes of 79.9 percent in each company, is hoping that its moves will reassure nervous investors that they can continue to buy the debt of the two companies...

,,,Fannie Mae was created during the Great Depression, and Freddie Mac in 1970, to help make mortgages more affordable for homeowners. The companies buy billions of dollars in mortgages each month from commercial lenders.

Some are sold to investors as mortgage-backed securities; others are held by the companies in their investment portfolios. This process provides banks with more money to make more home loans, which expands home ownership.

The conservatorship will be run by the Federal Housing Finance Agency, which was created by Congress this summer to regulate Fannie Mae and Freddie Mac.

That happened at the same time that Congress expanded the power of the Treasury Department to make loans to the two companies. But their financial situations didn't improve, and officials feared that a crisis of confidence could spread through the worldwide financial system...

...Analysts were split on how much the takeover could cost taxpayers, although they agreed that the upfront costs will be substantial, possibly hitting $100 billion as the Treasury has to bolster the capital cushions at both institutions.

However, if the plan stabilizes the housing market and home prices rebound, the assets of Fannie Mae and Freddie Mac should rise in value, and the government should be able to sell off the companies and recoup its investments.

But it could take a long time to work through that process.

"I think the government will end up having to put in far more money than they are planning right now (given all the problems facing housing), but the important thing is the agencies have been taken over by the government," said Sung Won Sohn, an economics professor at California State University Channel Islands.

That means there will be less panic in financial markets."

See Related Story: http://reversemortgagesnow.blogspot.com/2008/09/who-are-fannie-and-freddie-to-home-loan.html

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