Freddie Mac boss: Housing worst isn’t here yet

Discussion in 'Wall St. News' started by Tums, Apr 28, 2007.

  1. Tums

    Tums

    Freddie Mac boss: Housing worst isn’t here yet
    Foreclosures will keep coming, and lender help won’t stop all of them

    http://www.msnbc.msn.com/id/18355590/

    “The mortgages written in 2006 in the subprime market are probably the most troublesome. They haven’t hit the reset point yet on interest rates,” Richard Syron, chairman and CEO of Freddie Mac, told a Boston audience.
     
  2. nkhoi

    nkhoi Moderator

    well, they could offer 30Y ARM and 100Y fix.
     
  3. Looks the problems are here now....4 months later.

    So "Freddie & Fannie" preparing to step in and bail out the industry. Makes sense as they are government backed.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=auADFrEJpH9k&refer=home

    Fannie Mae Asks Regulator to Ease Portfolio Limits (Update1)

    By Jody Shenn and James Tyson

    Aug. 6 (Bloomberg) -- Fannie Mae, the largest source of money for U.S. home loans, asked its regulator for permission to take on more mortgage assets and help ease a crunch in the credit markets, a person with knowledge of the request said.

    Fannie Mae officials approached the Office of Federal Housing Enterprise Oversight in the past few days, seeking to have restrictions lifted so it can hold more home-loan assets in its portfolio, said the person, who declined to be named because the discussions were confidential.

    Allowing Washington-based Fannie Mae and smaller rival Freddie Mac to buy more loans would help ease a slump in demand for mortgages. Lenders including Wells Fargo & Co. and IndyMac Bancorp Inc. last week cut back on making some loans as other investors recoiled. IndyMac Chief Executive Officer Michael Perry said last week he is asking the companies to help.

    ``There is significant pressure coming from lenders to the regulators asking for steps like that,'' said Howard Glaser, a mortgage-industry consultant and lobbyist based in Washington, who's a . ``Lenders themselves are requesting Ofheo allow Fannie Mae and Freddie Mac to step in.''

    Brian Faith, a Fannie Mae spokesman declined to comment, as did Ofheo spokeswoman Corinne Russell. Freddie Mac hasn't had discussions with Ofheo about providing more liquidity, spokeswoman Sharon McHale said.

    Fannie Mae rose 10 percent today, the biggest gain in five years, on speculation the company may have portfolio restrictions lifted. McLean, Virginia-based Freddie Mac jumped 7.7 percent, the most since 2000. Removing the caps would help drive profits because the holdings are typically the largest source of income.

    Shares of Fannie Mae rose $5.87 to $62.50 at 4 p.m. in New York Stock Exchange composite trading. Freddie Mac rose $4.30 to $60.

    Restrictions

    Ofheo slapped restrictions on Fannie Mae and Freddie Mac last year after the companies admitted to $11.3 billion in combined accounting misstatements. The two companies are yet to resume timely quarterly reporting.

    Under Ofheo's guidelines, Fannie Mae must limit its portfolio to $727.2 billion, its level as of Dec. 31, 2005. Freddie Mac must restrict annual growth of its $712.1 billion portfolio to 2 percent.

    Relaxing the cap ``would constitute a much more precise and effective `ease,' or liquidity injection, than would a rate cut by'' the Federal Reserve, said T.J. Marta, a bond strategist at RBC Capital Markets in New York.

    `Nice Piece'

    Investors were also speculating that the companies might be able to buy larger loans they are currently allowed, Marta wrote in a note to clients. Freddie Mac and Fannie Mae are restricted to mortgages of $417,000 for a single-family home in most states.

    ``At our conforming limit, the $417,000 mortgage will buy you a very nice piece of property in most of the country,'' Freddie Mac CEO Richard Syron said in an interview on Fox News today. ``In Boston, New York, San Francisco, it won't. So I think that is something that has to be taken into consideration.''

    Congress created Fannie Mae and Freddie Mac to expand homeownership by increasing mortgage financing and to provide market stability. They make money by holding mortgage assets that they fund with cheaper debt and on guarantees of mortgage securities they create out of loans from primary lenders.

    The market for the so-called agency mortgage-backed securities, guaranteed by the companies or federal agency Ginnie Mae, represented the majority of issuance from the mortgage-bond market's start in the early 1970s until 2005.

    Freddie Mac and Fannie Mae were overtaken by lenders such as Countrywide Financial Corp. and investment banks like Merrill Lynch & Co.

    `White Knight'

    ``They used to be seen as a dark horse now they're seen as a white knight,'' said Fred Cannon at KBW Inc., who has a ``market perform'' rating on the companies. ``Right now it could be very helpful because, honestly, there's a real issue in the secondary markets. We're seeing lenders changing the credit criteria of the loans they'll make very rapidly.''

    The credit crunch in the non-agency market came to a head last week when more than two dozen lenders said they were either dropping some programs for customers with good credit or raising rates.

    Lifting the caps ``would carry more psychological than economic impact, but that's exactly what the market could use right now,'' Jim Vogel, a bond researcher at FTN Financial in Memphis, Tennessee, wrote to clients today.
     
  4. nkhoi

    nkhoi Moderator

    Hold the phone, the loans that make other companies' stocks go down will make Freddie & Fannie's stocks go up ?
     
  5. Yes, they are showing exactly why their limits shouldn't be increased. Let's not forget why these limits were slapped on them. $11 billion in fraudulent accounting. In FNM's case, it appeared to be designed to let the since departed CEO and others cash in stock options by creating the appearance that earnings benchmarks had been met.

    The proper regulatory policy for these two companies is to gradually squeeze them out of existence. The private sector can handle this without putting the Treasury at risk for the inevitable bailout.