government bailout of FNM and FRE

Discussion in 'Economics' started by dafong, Sep 6, 2008.

  1. dafong

    dafong

    so what would this do for the housing market?

    will house prices stop dropping and mortgage rates decline?

    i would like to know your take and an explanation why.

    Thanks.
     
  2. This ought to blow the bottom out of the RE market.

    Most likely mortgages will revert to 20% down, proof of income, reasonable DTI ratios, etc, you know like in the good old days.

    Problem is no one will be able to qualify until prices come way down.
     
  3. I'm hoping it will cause even more inflation, specially in the RE market

    20% inflation by year end and some 13% next year would be good
     
  4. GTS

    GTS

    No and no. The GSE's were functioning before this takeover and they will continue to function after.

    GSE's debt was already backed by the govt so an explicit takeover doesnt change anything.

    The market sets prices and mortgage rates.
     
  5. We could make houses more readily affordable by using tranches.

    The home owner could sell the front lawn as a senior tranche as a "safe investment".

    A house could be purchased with a mortgage just on a L/R, Kitchen and one bedroom, with the Bathroom being sold as a third world tranche to countries that don't have plumbing.

    So on and so forth, stay tuned for more details when this hits the street.
     
  6. m22au

    m22au

  7. Fact or Fiction? The Reality Behind The Rumors
    Got a handle on the housing crisis? Think you understand Freddie Mac and its financial situation? Take the quiz below to verify the facts and spot the fictions.

    Freddie Mac has lost billions of dollars more than most other financial companies in 2008.

    Fact
    Fiction
    Incorrect. This is Fiction. The facts are that as of August 6, Freddie Mac has reported $151 million in first quarter and $821 million in second quarter losses in 2008. So, while Freddie Mac is not immune from losses in the current downturn, its losses during the first half of 2008 were lower than those reported by other large financial and mortgage related firms.

    Correct. This is Fiction. The facts are that as of August 6, Freddie Mac has reported $151 million in first quarter and $821 million in second quarter losses in 2008. So, while Freddie Mac is not immune from losses in the current downturn, its losses during the first half of 2008 were lower than those reported by other large financial and mortgage related firms.

    Freddie Mac has already been bailed out by the government.
    Fact
    Fiction
    Incorrect. This is Fiction. The facts are that Freddie Mac has not asked for, and has not received, federal funds. We do not believe we will ever need federal funds. The Treasury Department says the government has "no intention" of using its authority to invest in Fannie and Freddie.

    Correct. This is Fiction. The facts are that Freddie Mac has not asked for, and has not received, federal funds. We do not believe we will ever need federal funds. The Treasury Department says the government has "no intention" of using its authority to invest in Fannie and Freddie.

    Freddie Mac has approximately $3 billion of capital above its statutory and regulatory requirements.
    Fact
    Fiction
    Correct. This is Fact. Freddie Mac had an estimated $37.1 billion in core capital as of June 30, which is an estimated $8.4 billion above the statutory minimum and $2.7 billion over the 20 percent mandatory target surplus required by our regulator.

    Incorrect. This is Fact. Freddie Mac had an estimated $37.1 billion in core capital as of June 30, which is an estimated $8.4 billion above the statutory minimum and $2.7 billion over the 20 percent mandatory target surplus required by our regulator.

    Freddie Mac must immediately raise as much as $75 billion in new capital just to survive.
    Fact
    Fiction
    Incorrect. This is Fiction. The facts are that Freddie Mac had an estimated $37.1 billion in core capital as of June 30, an estimated $8.4 billion in excess of the company's statutory minimum capital requirement, and $2.7 billion above the 20 percent mandatory target capital surplus. That's enough to weather the current housing downturn.

    Correct. This is Fiction. The facts are that Freddie Mac had an estimated $37.1 billion in core capital as of June 30, an estimated $8.4 billion in excess of the company's statutory minimum capital requirement, and $2.7 billion above the 20 percent mandatory target capital surplus. That's enough to weather the current housing downturn.

    In this year's turbulent housing market, Freddie Mac has funded $300 billion of mortgages.
    Fact
    Fiction
    Correct. This is Fact. Each month Freddie Mac finances tens of thousands of mortgages, pumping billions of dollars into the economy. While other investors have fled the market, Freddie Mac invested nearly $300 billion during the first six months of 2008.

    Incorrect. This is Fact. Each month Freddie Mac finances tens of thousands of mortgages, pumping billions of dollars into the economy. While other investors have fled the market, Freddie Mac invested nearly $300 billion during the first six months of 2008.

    Mortgage rates are up because Freddie Mac is paying higher yields on its debt.
    Fact
    Fiction
    Incorrect. This is Fiction. The fact is that while mortgage rates have risen in recent months, they remain near historic lows. For example, rates on 30-year fixed-rate loans currently are about 6.5 percent, according to Freddie Mac's Primary Mortgage Market Survey. That is lower than the average annual 30-year rates in 32 of the prior 37 years. What's more, FHA rates are rising at the same pace as conforming rates, although FHA is fully backed by the U.S. government. This means investors have confidence in Freddie Mac.

    Correct. This is Fiction. The fact is that while mortgage rates have risen in recent months, they remain near historic lows. For example, rates on 30-year fixed-rate loans currently are about 6.5 percent, according to Freddie Mac's Primary Mortgage Market Survey. That is lower than the average annual 30-year rates in 32 of the prior 37 years. What's more, FHA rates are rising at the same pace as conforming rates, although FHA is fully backed by the U.S. government. This means investors have confidence in Freddie Mac.

    Freddie Mac is paying record yields on its debt because investors have special doubts about Freddie Mac.
    Fact
    Fiction
    Incorrect. This is Fiction. The facts are that Freddie Mac is paying higher yields relative to Treasuries, but so is everybody else, which is not surprising given the turmoil in the markets. On August 19, Freddie Mac's debt auction of 5-year notes was priced 113 basis points above yields on Treasury notes. But, comparable spreads on securities issued by AA-rated financial companies have risen to about 250 basis points above Treasuries.

    Correct. This is Fiction. The facts are that Freddie Mac is paying higher yields relative to Treasuries, but so is everybody else, which is not surprising given the turmoil in the markets. On August 19, Freddie Mac's debt auction of 5-year notes was priced 113 basis points above yields on Treasury notes. But, comparable spreads on securities issued by AA-rated financial companies have risen to about 250 basis points above Treasuries.

    The market is shunning Freddie Mac debt.
    Fact
    Fiction
    Incorrect. This is Fiction. The facts are that recent Freddie Mac debt issuances were oversubscribed, despite high market volatility and generally slow summer activity in the markets. Freddie Mac continutes to enjoy access to the world's debt markets at attractive spreads. This shows Freddie Mac is in a healthier financial position than many headlines suggest.
     
  8. In other words, it's great news for the housing market, long-term.

    For decades these neo-Stalinist monstrosities have distorted US housing, especially in the last few years when they threw all measures of responsible lending out of the window. These two market-rigging institutions almost single-handedly made the US housing bubble as big as it was, taking insane risks on absurd leverage levels that made LTCM look conservative.

    All we need now is for the executives to get 20-30 years like Ken Lay and Bernie Ebbers - or at the very least, disgorge ALL their bonus payments over the last decade - and finally this ridiculous experiment with socialism can come to an end.

    Back to 20% min deposit, max mortgage 3 times joint income, 30 year fixed-rate term, and affordable housing for all, being a place to live rather than a vehicle for reckless speculation and get-rich-quick gamblers.
     
  9. bgp

    bgp

    trendy ???? do you work for freddie or fannie??? you must have taken this info off of a government web site. if you believe all this bullshit you wrote , then you should invest in the common stock.
    are you familiar with fuzzy math???

    bgp :mad:
     
  10. Cutten wrote....
    In other words, it's great news for the housing market, long-term.

    For decades these neo-Stalinist monstrosities have distorted US housing, especially in the last few years when they threw all measures of responsible lending out of the window. These two market-rigging institutions almost single-handedly made the US housing bubble as big as it was, taking insane risks on absurd leverage levels that made LTCM look conservative.

    All we need now is for the executives to get 20-30 years like Ken Lay and Bernie Ebbers - or at the very least, disgorge ALL their bonus payments over the last decade - and finally this ridiculous experiment with socialism can come to an end.

    Back to 20% min deposit, max mortgage 3 times joint income, 30 year fixed-rate term, and affordable housing for all, being a place to live rather than a vehicle for reckless speculation and get-rich-quick gamblers.
    ..................................................

    Good post Cutten
    .................................................

    Normalcy is when saving is rewarded and attracted by reasonable, normal rates of interest......

    And indeed hard work and its savings should be able to build what is normally scarce.......

    $1000 paid interest per $100,000 is not normal....and has been caused by failed, abnormal government policy.....

    What is clear is that the government is tinkering again with printing lots of money.......

    The FED needs to move either back to Glass Stegal....or either a gold standard........not the willy nilly dilution of the value of hard earned money by honest people....

    Greenspan and whomever should be taken on a long tour to the woodshed.....
     
    #10     Sep 6, 2008