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Government to seize Fannie Mae, Freddie Mac - 9/6/2008 12:11:01 PM

Level

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quote:

WASHINGTON - A top House Democrat confirmed Saturday that the government is planning to intervene to stabilize troubled mortgage finance companies Fannie Mae and Freddie Mac.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said in a statement that Treasury Secretary Henry Paulson "intends to use the powers that Congress provided it" in a law passed in July to enable Fannie Mae and Freddie Mac to keep functioning.

But Frank, who spoke with Paulson late Friday, said he did not "know the details of the proposed interventions," and a Treasury spokeswoman declined to comment.

A person briefed on the matter Friday said the government was planning to take over both companies, which together hold or back half of the nation's mortgage debt.

http://news.yahoo.com/s/ap/20080906/ap_on_bi_ge/mortgage_giants_crisis

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RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 12:32:17 PM

corysub

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That would be a good thing if done correctly. The government found the right people to take us out of the
S&L debacle (errr..that's S&L not S&M :) ) Hopefully, they will find the right people to run FNM
and FHA, cut the waste, a start the long road to recovery. Should help the markets I think..if it truly happens.

(in reply to Level)

Post #: 2

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 12:50:05 PM

slaveboyforyou

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I don't consider it a good thing. Any company stupid and greedy enough to give loans on $200K homes to a janitor deserves to go under. Anyone who goes out and buys a home above his/her means deserves what happens to their credit. As someone who is careful and responsible with his finances, I am sick of people thinking someone will bail them out of the mess they've created for themselves. When the fuck did frugality and thrift become the exception rather than the rule? Why do the irresponsible get rewarded for their stupidity, while us responsible types have to go without?

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Post #: 3

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 1:20:05 PM

corysub

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I couldn't agree more with you slaveboy. I am not for rewarding stupidity, and those people who purchased homes way above their means, or were stupid enough to think that they were going to pay a 2% interest rate
when the going rate was 6% or 7% made their bed and should lose it if they can't afford the upkeep.

However, the government can't let the institutions of FannieMae and FHA fail to honor their commitments. They
account for half the mortgages in the country and housing would come to a complete halt if the government did
not honor its implied guarantees.

The good thing is that we are talking real estate...a vehicle that has value...less than carried on the books but it's not like "internet stocks" in the 1990's that went from 200 to zero!. Losses will be taken
but on the other side of the coin, "First Time" home buyers that were kept out of the market because of lax
lending allowing speculators and others to buy homes they could not afford and who drove prices up are now out of the game. Prices have been coming down and there is a legitimate, better financed buyer at every auction, ...at a price.

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Post #: 4

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 1:44:30 PM

lronitulstahp

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...because the U.S. government is so good at staying debt free

...........

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Post #: 5

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 2:33:06 PM

UncleNasty

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quote:

ORIGINAL: corysub

However, the government can't let the institutions of FannieMae and FHA fail.....

Sorry cory, but I have to speak plainly. First is the question "Why not?"

Next consider that there is no Constitutional authority whatsoever for the Federal Government to bail out private business.

Next consider that you're going to be paying for not only this bail out, but for others that have come before this one as well, for years to come. Remember, the gov't has no money. It is your money. They take your money from you and use it for these bail outs.

What they have done and will be doing is rewarding bad behavior. The more they do it the more of it we get, and as a citizen you're the one being put on the hook to cover the losses.

I highly recommend a reading of Edward G. Griffin's book "The Creature From Jekyl Island," specifcally the chapter titled "The name of the game is bail out."

Uncle Nasty

(in reply to corysub)

Post #: 6

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 3:06:58 PM

Daddysredhead

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A lot of the problem of the current foreclosure crisis goes back to the "low-doc." or "no-doc." loans that were being given out hand over fist a few years ago. Lenders were allowing people to borrow money, without having to go through the documentation verification of employment or the debt to income ratio. It was all about closing the deal and making the loans, no matter what. Now, those types of loans are finished, and the more traditional loans are what's available. I see the devestation that home foreclosure has had on people because of the type of law that I work in. I see the effects of mishandling one's finances and how corporate greed on an unknowing client can leave people homeless and the economy shattered.

Hopefully, someone can come in and resusitate this situation and help make people take responsibility for themselves and make the corporate world realize that they aren't beyond gov't intervention either.

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Post #: 7

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 4:17:45 PM

Termyn8or

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Let me get this straight. People who needed a cosigner to get a pot to piss in then needed a window to throw it out of. Then the banks that wouldn't loan them the money for a pair of shoes, uses a loan guarantor. Now a part time fast food worker has a mansion.

Hell they clear near $300 a week. At 3% a 100K note is a bit over $400. In a couple years it goes to a realistic rate, say 6%, which means it is now $600 per month. This is only principal and interest. Their pay has remained the same. In the meantime a couple of tax levies passed, they had a problem with the roof and the car broke down.

They have also found out what it costs to heat and cool 30,000 cubic feet, and the credit cards are maxed out. Of course all of this happens after they moved in and decided they had to have some pretty flowers and hired a landscaper.

Now in December the furnace needs a heat exchanger, which pretty much means a new furnace. I would charge at least $1,500 for that especially if it has central air built into it. They don't have the money.

So they are living in one room with an electric heater eating bologna sandwiches that you can see through and she is pregnant again. Perhaps this heart-wrenching story is atypical, but for some it is pretty close. Alot of people out there do not think about the future, at least in any realistic sense.

So now the sherriff comes and they all have to pile into the car and leave. They stopped making the payments months ago simply because they could not afford it. Their credit cards go up to the default rate and if they had anything left, the limit has been spiraled down to their current balance. They can't even rent a Uhaul to move.

So now the people who spend our tax dollars are going to bail out the bank that was stupid enough to give them the loan in the first place, and if they hadn't done it en masse the loan guarantor would not be in trouble.

Meantime the people are still homeless while our tax dollars make sure the bankers don't run out of ivory back scratchers.

Am I pretty much on track here or what ?

T

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Post #: 8

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 4:46:30 PM

DomKen

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Time to correct some inaccuracies Fannie Mae and Freddie Mac are a government sponsored enterprises not strictly private companies. Newither makes home loans directly. They insure bonds sold by financial institutions that finance mortgage loans, in simple terms when a bank can't make an interest payment on bonds issued to finance home loans Fannie Mae makes the payment so as to keep the bond from being defaulted. Without this vital support interest rates on these bonds would have to be higher due to the increased risk of default on repayment which would drive many banks out of the mortgage business and drive up mortgage interest rates for everybody else.

Letting them fail would basically destroy the existing system of residential mortgages which would cause chaos in the economy. Right now Fannie mae insures or owns something like 80% of all new mortgages so letting it fail would make it virtually impossible for most Americans to buy a home.

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Post #: 9

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 5:04:04 PM

Termyn8or

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Not so sure DK. Bought this place straight bank, which means a bigger downstroke, and IMO that it was affordable. Never payed PMI in my life. Never went through an FHA inspection which usually mandates some of the stoooooopidest repairs/upgrades I have ever heard of.

Let them fail and those of us who really can afford a house get them cheaper, due to market forces.

T

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Post #: 10

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 5:13:02 PM

pahunkboy

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LOL, another neat post from T,

There is another component. China holds much of the Fannie freddy stock. so much so that the loss could buy 5 aircraft carriers.

note that the Chinese central bank now has a money shortage.

OOPs

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Post #: 11

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 5:16:35 PM

DomKen

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From: Chicago, IL
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quote:

ORIGINAL: Termyn8or

Not so sure DK. Bought this place straight bank, which means a bigger downstroke, and IMO that it was affordable. Never payed PMI in my life. Never went through an FHA inspection which usually mandates some of the stoooooopidest repairs/upgrades I have ever heard of.

Let them fail and those of us who really can afford a house get them cheaper, due to market forces.

T

You really really need to study some macro economics befor spouting stuff like this.

If 80% of the residential mortgage market goes away then most banks simply won't be in the business anymore. Those that remain would have no insurance and their bond interest rates would be sky high. If you had a high 700 credit score you might get an 18% fixed rate 5 year loan for a residence. longer term? forget it. lower rate? better have a down payment of 60 or 70%.

Then there is the problem of all teh financial institutions that would simply be wiped out by Fannie Mae failing. All the big banking chains would close or be in trouble. Which means the FDIC would be on the hook for trillions of dollars. Think about the chaos of that California bank closing from early summer multiplied a thousand fold across the country.

(in reply to Termyn8or)

Post #: 12

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 5:21:53 PM

pahunkboy

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http://business.theage.com.au/business/china-goes-the-big-squeeze-20080829-45q8.html?page=2

this should shed some light on it. the danger is the chinese no longer bankroll our spending.. that is what is at risk.

Ron Paul warned us. Now here we are.

(in reply to DomKen)

Post #: 13

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 5:27:09 PM

NumberSix

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I don't think sieze is an appropriate word, what I understood they were going to do was buy stock, thus propping up the fannie and freddie.

What happens is that the fedres loans them money below bank rates, and they package mortgage securities with a guarentee, and re-sell them.

A bank is not in your mortgage 100% in all likelyhood. They have to have something called reserves, so what they do is give you the loan and semi-guarentee it to freddie or fannie. ( I dont think fannie or freddie can be directly asked out to the loan from the general public).

So, they loan you at 6%interest 100K for 30, they sell 80% of it to fred or fan at lets say 110K and service the loan for some bucks, foreclose your ass and whatnot, and fall short on fan or fred........then fan or fred has to kick out bucks because they guarenteed the loan to china or whatnot.

rough shit all the way around.

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Post #: 14

RE: Government to seize Fannie Mae, Freddie Mac - 9/6/2008 9:55:31 PM

Termyn8or

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DK, I know what would happen. The interest on this house was 10.2%. There was no loan guarantor.

I think that market forces would take care of the problem. Even those who can afford a house would be deterred from spending as much as they did paying a higher interest rate, along with the greater frequency of disqualifications. In other words, if the bank stands a REAL chance of losing the money, they will either disqualify or charge a higher spread between prime and what the buyer pays.

The housing bubble would have not inflated as much, or at least not as quickly.

Then there is the greed factor. They were getting $400,000 for new houses with stamped sheetmetal wall studs, plywood floor joists and cardboard roofs. Well cardboard is an exagerration but you can't walk on the roof of many newer built houses. Your foot will go through it. I personally know someone who lost almost everything because their new house fell apart, and I don't mean in a hurricane. I know someone else who had a constant contract almost with my friend, because at least perennially he had to go there and reattach a square or two of siding. It was nailed into styrofoam. Every time the wind kicked up to about 40 MPH, my buddy's phone rang.

That is money out of their pocket. Luckily they made enough to support this, something that should never have happened in the first place. What would happen if they could just barely afford the payment ? Values drop and they can't refi.

If I were a bank I probably would have a specially trained team of loan officers. I would not let the customer report their expenditures, for a couple of reasons. I would calculate their real expenditures and calculate the income/debt ratio. Got how many kids, how old, pregnant, ok that's diapers for 2½ years, fifteen per bag, three changes a day, and so forth. The water bill and everything is more precise. Figure on taxes and insurance increasing by around 15% over the life of the loan. If the P/E ratio is not quite as good as it should be, the downstroke is higher. Bankers are gamblers, and depositors used to stake them, but now the Fed mostly does that in the fractional reserve banking system, which should be a felony.

In short, this near free (seemingly) money supply caused this problem by interfering with normal market forces. Quarterly reports outweigh long term gains, which seems to be the American way.

Now what do I "really really" have to study about macro-economics ?

T

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RE: Government to seize Fannie Mae, Freddie Mac - 9/7/2008 7:19:00 AM

hizgeorgiapeach

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quote:

ORIGINAL: slaveboyforyou
Why do the irresponsible get rewarded for their stupidity, while us responsible types have to go without?

That's a question that I've been asking for YEARS now, SB, and I still haven't found an answer. Honestly, my guess is it's because the world sucks. Life isn't Fair. Good doesn't necessarily triumph over evil. And good guys (and gals) really DO finish Last.

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RE: Government to seize Fannie Mae, Freddie Mac - 9/7/2008 7:37:44 AM

thornhappy

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(fast reply)
This whole situation reminds me of the S&L crisis....banks took crazy investment risks on instruments that they didn't understand. But that was ok, because the feds would bail them out. Now it pisses me off to hear of hedge funds and brokerage firms being bailed out. So much for the corrections of a free market.

thornhappy

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Post #: 17

RE: Government to seize Fannie Mae, Freddie Mac - 9/7/2008 7:38:28 AM

meatcleaver

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Eek! Socialist policies having to rescue greedy capitalism yet again!

I suppose they could stick to capitalist values and let the whole ship sink.

One can go on and on as to whether its a good thing or a bad thing but if Fannie Mae and Freddie Mac go under, even the prudent will suffer.

< Message edited by meatcleaver -- 9/7/2008 7:41:08 AM >

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Post #: 18

RE: Government to seize Fannie Mae, Freddie Mac - 9/7/2008 9:12:38 AM

RealityLicks

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As ever, the people who bear most of the blame are those at the bottom, untutored in handling money, who have been conned into loans they couldn't maintain in pursuit of a dream that was never within their grasp. What about the unscrupulous lenders? After all they created the problem, knowing all this would result. What about the lax and lazy regulators, who let them get away with it?

PS - the knock-on effect if no action is taken, will depress economies around the world. So fewer people will be able to afford to trade with US companies, leading to a downward spiral of recession in all countries.

< Message edited by RealityLicks -- 9/7/2008 9:19:17 AM >

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Post #: 19

RE: Government to seize Fannie Mae, Freddie Mac - 9/7/2008 9:18:27 AM

pahunkboy

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In a nutshell:

China fronted US the money- which US mismanaged.

AND bought even more military gear some of which is aimed AGAINST Chinas interests.

Now the funds are "not there" meaning the US swindled China..

So the solution is the least amount of $ that stops China from aggressor types actions...and to CONTINUE buying US debt.

See?

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Post #: 20

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