Government may soon back troubled mortgage giants
AP
06-Sep-2008 (10 comments)

WASHINGTON - The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

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shinie head

2 more U.S. banks go down!

by shinie head on

Thanks "W". We could not have a better, smarter, more resilient, and more articulate president! You provided job security for another 50-100 US presidents in the future who must work to clean up the mess you have created.


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Kaveh Nouraee

Gordman

by Kaveh Nouraee on

I'm glad to see someone else is optimistic about the situation. No doubt, Fannie & Freddie were poorly managed, and there are currently several investigations under way concerning allegations of conflict of interest. Perhaps a case of "too little, too late", but it will be interesting to see the outcome.

The fact that you are actively tracking your mortgage places you in such a tiny minority of homeowners who actually watch monitor how their money is spent. I advise all of my clients to do the same.

It's mind-boggling how many clients or potential clients have come up to me and, for example, wish to consolidate their debt. I'll review their balances with them and they all say " I don't know what happened. I don't know how my balances became so high and why I owe this much."

The answer is simple. They do not understand the responsibility that goes with taking on debt.

We'll begin to see some solid positive changes in the economy after the election.


gordman

It's too late for those two

by gordman on

It's too late for those two now, I suppose we have to handle the situation without them now. Somehow I am optimistic about this crisis, as long as you keep a good track of your mortgage status you reduce the risks. My searches lead me to an interesting mortgage calculator tool that helps me do that.


Kaveh Nouraee

SH

by Kaveh Nouraee on

Again, you have failed to answer the question, and again, you have resorted to childish tactics.

Don't feel sorry for me, as I have indeed learned a valuable lesson. I have learned that you are unable to substantiate your original statement. I have also learned that you are incapable of engaging in an intelligent and civilized discourse and that you must resort to childish tactics to compensate for the fact that you are truly unprepared when asked a legitimate question on a given subject.

 

 


shinie head

Re: SH (To: Kaveh Nouraee)

by shinie head on

Kaveh,

Good explanation, but you have only learnt half of the story.

You need to repeat the course. I feel sorry for you.

 

SH


Kaveh Nouraee

Mr. Bahar

by Kaveh Nouraee on

I think what we may end up seeing is an acceleration of the markets stabilizing, especially after the November elections.

Being that so many other governments throughout the world have more of a hand in their countries' economies, this move by the U.S. government may be perceived as a positive and reassuring step by foreign governments, and subsequently foreign investors, who happen to make up the bulk of the markets here.

Your concerns are very valid, and although I'm traditionally against government takeovers, it may serve to assuage global fears and generate new foreign investment, to counter all of this wealth that is shifting overseas.

As for your concerns of war, I still firmly believe that such rhetoric from all sides is nothing more than glorified political "trash talking".

 


Kaveh Nouraee

SH

by Kaveh Nouraee on

Considering the tone of your response towards me, in addition to being just plain rude and ill-mannered, I think the fact may be that you don't actually have an answer, comprehensive or otherwise. Your emotions towards W don't count.

These two entities are private corporations that are publicly traded government sponsored enterprises, known as GSEs. No president, be it W, or anyone else, has any influence over their operational policies and procedures. To suggest otherwise is to make an uninformed statement.

These two firms purchase mortgages and resell them on Wall Street as securities. Just like Morgan Stanley or any other investment bank that offers mortgage backed securities as part of their portfolio of products and services. 

What does any sitting or former U.S. president have to do with that process? The answer? Nothing.

Fannie Mae and Freddie Mac, per their respective charters, may purchase only conforming loans. Freddie Mac began buying subprime loans only 18 months ago, and very few of them at that. Freddie will only buy subprime paper that also qualifies as a conventional loan at the fully indexed rate, and not at any introductory rate.

SH, my business is consumer and business finance. Mortgage loans, commercial loans, venture capital, and so on. I sell money. While I agree that the current administration has come up short in several key areas, you are way off the mark here.

The concept of a subprime mortgage is very simple and when used properly, extremely effective. During the initial 2 or 3 or 5 years, the homeowner would improve his/her credit, so that by the time their initial fixed rate period was to expire and the rate was to adjust, the homeowner would then qualify for coventional fixed rate financing.

We all know how housing prices went up dramatically, creating the phenomenon of "phantom equity". Most people who acted did so responsibly during this time and used the opportunity to sell their current properties at a very nice profit or they refinanced and have a lower fixed rate loan. Unfortunately there were also a significant number of people who used this phantom equity to turn the house into an ATM.

I have clients who used a subprime mortgage loan to purchase a home and followed my advice. I also have clients who ignored my advice and bought plasma TVs and and a Lexus before the ink was dry on their escrow papers. There was also the client who wanted me to refinance his house and get him cash so he can drop $30,000 on his daughter's 15th birthday. That's when he stopped being my client. He went with someone else and threw the party.

Guess who is still living in their homes and who's living in a family member's basement with 3 kids and a broken down Hyundai because their house AND their Lexus was repossessed?

And can you guess what happened to the guy who did a cash out refi for a birthday party? His employer downsized his company in order to keep from losing it altogether and everyone had to take a pay cut and a reduction in work hours or risk losing their jobs completely. He called me to refi his house again. I couldn't do it for him. His income had dropped, and he hadn't saved a dime. Do you want to blame that on W?

When the demand for housing cooled (more like froze), that phantom equity vanished and those same people who borrowed with no way of paying are crying "Mommy" and want the big bad government to kiss their boo-boo and make it better. This is called "absence of personal accountability".

Were some lenders lax in oversight? Yes, some lenders most definitely were. Thankfully, they are gone now. Did the environment exist for fraud and other monetary hanky-panky? You bet. You can't leave a pile of money in a room full of thieves and expect it to be there when you get back.

Were any of these entities owned or operated by W or anyone else in the government? Did W or the government create the surge in home prices? By that token, did W, or the government create the slowdown of that demand and the resulting downturn in prices?

No

Class dismissed.


Jalil Bahar

Where is the money going to come from?

by Jalil Bahar on

Pundits are claiming that the rescue effort for Fannie and Freddiemay absorb as much as 1.5 Trillion dollars....this is about 50% of the US government's budget. If the governement (treasury department) prints all this money (becasue they surely can not borrow it....there aren't any lenders large enough), Inflation will ravage the country and devalue the dollar further...it will be chaotic and lead to a serious crisis (globally). If the United States catches a cold, the rest of the world will get pheumonia (since the US sucks in a huge chunk of the world's exports). In any case, the worst is yet to come...which might mean "war" on a scale we have not yet seen (to mask the crisis....kind of like the hitler's run up to the 2nd WW). The question is: Will Iran be at the epicenter of such a war????????

Let see.


shinie head

KN 's Answer

by shinie head on

I think to give you a comprehensive answer, you may be totally lost (depending on your background and how much you follow news and events), and I really don't have the time to do that for you. I have too many students to worry about and they are of higher priority over you.  Simple answer however that you may understand is "lack of leadership" and  sidestepping congress through dismantling "oversights", and "regulations". These happened under our beloved "W"'s watch.

 

thanks for your curiousity!


Kaveh Nouraee

S.H.

by Kaveh Nouraee on

I'm curious to know why you think this is specifically W's fault.