All your mortgages are now our mortgages

[Andy J]

GROAN..... Here comes some more "communism" :rolleyes:

http://www.msnbc.msn.com/id/26591359/

[rpicardi1]

In addition to drilling into your wallet for your money, instead of drilling for energy independence, they will now collect the interest on your mortgage, as their economic policies raises the cost of everything you need so that you will never become dept free.:mad:

[jtr1962]

This is welfare for the rich. The people who invested in risky mortgages knew that the higher return was commensurate with a higher risk. Now that the higher risk part is coming into play, they want the government to bail them out because Fannie Mae and Freddie Mac are "too big to fail". Too bad the mortgage brokers didn't have the balls to tell people making $30K a year that they just couldn't afford that $400K house. However, they alone should bear the consequences of loaning to people they knew very well couldn't pay pack.

[Kenny1234]

GROAN..... Here comes some more "communism" :rolleyes:



And this installment of 'communism' was brought to you by ? :)

Was that another GROAN I just heard?

Glad to see them take control rather than just dump taxpayer money into private hands. Very USRA/Conrail-like after all. Note the plans to break up their huge sizes and sell off a good part of the portfolio after stabilization to raise cash back for the taxpayer.

Now all we need to do is break up some of the other bigger companies in this country too - before they get to this point of being "too big to fail" as well.

[chucksc]

And this installment of 'communism' was brought to you by ? :)

Was that another GROAN I just heard?

Glad to see them take control rather than just dump taxpayer money into private hands. Very USRA/Conrail-like after all. Note the plans to break up their huge sizes and sell off a good part of the portfolio after stabilization to raise cash back for the taxpayer.

Now all we need to do is break up some of the other bigger companies in this country too - before they get to this point of being "too big to fail" as well.
How about your employer Kenny?

Is it getting too big? too many bad loans on the books?

[rdamurphy]

This is welfare for the rich. The people who invested in risky mortgages knew that the higher return was commensurate with a higher risk. Now that the higher risk part is coming into play, they want the government to bail them out because Fannie Mae and Freddie Mac are "too big to fail". Too bad the mortgage brokers didn't have the balls to tell people making $30K a year that they just could afford that $400K house. However, they alone should bear the consequences of loaning to people they knew very well couldn't pay pack.

$30,000 a year is "rich?" Wow, that's a pretty low figure. What's Middle Class?

Robert

[rpicardi1]

$30,000 a year is "rich?" Wow, that's a pretty low figure. What's Middle Class?

I believe what he meant to say was that people that made $30,000 a year were being steered into $400,000 mortgages on houses that they clearly couldn't afford under normal means through the low introductory mortgage rates.

It was pure greed on the lender's part to get the commission before the mortgages were bundled off to Fanny Mae or Freddy Mac.

Once the rates went up and or income went down, those new home owners suddenly found themselves with payments they couldn't make. When coupled with no equity and no buyers willing to pay the $400,000 asking price, they found themselves upside down on the value of their new house. Result, many of them defaulted on the loans, some by refinancing to a smaller house before the credit reports caught up with them, other by just letting the bank foreclose on the loans. Second result, Fanny Mae and Freddy Mac gets stuck with expensive houses they can't sell for what is owed on them.

The same thing is happening with cars. A neighbor has bought a 2004 Suburban, blue book value over $12,000, from a dealership for $7,000 financed.

[jtr1962]

$30,000 a year is "rich?" Wow, that's a pretty low figure. What's Middle Class?

Robert
I meant exactly what Ron said. So long as housing prices kept rising lenders were happy to make commissions lending to people who otherwise couldn't afford homes. When the homes rose in price, the buyers refinanced, paid off the first mortgage, took out some equity to spend on consumer crap, etc. Everyone was happy, at least in the short term. The flaw in that plan was that home prices couldn't continue rising at double digt rates forever. That brings us to where we are today.

[chucksc]

$30,000 a year is "rich?" Wow, that's a pretty low figure. What's Middle Class?

I believe what he meant to say was that people that made $30,000 a year were being steered into $400,000 mortgages on houses that they clearly couldn't afford under normal means through the low introductory mortgage rates.

It was pure greed on the lender's part to get the commission before the mortgages were bundled off to Fanny Mae or Freddy Mac.

Once the rates went up and or income went down, those new home owners suddenly found themselves with payments they couldn't make. When coupled with no equity and no buyers willing to pay the $400,000 asking price, they found themselves upside down on the value of their new house. Result, many of them defaulted on the loans, some by refinancing to a smaller house before the credit reports caught up with them, other by just letting the bank foreclose on the loans. Second result, Fanny Mae and Freddy Mac gets stuck with expensive houses they can't sell for what is owed on them.

The same thing is happening with cars. A neighbor has bought a 2004 Suburban, blue book value over $12,000, from a dealership for $7,000 financed.

IIRC the FBI has several hundred agents currently pursuing fraudulent brokers...

And didn't the housing bill this year establish some standards for brokers?

[rdamurphy]

I meant exactly what Ron said. So long as housing prices kept rising lenders were happy to make commissions lending to people who otherwise couldn't afford homes. When the homes rose in price, the buyers refinanced, paid off the first mortgage, took out some equity to spend on consumer crap, etc. Everyone was happy, at least in the short term. The flaw in that plan was that home prices couldn't continue rising at double digt rates forever. That brings us to where we are today.

But you said: "This is welfare for the rich." Then went on to say it was people making $30,000 a year that were getting help. If home prices had continued to rise, most of those people would have either been OK, or would have been able to get out from under it. Trust me, I know, we bought a house two years ago. Right now I'd have to pay someone $20,000 to take it. And no, we didn't "over-buy" and are quite comfortable sitting on it, but we also live in one of the Counties in the US that is among the highest foreclosure rates. In a State that was economicaly destroyed by the results of the 2006 elections, nuff said.

Robert

[jtr1962]

But you said: "This is welfare for the rich." Then went on to say it was people making $30,000 a year that were getting help. If home prices had continued to rise, most of those people would have either been OK, or would have been able to get out from under it. Trust me, I know, we bought a house two years ago. Right now I'd have to pay someone $20,000 to take it. And no, we didn't "over-buy" and are quite comfortable sitting on it, but we also live in one of the Counties in the US that is among the highest foreclosure rates. In a State that was economicaly destroyed by the results of the 2006 elections, nuff said.

I typed that post in a big hurry because I was catching a TV program. My reference to "welfare for the rich" is about people who invested in mortgages as commodities. IIRC mortgages were neatly put into bundles of 100 and then sold as commodities. Now the first thing I learned when I started buying mutual funds is that risk is generally commensurate with reward. I may get a 10% return buying mortgages given to mostly marginal home buyers, but I had better not complain if eventually I lose my entire investment. The problem is investors are doing exactly that, and the government is covering their losses because the companies they invested in are deemed "too big to fail". Granted, that may be true, but why weren't lending regulations stricter, and why were these companies allowed to get too big to fail in the first place?

And regarding home prices, going by the CPI my mom's house which was purchased for $52,000 in 1978 should now be worth about $200K. Historically home prices more or less keep pace with inflation in the long run (but not necessarily in the short run). This tells me prices still have a way to fall here. The house peaked at about $650K. Now it's probably worth $575K. Falling real estate prices aren't all bad. True some people like yourself may temporarily have a paper loss. But by the same token the lower prices will eventually allow home ownership by people for whom it was formerly not possible.

Believe me, from what I've read Freddie Mac, Fannie Mae, HUD, speculators and a bunch of other things have distorted the real estate market out of all semblance of reality. I see what's happening now as more of a free market correction than anything else. Demand is falling as the pool of home buyers shrinks to those really able to afford a house, and those who will actually live in it (rather than rent multiple homes as speculators have done). This shrinking demand is driving prices to where they would have been in the absence of all the outside manipulations.

[plainsman]

I think what he means by "Welfare for the rich", is that wealthy folks invested in mortage backed securities, which were traded as almost riskless investments with risk type returns, until the risk actually surfaced, and the securities became worthless. Now question is what happens to folks that own shares of Fannie and Freddie? Will they have to liquidate their ownership, or will the bailout secure their shares?

[rdamurphy]

That's actually a significant problem. All of the 'bail out' efforts have been directed towards the mortgage companies and none towards homeowners. The recent "bailout for owners" by Congress is a stone cold sham. Your income has to be so low there's no chance you even own anything more than an Arkansas Estate (mobile home in a trailer park...).

OK, no I'm really confused, you're defining rich as people that buy mutual funds and securities, but you're buying mutual funds... So, you're rich then?

Robert

[jtr1962]

OK, no I'm really confused, you're defining rich as people that buy mutual funds and securities, but you're buying mutual funds... So, you're rich then?

I wish I were rich but one doesn't need to be wealthy to put $4,000 in a Roth IRA each year which is all the investing I can currently afford. And I generally choose growth funds with some but not a lot of risk. Seriously, I'm talking about people who invested in mortgages as commodities. Since they were sold in bundles of 100, then yes, you had to be pretty well off to be able to buy into it (unless mutual funds for commoditized mortgages existed). Just do the math. Let's say the mortgages on average are for $100K. That's $10 million to buy a bundle of 100. Now anyone who has a spare $10 million they can throw into something risky is rich in my book.

Yeah, the bailout for buyers pretty much leaves most homeowners out of the picture but as it is I heard this might cost upwards of $25 billion.

[pmcn]

From what I gather, those who own common stock (either solo or in mutual funds) will lose their investment. Prefered stock value is still questionable. The only guarenteed funds are the bonds. The Fannies were already semi government entities that were privately traded. There was alot of critisim about the accountability and accounting of the agencies from a number of ecconominst since these agencies were created.

My own opinion is:
- That the government should not have entered into the mortgage field in the first place.
- The lenders responsible for knowingly giving a loan that a borrower could not afford should face criminal charges as this is nothing more than preditory lending.
- I can see some of the logic behind a bailout, but I also think that the loan industry should be left to deal with the consequences of their actions.
- Long term, the US tax payer will just have one more burden placed upon them. How long can the practice of a government bail out continue before the act itself causes an ecconomic collapse?

This stinks like the Old Court Savings and Loan junk bond fiasco of 20 years ago. One or two people will be offered up as sacraficial lambs while all of the beautiful people are themselves pulled out of the fire by the tax payer.

Paul

[muskokaandtahoe]

You guys have it all wrong. It is a very good thing that the Fed's have nationalized these two firms... it's long overdue. In fact, had the Feds acted sooner the loses to the taxpayer would be far less than they're going to be. Some background:

Fannie Mae was created in the great depression, around 1937 or 38, IIRC, for the purpose of offering banks the means to convert the long term assets (mortgages) into short term liquidity (cash). Remember, the depression was caused by deflation -- not enough cash moving thru the economy and banks in particular were hit really hard. So it started out as a good idea to stabilize the banking industry. After WWII it helped millions buy their first home, by virtue of being able to offer lower interest rates because of the federal guarentee. That too has been good for all of us as having a higher percentage of the population owning homes brings a stability to society -- in politics and economics -- that's missing in most countries of the world.

Where things began to go wrong was in 1968 when these two were semi-privatized. I say semi as the profits were private but because of the implied federal guarentee, the cost of a collapse (what we have today) was public. IOW, it was built into these things in 1968.

Anyway, over the last 40 years the two have slowly changed their purpose from offering the lowest rate mortgages to arbitraging the difference between their cost of funds and what they pay banks. Arbitrage is pocketing the difference between a low offer to sell and a higher offer to buy. A small difference is enough if you do a lot of it and and these guys did. That generated huge profits, which allowed the executives to pay themselves big bucks and for the stockholders to profit greatly. It also allowed them to make huge campaign donations to the congress-critters who were supposed to provide legislative oversight. People at the Federal Reserve have been telling Congress for at least 10 years these two insitutions should not be allowed to continue as is. But money talks, responsibility walks.

Over the last 9 months or so it has become very clear that the market was not going to buy any more bonds from these two and so as the mortgage market fell apart, these two raced towards violating banking capitalization rules.

As to why now: First, you have to understand that most of the bonds these guys have issued are held all over the world. Lots by other governments. The numbers are staggering -- trillions of dollars worth of bonds. If either (or both) were unable to pay those notes there would be so much dumped into the market as to cause a finicial meltdown that would look just like the whole great depression got compacted into one week.

Seizing these two institutions on Sunday was: (1) Not forseen by either of them, (2) Necessary, (3) Gives the Feds at minimum control of 80% of the stock, (4) Stops them from doing anything stupid that could make things worse. They've fired the executives and boards of directors. They stopped the dividend. They're in a position to wipe out the remaining 20% of the stock. IOW, the private portion of both is almost completely wiped out. The public portion -- how to deal with the losses -- which was built into this scheme in 1968, thankyou LBJ very much, is now going to be managed properly. Acting now (hopefully) forestalls a world-wide financial crisis.

Sure, it's probably a lousy deal for the taxpayer. But had nothing been done, it would have ben a far, far worse situation. It's a shame it didn't happen years ago.
======
As for the reference to the S&L crisis 20 odd years ago. Same deal. Depression era guarentee to bank depositors and lax regulation allows corrupt S&L operators to try their hand at gaming the system. What did they care, it was the depositors money after all. When housing prices slipped, they all got caught and by law the Feds had to wipe out the stockholders, sieze the assets, and clean up the mess... usually at a loss. Would have been far worse had they tried to wait it out. FWIW, waiting it out is what Japan tried when their banking industry had a property based financial crisis. They've been waiting over 10 years now and their economy is still in trouble. America is different: we'll act, take the loss on the chin, and move on. Painful short term, far better long term.

[muskokaandtahoe]

I just looked at stocks... Freddie Mac is down 82% from the close on Friday. Fannie Mae is down 87% from Fridays close. Both were already down over 90% on the year.

Now now, what's that over time... a total reduction in ownership value of 99%?

That's not a bailout folks, that's a wipeout.

[chucksc]

Dave you forgot the part where they are no longer allowed to lobby and that is going to hurt one particular party who have been parking their "friends" in the GSEs as a kind of Elephant's graveyard with 7 or 8 digit compensation packages....

This is just one example and reportedly this guy is "the one who must not be named"'s housing advisor...

http://en.wikipedia.org/wiki/Franklin_Raines

Change??????? What Change??????

[chucksc]

Actually fox business news said that long term folks that hold the stock will make out big time.... The only losers will be those who sell now....

And THEY made large profits on their investments up until now - Capitalism is NOT about profits with no risk...

Remember Conrail and Chrysler - IIRC the government recouped their investment(s) and made a tidy profit on those

P.S. the ticker just reported that mortgage rates are now falling :)

[Baldwinbob]

Dave you forgot the part where they are no longer allowed to lobby and that is going to hurt one particular party who have been parking their "friends" in the GSEs as a kind of Elephant's graveyard with 7 or 8 digit compensation packages....

This is just one example and reportedly this guy is "the one who must not be named"'s housing advisor...

http://en.wikipedia.org/wiki/Franklin_Raines

Change??????? What Change??????

Sorry Charles but I don't get your point. Could be a brain fart I guess.


Bob

[rdamurphy]

...thank you LBJ very much,...

This might be the first time in History those five words have ever been used together in that order, at least seriously...

Robert

[Kenny1234]

America is different: we'll act, take the loss on the chin, and move on. Painful short term, far better long term.


Yes, I am sure that from a crisis management perspective, history will look favorably on this type of response.

But the bigger problem is when such a destructive cycle repeats itself. Didnt we learn our lesson from the S&L debacle? Who is to say that 20 years from now, when we have another ne'erdowell texas oilman in the white house and a different middle east war to distract us, that the real money brokers wont change legislation again in the name of 'free markets' to allow the big players to cash out with OPM in their pockets while throwing the carcass to the taxpayer once again?

A government takeover response to the crisis isn't the story. Why we have a repeating legitimized theft cycle should be. When will heads roll over that? And I agree with Paul, this practice cannot continue indefinitely. Pretty soon the treasury itself will sink.