Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre
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LUC
Bubble Watcher
Joined: Mon Jul 02, 2007 6:23 am
Posts: 26
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 Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre http://online.wsj.com/article/SB122064650145404781.html?mod=googlenews_wsj  WASHINGTON -- The Treasury Department is close to finalizing a plan to help shore up mortgage giants Fannie Mae and Freddie Mac, according to people familiar with the matter. The plan includes changes to senior management at both companies, according to a person familiar with the plans. An announcement could come as early as this weekend. On Friday, a series of high-level meetings were planned between Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, the chief executives of Fannie Mae and Freddie Mac and the companies' new regulator, the Federal Housing Finance Agency. Treasury has been working with bankers at Morgan Stanley to use its newfound authority, granted by Congress in July, to devise a way to prop up the mortgage giants, which have been pummeled by investors in recent weeks. The two giants are vital cogs in the U.S. housing market and their financial woes have threatened to worsen the bursting of the housing bubble. "We are making progress on our work," said Treasury spokeswoman Jennifer Zuccarelli. She declined to comment further on Treasury's plans.
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| Fri Sep 05, 2008 1:06 pm |
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Matthew
Bubble Blatherer
Joined: Tue Feb 20, 2007 8:04 am
Posts: 144
Location: Seattle
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre Wow... Wow... Looks like E's 20 cents on the dollar call isn't looking so wingnut afterall!
All that's going to be left is FHA. 20% down and 30yr fixed here we come!
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| Fri Sep 05, 2008 6:42 pm |
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rose-colored-coolaid
Bubble Banter Boss
Joined: Mon Jun 18, 2007 10:26 am
Posts: 1978
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre Matthew wrote: Wow... Wow... Looks like E's 20 cents on the dollar call isn't looking so wingnut afterall!
All that's going to be left is FHA. 20% down and 30yr fixed here we come! I still think 80% declines are...quite unlikely. But these events are certainly disconcerting. My fellow Americans, I am - ahem - proud to announce that we have just socialized the entire residential real estate market.
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| Fri Sep 05, 2008 7:33 pm |
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Matthew
Bubble Blatherer
Joined: Tue Feb 20, 2007 8:04 am
Posts: 144
Location: Seattle
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre RCC,
I can very easily envision a 80% decline scenario. Picture this:
1. Nearly all buyers without 20 percent down and nearly perfect credit are off the grid.
2. Unemployment increasing rapidly (up to 6.1% nationally)
3. Foreclosures increasing rapidly (Seattle just now going underwater, foreclosures will be increasing by the day)
4. ARMS (particularly option ARMs) still resetting
5. Nearly all exotic loans and many typical ARMs will be nonexistant
6. Yields skyrocket upward, increasing mortgage rates to double digits.
Doesn't seem too unlikely considering what is unfolding. I'd say more likely than not at this point.
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| Fri Sep 05, 2008 8:08 pm |
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Lake Hills Renter
Bubble Banter Boss
Joined: Sun Feb 18, 2007 9:13 pm
Posts: 566
Location: Bellevue
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre Government may soon back troubled mortgage giantsQuote: 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.
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| Fri Sep 05, 2008 9:32 pm |
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sniglet
Bubble Banter Boss
Joined: Thu Feb 22, 2007 2:58 pm
Posts: 680
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre Matthew wrote: Wow... Wow... Looks like E's 20 cents on the dollar call isn't looking so wingnut afterall!
All that's going to be left is FHA. 20% down and 30yr fixed here we come! I have been a believe in massive price declines, but I don't see how this take-over in and of itself changes things much. If anything, the new capitalization, and direct government funding, will make the GSEs even more aggressive in lending. The bigger problems will be the fall-out that occurs when many financial institutions that own GSE stock have to take an even bigger bath than they already have. Worse, this will spook investors off of private mortgage funding. Who would want to take on the risk of owning any kind of mortgage security that wasn't backed by the government? In short, the government is becoming the first and last resort for mortgage finance.
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| Fri Sep 05, 2008 9:59 pm |
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jillayne
Bubble Bloviator
Joined: Sun Aug 05, 2007 9:20 am
Posts: 295
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre "The bigger problems will be the fall-out that occurs when many financial institutions that own GSE stock have to take an even bigger bath than they already have"
We don't know the full damage/fallout from this yet.
We're in unchartered territory now. I'm not sure what the government is going to do with F&F.
What I'd like to do is get the conversation going NOW about the FHA mortgage insurance program.
(FHA doesn't buy loans, they insure mortgage loans made by lenders.)
If FHA is STILL doing 3.5% loans in a declining market, then we can look forward to hundreds of thousands of FHA loans that are being originated now....in 2008....to be underwater in the next 12-18 months.
When F&F started buying jumbos, many said F&F would have to be bailed out. I thought, maybe 2011, 2012. Never did I imagine it would happen so soon.
Without FHA, all bets are off in terms of how bad this entire mess can get.
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| Fri Sep 05, 2008 10:41 pm |
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EconE
Bubble Bloviator
Joined: Thu Mar 08, 2007 3:29 pm
Posts: 275
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre Jillayne... I can understand where you might have thought that it wouldn't happen so fast as Seattle is your major point of reference. If you look down in Los Angeles at areas such as East LA, Compton, Watts, Highland Park etc. (using Redfin of course), it is an absolute bloodbath. I've seen houses that are 50-75% off their original selling price of 500K+. Not to mention many many other areas down there. When the option-ARM's hit down there it will probably be even worse as the houses will be the 1-1.5 million$ homes and will ultimately incur higher $ losses for the banks. I've even seen $2 Million dollar (2005 sale) homes that have been listed for over a year and have the prices chopped to $1.2MM and they aren't selling. The worst thing is...the next wave is just starting
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| Fri Sep 05, 2008 11:43 pm |
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Matthew
Bubble Blatherer
Joined: Tue Feb 20, 2007 8:04 am
Posts: 144
Location: Seattle
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre Sniglet,
We'll have to wait for more details to come out on this, but the proposals that i have seen place the GSE's under FHA control. I'm assuming that FHA management is going to be doing some substantial tightening of standards, but who knows.
Whatever the ultimate outcome, I still see mortgage rates going up substantially on this news. I also think we are about a half step away from the bond market collapsing.
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| Sat Sep 06, 2008 3:11 am |
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sniglet
Bubble Banter Boss
Joined: Thu Feb 22, 2007 2:58 pm
Posts: 680
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre jillayne wrote: If FHA is STILL doing 3.5% loans in a declining market, then we can look forward to hundreds of thousands of FHA loans that are being originated now....in 2008....to be underwater in the next 12-18 months. I fully expect that this time next year 2008 vintage mortgages will be the WORST performing of the lot. In declining markets it is usually the most recent buyers who are the most vulnerable to hardship when there is significant depreciation. Just look at how 2007 loans are already defaulting at higher rates than anything else, and standards were already significantly tighter in 2007 than in previous years. Anyone who still believes this downturn is going to be a modest affair is seriously deluded. The failure of the GSEs merely underscorse the dire state of our financial system. There will be NO quick recovery from this, and no one who can swoop in and bail us out. It doesn't matter how good the local economy of your region is if the global financial system has stopped offering mortgages. Like I've said before, welcome to the brave new world where the government is the first and last resort for financing. How long can a system like that keep afloat? At some point tax-payers will recoil at the ever growing costs of being THE real-estate lending bank for the nation.
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| Sat Sep 06, 2008 7:31 am |
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Matthew
Bubble Blatherer
Joined: Tue Feb 20, 2007 8:04 am
Posts: 144
Location: Seattle
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre To clarify another point, the GSE's don't make loans, they buy them and guarantee them. We'll see if it's biz as usual with them or if this somehow alters the way they do biz. My guess is that under FHA management we are going to see some SERIOUS tightening.
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| Sat Sep 06, 2008 8:51 am |
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rose-colored-coolaid
Bubble Banter Boss
Joined: Mon Jun 18, 2007 10:26 am
Posts: 1978
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre Matthew wrote: RCC,
I can very easily envision a 80% decline scenario. Picture this:
1. Nearly all buyers without 20 percent down and nearly perfect credit are off the grid.
2. Unemployment increasing rapidly (up to 6.1% nationally)
3. Foreclosures increasing rapidly (Seattle just now going underwater, foreclosures will be increasing by the day)
4. ARMS (particularly option ARMs) still resetting
5. Nearly all exotic loans and many typical ARMs will be nonexistant
6. Yields skyrocket upward, increasing mortgage rates to double digits. Agreed, that list is exactly what's happening. But I don't see anything in there that proves one way or the other how much the declines will be. Do these events suggest 1% declines or 99% declines? My guess is that 30% declines are inevitable, and a maximum of about 50% declines across the board would be the most I expect. Why is that? Because the real bulls have been acting like 10% declines are impossible and the real bears seem to think 80% are certain. I figure they all have good data but are generally wrong so I split the difference. But if you have numbers to really back up why an average house in Seattle or Bellevue will be going for around $80K to $120K, I would be interested to read it.
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| Sat Sep 06, 2008 12:17 pm |
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cheapseats
Bubble Blatherer
Joined: Tue May 13, 2008 1:10 pm
Posts: 86
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre CNN just ran a piece that the Fed will be taking over F&F?
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| Sat Sep 06, 2008 12:29 pm |
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TJ_98370
Bubble Banter Boss
Joined: Mon Feb 26, 2007 8:40 am
Posts: 844
Location: Poulsbo
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre . Paulson Plans to Take Control of Fannie, Freddie. Treasury Secretary Henry Paulson is preparing to announce plans to bring Fannie Mae and Freddie Mac under government control,…….
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| Sat Sep 06, 2008 9:11 pm |
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Matthew
Bubble Blatherer
Joined: Tue Feb 20, 2007 8:04 am
Posts: 144
Location: Seattle
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Re: Treasury Is Close to Finalizing Plan to Backstop Fannie, Fre RCC,
Do I have proof?? Absolutely not. I don't think anyone can "prove" exactly what the decline will be, we can only make educated guesses. My guess is based on what will happen if the median house prices falls back in line with 2.5-3 times median income with a possible over correction (ala Japan). That would put us in the 80 percent correction range.
I'm all ears if someone has an educated guess that makes more sense than this.
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| Sun Sep 07, 2008 1:56 am |
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