What happens if/when...?
There's news today that Freddie and Fannie may be "insolvent". While I don't believe that to be technically true, it does raise a very interesting question. What if both (or either) of those mortgage giants had to shut the doors, even just temporarily?
It seems to me that cash or near cash purchases would suddenly become the only ones available. In such a case, I could actually agree with the beariest of the bears, that 70%+ declines would become possible (or maybe likely).
These organizations are the epitome of TBTF (too big to fail), but I'm starting to hear a lot of vocalization about how they are a raw deal for taxpayers. So who knows. I put the odds of either failing at less than 1%, but higher than 0%.
It seems to me that cash or near cash purchases would suddenly become the only ones available. In such a case, I could actually agree with the beariest of the bears, that 70%+ declines would become possible (or maybe likely).
These organizations are the epitome of TBTF (too big to fail), but I'm starting to hear a lot of vocalization about how they are a raw deal for taxpayers. So who knows. I put the odds of either failing at less than 1%, but higher than 0%.
Comments
Wall Street is panicking in the stock price because if the government has to bail them out, the stock holders get nothing or very little. However, since these companies now provide the majority of the mortgages for house purchases today, there is simply NO WAY that this function will be allowed to cease. Maybe the government will loan directly to consumers (at the tax payers risk) or maybe the government will nationalize them, fix them up a bit, then re-privatize in a couple of years when things have calmed down.
I don't know what the government would do exactly, but I know they'd do *something* because allowing letting the mortgage market cease up would tank the economy even harder, which is in nobody's interests including those that didn't speculate in the "good times".
I don't understand how mortgage rates are still as low as they are, given the obvious risk in the market right now. Borrowing is still far too easy.