Is Fannie Mae the Next Government Bailout?

[moh malekpour]

http://online.barrons.com/article/S...d=b_hps_9_0001_b_this_weeks_magazine_home_top

IT'S PERHAPS THE CRUELEST OF ironies that in the U.S. housing market's greatest hour of need, the major entity created during the Depression to bring liquidity to housing, Fannie Mae, may itself soon be in need of bailout.

Fannie, of course, occupies a curious middle ground between the public and private sector as a result of its privatization in 1968 as a Government Sponsored Enterprise, or GSE. While owned by its shareholders, Fannie is regulated by a government agency and is able to borrow money cheaply, thanks to an implicit guarantee by Uncle Sam. It uses those funds to buy and securitize home loans -- lots of them. At year end, the company owned in its portfolio or had packaged and guaranteed some $2.8 trillion of mortgages or 23% of all U.S. residential mortgage debt outstanding

But, if the truth be known, a considerable portion of Fannie's losses also came from speculative forays into higher-yielding but riskier mortgage products like subprime, Alt-A (a category between subprime and prime in credit quality) and dicey mortgages requiring monthly payments of interest only or less. For example, Fannie's $314 billion of Alt-A -- often called liar loans because borrowers provide little documentation -- accounted for 31.4% of the company's credit losses while making up just 11.9% of its $2.5 trillion single-family-home credit book. Fannie was clearly looking for love -- and market share -- in some of the wrong places.

 

[Fred]

IT'S PERHAPS THE CRUELEST OF ironies that in the U.S. housing market's greatest hour of need, the major entity created during the Depression to bring liquidity to housing, Fannie Mae, may itself soon be in need of bailout.

I don't know if that's a cruel irony or an inevitability. I do believe the sure knowledge that government solutions backfire is what makes a conservative, conservative. In real estate, a falling tide lowers all boats. How's Freddie holding up?

 

[Greg Bell]

Freddie is not much better.Freddie IS a government entity and not a quasi like FNMA.Both are hiding billions in asset losses due to some every clever cooking of the books.The Enron accounting will keep these giants a float for quite a while. The theory is the housing market will spring back and save these bloated companies from insolvency.Well , technically the Federal Government is bankrupt.So a deep recession or depression would put the phony politicians in a bit of a bind.Need to purchase some euros to hedge the wall paper we call the dollar , cheer up...

 

[moh malekpour]

Freddie is not much better.Freddie IS a government entity and not a quasi like FNMA.Both are hiding billions in asset losses due to some every clever cooking of the books.The Enron accounting will keep these giants a float for quite a while. The theory is the housing market will spring back and save these bloated companies from insolvency.Well , technically the Federal Government is bankrupt.So a deep recession or depression would put the phony politicians in a bit of a bind.Need to purchase some euros to hedge the wall paper we call the dollar , cheer up...

Freddie and Fannie both are private corporations and government sponsored entities. None of them is government entity

 

[TJSum]

This whole deal between Fannie/Freddie and Cuomo was done so Cuomo would stop the investigation of both. What is to stop other states or a Federal Agency from doing their own investigations? If the FBI is now looking into Countrywide, who is to say they will not look into Fannie/Freddie as well. If someone else were to do this, what would happen with the current deal ???

 

[Couch Potato]

Freddie and Fannie both are private corporations and government sponsored entities. None of them is government entity

Kind of scary that an appraiser would not know that.

 

[Jan Roseberry]

The/An appraisal is not as important to the transaction as it was 20 years ago.

Talking with a member of Congress, the only analogy that made sense to him was that when he purchased his first home the first items ordered were the appraisal and credit report, now they order the appraisal with the termite and water/sewer report after the legal, survey, etc.

That is not good business because they do not know if the deal has security, all they know is the yield (unfortunately in the majority of cases the only yield they are concerned with is their commission). There's much to said for hard money.