More on Fannie, Freddie and the Christmas Eve “Checkbook”

Tim Duy has a very solid explanation of what happened with Fannie and Freddie over the Christmas holiday when it gave them an open checkbook.   A couple of “points” from his article:

• After December 31, they would have had to get Congressional approval.    That would have been messy at best and they didn’t want to do that.
• They expect the financial reports from Fannie and Freddie to continue to be bad for quite some time.
• Without doing this, the markets perception of Fannie and Freddie would have been “shakier” than it already is.   That would have caused the likelihood of increased rates due to fear of default by the two entities.    

So, the losses continue and continue to climb and the government continues to throw more money at it.    Doesn’t seem to be making things better yet, even if it is slowing down how “less bad” things are.

Tom Vanderwell

Tim Duy’s Fed Watch: Why Christmas Eve?

In short, there are plenty of ulterior motives for Treasury’s expansion of the Mae and Mac bailouts. My favorite is the desire to expand the ability of the GSEs to absorb principle reductions for housing modifications. But the simplest explanation is likely the correct one – the financial damage to the GSEs continues virtually unabated, and the Treasury simply needs to make explicit what was implicit: Mae and Mac are backed by the US government’s full faith and credit, regardless of the level of losses in those institutions.

Technorati Tags: Fannie Mae, Freddie Mac

Anyone think that Fannie and Freddie are “out of the woods?”

Then check out this chart marking delinquencies at Fannie Mae.  

Calculated Risk: Fannie Mae: Delinquencies Increase Sharply in October

Fannie Mae reported today that the rate of serious delinquencies – at least 90 days behind – for conventional loans in its single-family guarantee business increased to 4.98% in October, up from 4.72% in September – and up from 1.89% in October 2008.

‘Twas the Night Before Christmas

and all through the country, people were paying more attention to Christmas than they were to the government and to the financial mess that is making our country struggle.

So what did the Treasury do?   They did two things:

• They expanded the nationalization of Fannie Mae and Freddie Mac from $200 Billion each (that’s $200,000,000,000) to an unlimited amount of funding.   In other words, the US Treasury just handed their checkbook to Fannie Mae and Freddie Mac.
• They did it on the day when no one was watching and they did it 9 days before it would have required congressional approval.

How nice and how timely.

Nothing to see here, move along, move along……

Tom Vanderwell

Heard on the Street: Fannie and Freddie – WSJ.com

That was a nice holiday gift to taxpayers.

As expected, the Treasury on Christmas Eve increased the amount of money it can plow into Fannie Mae and Freddie Mac to keep them solvent. Before, the U.S. had pledged up to $200 billion to each. Now, over the next three years, the Treasury can spend as much as is needed to prevent their net worth going negative. Such a change would have required congressional consent after Dec. 31. Given that each U.S. household had effectively committed $3,800 to both firms, the Treasury should have waited till the New Year so the people’s representatives could have had their say.

Technorati Tags: Fannie Mae, Freddie Mac

Fannie and Freddie miss the goals – let’s just change them!

Now this makes me really feel good about Fannie and Freddie:

• They have and have had for a while, goals for loans to low and moderate portions of the country.
• They aren’t meeting them.

So, what do they do, attempt to do something to change their ability to meet them?   Nope, they just change the goals!

Do you think your boss would let you do that?

Tom Vanderwell

GSEs Miss FHFA’s Goals for Low-Income Originations : HousingWire || financial news for the mortgage market

The Federal Housing Finance Agency (FHFA) will adjust its target goals for facilitating mortgage origination for low- and moderate-income individuals after the government-sponsored enterprises (GSEs) missed a key loan-purchase goal for originations to low- and moderate-income borrowers.

FHFA said it plans to lower recommended loan purchase goals for Fannie Mae (FNM: 1.15 +11.65%) and Freddie Mac (FRE: 1.24 +7.83%), according to FHFA’s annual housing report.

Fannie Mae and Freddie Mac have a mandate to purchase mortgages originated to three groups of disadvantaged borrowers.

Low- and moderate-income borrowers are households with incomes less than or equal to area median income (AMI). Underserved areas include dwelling units in metropolitan census tracts with tract median family income less than or equal to 90% of AMI, or minority population of at least 30% and tract median family income less than or equal to 120% of AMI. Special affordable households are those with income less than or equal to 60% of AMI or less than or equal to 80% of AMI and living in low-income areas.

Mortgage Market Share

Let’s look at a couple of data points from this chart (thanks to Calculated Risk for it):

• In 2006 (the peak of the market,) Fannie, Freddie and Ginnie (VA, FHA etc.) were approximately 50% of the market.
• In 2009, the three of them account for 90% of the market.

Is anyone concerned about the government controlling 90% of the mortgage market?

Or maybe I should rephrase the question – is anyone ELSE concerned about the government controlling 90% of the mortgage market?

Tom Vanderwell

Technorati Tags: Mortgage Market, Fannie Mae, Freddie Mac

Why Fannie Mae and Freddie Mac don’t like Condos….

Here’s an example of why it’s so hard to get a mortgage on a condo approved by Fannie Mae or Freddie Mac.   Let me explain:

• The City Center condo project in Las Vegas was started in 2007.    Buyers who signed a “pre-construction” contract for a condo there are being given a 30% price reduction.    So the developer has lost 30% of the total project’s expected revenue already.
• If you look at the chart below, it shows that prices in Las Vegas have dropped 55% since this whole mess started.

So, if Fannie Mae or Freddie Mac loaned 80% of purchase price on one of these condos, according to the chart, they’d be 25% upside down before they even start.

That’s why it’s hard to get a mortgage on a condo right now.   The volatility in prices  and the risk to one unit if the project goes “down” is a lot greater than it is with a single family residence.

Tom Vanderwell

Calculated Risk: CityCenter Las Vegas Cuts Condo Prices 30% for Existing Buyers

Press Release: CityCenter Announces Residential Price Reductions (ht Charlie)

CityCenter … on the Las Vegas Strip, has announced that a 30 percent price reduction will be offered at closing to the existing buyers of CityCenter’s three luxury residential offerings: The Residences at Mandarin Oriental, Las Vegas, Veer Towers and Vdara Condo Hotel.

“We believe that in this economic climate this price reduction is an appropriate step to take on behalf of our buyers so as to provide them greater flexibility in closing on their residences,” said Bobby Baldwin, president and CEO of CityCenter.

Technorati Tags: Las Vegas Condos, Fannie Mae, Freddie Mac,

188% increase

According to my calculations, the delinquencies in Fannie Mae’s portfolio have increased by 188% in the last 12 months.

Do you think that’s a sign that the housing market has bottomed?

Tom Vanderwell

Fannie Mae Delinquencies Jump, Aug. Portfolio Flat – Real Estate * US * News * Story – CNBC.com

Fannie Mae the largest provider of funding for U.S. home mortgages, said Tuesday that delinquencies on loans it guarantees accelerated as its mortgage investment portfolio was unchanged in August from the previous month.

Delinquency on loans in its single-family guarantee business jumped by 0.23 percentage point to 4.17 percent in July, the most recent data available. A year earlier it was 1.45 percent.

Technorati Tags: Fannie Mae, Mortgage Delinquencies

Think our government isn’t borrowing a lot of money?

A couple of important things to notee about this chart from Calculated Risk:

• From September 2008 to December 2008, the Fed spent over $1 Trillion (that’s $1,000,000,000,000) keeping the markets from what some say would have been total meltdown.
• The only “portion” of their spending that has significantly increased is their purchase of Agency and MBS.   That means it’s money that they have spent keeping Fannie and Freddie going.  

So ask yourself, if the government has spent that much in buying mortgage backed securities from Fannie and Freddie, what do you think is going to happen when they stop?

I’ll give you a hint……

Rates aren’t going down.

Tom

Fannie Mae, Freddie Mac, MBS

The US National Mortgage Corporation?

It’s not quite called that yet, but the reality is that Fannie, Freddie and FHA are about 90% of the mortgage market. 

Expect more changes as that evolves.  

Tom Vanderwell

Major U.S. Role in Mortgages Shaping Entire Market

While this made it possible for many borrowers to keep getting loans and helped protect the housing market from further damage, the government’s newly dominant role — nearly 90 percent of all new home loans are funded or guaranteed by taxpayers — has far-reaching consequences for prospective home buyers and taxpayers.

The government has the power to decide who is qualified for a loan and who is not. As a result, many borrowers among both poor and rich are frozen out of the market.

Nearly one-third of those who obtained home loans during the boom years of 2005 and 2006 couldn’t get one today, according to mortgage industry analysts. Many of these borrowers were never really able to afford their homes and should not have gotten loans. But many others could, and borrowers like them are now running into tougher government standards.

Fannie Mae, Freddie Mac

Is PMI DOA?

This is by no means conclusive, but it’s something to at least keep an eye on.   Let me explain:

• Without mortgage insurance, Fannie and Freddie can’t go higher than an 80% loan to value.
• The PMI companies are getting hit hard with the losses they are experiencing.
• If the PMI companies continue to get hit with bad losses, they might be unable to offer mortgage insurance.

What do I expect this to mean for the housing market?   A couple of things:

• Expect increasing pressure pushing more and more borrowers towards FHA.
• Expect tightening requirements for PMI loans.
• Expect increased fees on FHA’s side because of the losses they are facing and frankly because they can do it and get away with it.

PMI is not DOA, but it’s not completely healthy either and that’s going to make a difference over the next 12 to 48 months…..

Tom Vanderwell

Housing demand could snag on mortgage insurance – Mortgage Insider – OCRegister.com

Housing demand could snag on mortgage insurance
August 25th, 2009, 2:45 pm · posted by Mathew Padilla

Most of the home loans in this country are sold to Fannie Mae and Freddie Mac, which insist borrowers put down 20% or more of the purchase price of a home or pay for mortgage insurance. But is there enough insurance available? Here’s the latest on that issue from National Mortgage News:

Capital constraints on mortgage insurance companies could impede the ability of Fannie Mae and Freddie Mac to keep up with the demand for mortgage financing during the housing recovery, according to a report by the government-sponsored enterprises’ regulator. Former Federal Housing Finance Agency director James Lockhart has been urging the Treasury Department to provide capital assistance for the private MIs since last November. The Mortgage Insurance Cos. of America also is seeking assistance. “We have a request pending and we are waiting for a response,” said MICA spokesman Jeff Lubar. The GSEs can purchase single-family mortgages with loan-to-value ratios higher than 80% only if the homebuyer gets mortgage insurance. The FHFA Mortgage Market Note issued a few days after Mr. Lockhart’s departure projects that the demand for such high LTV loans could hit $230 billion in 2009. The ability of the MIs to meet that level of demand is “remote,” FHFA report says. “The industry’s ability to build and maintain sufficient capital to meet the needs of the enterprises over the short term without some federal assistance or an infusion of private capital is unclear,” the report concludes.

So the answer is more government support? Let’s hope not.

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