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

So, $5 Billion doesn’t require a Bailout?

Okay, this is interesting…..

• Fannie Mae announces a $19 Billion loss and says, “We need $15 Billion” from Uncle Sam.
• Freddie Mac announces a $5 Billion loss and says, “Nah, we think we’ve got enough cash.”

Color me skeptical…..

Tom Vanderwell

Freddie Says More Treasury Funds Unnecessary After $5Bn Loss : HousingWire || financial news for the mortgage market

Mortgage giant Freddie Mac (FRE: 1.19 -3.25%) on late Friday posted a $5bn net loss in Q309 and $10.4bn net worth in Q309.

Unlike sister government-sponsored enterprise (GSE) Fannie Mae (FNM: 1.04 0.00%), Freddie said it would not require additional Treasury Department funds through the senior preferred stock purchase agreement.

Technorati Tags: Government Bailout

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 this isn’t over – a picture is worth 1000 words….

Technorati Tags: Freddie Mac, Delinquencies

What is Open Access? And why should I care?

No it’s not some sort of new, high tech way to search for homes or anything like that.   It’s the latest “enhancement” in Freddie Mac’s refi program.   Let me give you a few details:

• If your loan was sold to Freddie Mac originally.
• If your loan doesn’t have mortgage insurance right now.
• If you don’t owe over 125% of what the house is worth (in today’s market, not what you paid for it).
• Then you can take advantage of the Freddie Mac Open Access program.

Now you’re probably thinking – so what’s new?   That’s been in effect since like February or March?

Wrong – until now, you’ve had to work with the lender who wrote your loan.   If your loan was bought by Chase, you needed to work with Chase.   If it was bought by Bank of America, well, you get the picture.

Not any more.   Now, for any loans that don’t have mortgage insurance and were sold to Freddie Mac, you can go through any lender that has been approved to do Freddie Mac “Open Acess” loans.   That’s right, you can actually choose which lender you want to do your mortgage with! (As long as they are approved to do these loans.

Guess what?   Yeah, you guessed it “my bank” is now approved for the Open Access Loans.

So, call me at (616) 292-7559 or e-mail me at tvanderwell@straighttalkaboutmortgages.com and let’s chat a bit about whether now is the right time for you to refinance with someone other than your existing lender.

Have a good day!

Tom Vanderwell

Technorati Tags: 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,

Hello Freddie? I’d like to apply for a job!

Okay, this is just too much.   Supposedly when the government (meaning you and me!) bought/bailed out Fannie Mae and Freddie Mac, they gave all of the top executives a major pay cut.   I mean after all, they were going from being private citizens to being civil servants.

Well, guess what, Freddie just hired a new CFO.  And guess what, they are paying him $3.5 Million a year.   That’s right, $3.5 Million per year.   Oh, and that works out to almost a 400% increase from what he was making last year.

Oh, Freddie?   Are you out there?   If you are offering 400% pay increases, I’d like to apply for a job!

Tom VanderwellFreddie Mac hands out big bonus to new CFO | footnoted.org

Last we checked, Freddie Mac (FRE) was still operating under a conservatorship, having received over $51 billion in taxpayer money. And, we seem to recall lots of chest-beating last year about sharply lower salaries and fewer perks for the new group of top executives charged with setting Freddie (and Fannie Mae) back on the path to prosperity.

So you can imagine our surprise when we came across this employment contract yesterday for Freddie’s newly named CFO, Ross J. Kari. Here’s a few key bullets:

* annual compensation of $3.5 million (this includes $675K in salary, $1.6 million in something called “additional annual salary” and $1.1 million in a target incentive
* a $1.95 million signing bonus
* immediate buyout of Kari’s house (or perhaps houses)
* reimbursement for travel between Washington D.C. and Kari’s residences in Ohio, Washington and Oregon

Needless to say, none of this — and certainly not the ridiculous sounding additional annual salary — was included in the press release that Freddie put out earlier this week.

Technorati Tags: Freddie Mac, Government Bailout, Executive Compensation

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