Now that the government effectively own F/F (at least temporarily). How will this affect the ability of people to get mortgages? Easier/harder?

Also, are the fees likely to change and/or mortgage rates?

^^Great question.  I tried to post something similar until server difficulties.  I wonder what will happen to rates this week.  It’s my understanding that they had decreased over the past 3 weeks by as much as 1/2 a point.

Rates will go down, I suspect by a point or so…easier to pawn off the bonds…but fees will go up.

I wonder more about what will happen with qualification standards. The government has been encouraging banks to do workouts and help those who probably can’t afford their houses to stay there. Now that the ball is entirely in their court, will they lower standards to help people refinance? Will they tighten standards to stop from losing even more taxpayer money? Will they do both by lowering standards for refis and tightening them for new loans? The bottom line is that the only way they can support prices is to go back to the lower standards that inflated the bubble. Of course, this is what caused all the losses to begin with, so that will probably not be very productive. If they tighten standards to stop from losing more money, that will make prices crash even harder, and they will lose more money that way. They really are between a rock and a hard place.

I suspect they will raise the fees to help cover the losses. This will raise interest rates. They are a defacto lender now, and lenders need to make enough on their good loans to pay for the bad ones. Since they have so many bad loans, they must raise their fees to offset as much of this cost as they can. Unless the Congress is going to sanction an explicit subsidy through allowing them to knowingly lose money with artificially low fees, the fees will rise.

IR, that’s assuming the government is looking to manage expenses on a fairly normal cause and effect relationship.

The Government doesn’t do that.  The government’s decisions are increasingly pointed to making political points with 50.1% of the voting population.

No_Such_Reality - 07 September 2008 07:49 PM

IR, that’s assuming the government is looking to manage expenses on a fairly normal cause and effect relationship.

The Government doesn’t do that.  The government’s decisions are increasingly pointed to making political points with 50.1% of the voting population.

Will they foreclose on non-paying mortgages?

awgee - 07 September 2008 07:59 PM

No_Such_Reality - 07 September 2008 07:49 PM

IR, that’s assuming the government is looking to manage expenses on a fairly normal cause and effect relationship.

The Government doesn’t do that.  The government’s decisions are increasingly pointed to making political points with 50.1% of the voting population.

Will they foreclose on non-paying mortgages?

The USDA lending arm FSA does all the time.

So I assume a well qualified borrower will get a loan in Cali?

My impression is that it’s rare for a well qualified borrower to get
a loan in South Florida.  Maybe we have no well qualified borrowers.

A client is the hospital was telling me his roommate was telling him
how he was still part of a fraud ring and getting a loan.  He was too
sick to really take not of tracking him down to stop it.  If you are
fraudulent, you can be as well qualified as you want to appear.

Interest rates are down by about .50% from Friday.

Mortgage rates will go down ... Banks will be more willing to lend ... BUT ... it all depends on the bank.

In addition, lending standards will stay at the same level so it doesn’t mean the days of nothing down or 1% down are back…I think 20% will be back to stay for a LONGGG TIME.

Also, spreads between GNMA, FNM, FHLC products will widened again vs UST’s.

The plan is to reduce their portfolio

“The companies will be allowed to “modestly increase” the size of their existing investment portfolios until the end of 2009, which means they can use some of their new taxpayer-supplied capital to buy and hold new mortgages in investment portfolios.

But in a strong indication of Mr. Paulson’s wish to wind down the companies’ portfolios, drastically shrink their role and perhaps eliminate their unique status altogether, the plan calls for the companies to start reducing their investment portfolios 10 percent a year, beginning in 2010. “

The government will be one of their shareholders now so taking on or reworking the toxic loans would be counterproductive.

“Hoping to limit potential taxpayer losses and gain any financial windfall if the companies are restored to profitability, the administration, in exchange for the investment commitment, will receive so-called stock warrants, or purchase rights, for up to 80 percent of the companies’ common shares at less than $1 a share. In after-hours trading on Sunday, Freddie Mac fell $1.06, or nearly 21 percent while Fannie Mae dropped $1.54, or 22 percent.

The companies agreed to provide the government with $1 billion of new preferred senior stock, which will pay the Treasury a dividend of at least 10 percent a year, as well as an unspecified quarterly payment to compensate the Treasury for any taxpayer money injected into the companies.“

http://www.nytimes.com/2008/09/08/business/08fannie.html?ref=patrick.net

The government will be one of their shareholders now so taking on or reworking the toxic loans would be counterproductive.

In an economic sense, but the government isn’t run for economic goals. It’s very much in the Bush administration’s interest to have the GSE’s hoover up every last bad loan and CDO they can to prop up the market since another administration will have to pay for it.

FairEconomist - 08 September 2008 07:57 AM

The government will be one of their shareholders now so taking on or reworking the toxic loans would be counterproductive.

In an economic sense, but the government isn’t run for economic goals. It’s very much in the Bush administration’s interest to have the GSE’s hoover up every last bad loan and CDO they can to prop up the market since another administration will have to pay for it.

Mr. Paulson made clear that the solution put forward on Sunday would only defer the most important decisions about the mission of the companies for the next president and Congress.

Maybe I am ignorant but this looks like the only solution to a really bad situation.

If they were allowed to fail what would interest rates look like if you could get a loan.

Granted the current administration turned a blind eye to the bubble but this seems like making the best out of a truly bad situation.

Not to mention if Bush really wanted to be a prick he would have let them fail since most of those companies campaign contributions went to the democrats to insure less oversight.

This is the democrats baby not Bush’s. 

http://online.wsj.com/article/SB122083279354208543.html?mod=googlenews_wsj

“Republicans have long pushed for a structural overhaul of Fannie and Freddie. By contrast, Democrats have warned against making major changes until the companies were stabilized. The companies have traditionally had stronger backing from Democrats, who support their mission of bolstering affordable housing and for years have fended off calls for greater oversight.“

Bush had no choice on the takeover. He was forced to do it by our Chinese paymasters who were getting upset that their Agency bonds were dropping so much in value. An inevitable consequence of his 5 trillion dollar debt and 600 billion/year deficits. He cut rich people’s taxes so we’d have to grovel before China.

He *does* have some leeway on the use of the taken-over agencies and I expect he will take full political advantage. With us paying for it in the end, just like with his deficits.

FairEconomist - 08 September 2008 09:31 AM

Bush had no choice on the takeover. He was forced to do it by our Chinese paymasters who were getting upset that their Agency bonds were dropping so much in value. An inevitable consequence of his 5 trillion dollar debt and 600 billion/year deficits. He cut rich people’s taxes so we’d have to grovel before China.

He *does* have some leeway on the use of the taken-over agencies and I expect he will take full political advantage. With us paying for it in the end, just like with his deficits.

Interesting…I guess Bush was also the person who forced all these people into buying homes they couldn’t afford through toxic mortgages. 

I guess Obama will fix all this LOL by seeking the assistance of his Middle Eastern brothers?

optimusprime - 08 September 2008 10:01 AM

FairEconomist - 08 September 2008 09:31 AM

Bush had no choice on the takeover. He was forced to do it by our Chinese paymasters who were getting upset that their Agency bonds were dropping so much in value. An inevitable consequence of his 5 trillion dollar debt and 600 billion/year deficits. He cut rich people’s taxes so we’d have to grovel before China.

He *does* have some leeway on the use of the taken-over agencies and I expect he will take full political advantage. With us paying for it in the end, just like with his deficits.

Interesting…I guess Bush was also the person who forced all these people into buying homes they couldn’t afford through toxic mortgages. 

I guess Obama will fix all this LOL by seeking the assistance of his Middle Eastern brothers?

Exactly….for all you people that think this wouldn’t have happened under a democratic whitehouse are only fooling yourselves.  And if you think Obama (or McCain for that case) is gonna come in and fix things you better wake up from your daydream.  haha

Actually Obama has been trying to stop the mortgage fraud with a bill for aggressive enforcement since 2006. Had he been president there would have been far less fraud in 2007-2008 and a number of institutions, including WAMU, Fannie, and Freddie, all of whom are going down now because of vast fraudulent transactions from around 2007, would not be facing imminent demise and perhaps not even eventual demise. Bush on the other hand blocked several state attempts to investigate the mortgage fraud rings starting back in 2003. Under a democrat I agree the loose Fed policy and the tulipmania would probably have still happened but the fraud, and the systemic damage, would have been much less.

Anyway my point was that Bush has drastically weakened our freedom of action *in general* via the massive tax cuts and deficit fueled spending on things like the Iraq War and Medicare D. We now depend on a constant influx of money from foreign central banks to keep the government running and that gives the FCBs, especially China, Russia, and the Gulf States, tremendous influence on our government’s policy. This isn’t restricted to mortgage funding, it’s just that the bubble and its effects are truly huge and this is the first issue important enough for the FCBs to actually wield their power.

FairEconomist - 08 September 2008 12:41 PM

Actually Obama has been trying to stop the mortgage fraud with a bill for aggressive enforcement since 2006. Had he been president there would have been far less fraud in 2007-2008 and a number of institutions, including WAMU, Fannie, and Freddie, all of whom are going down now because of vast fraudulent transactions from around 2007, would not be facing imminent demise and perhaps not even eventual demise. Bush on the other hand blocked several state attempts to investigate the mortgage fraud rings starting back in 2003. Under a democrat I agree the loose Fed policy and the tulipmania would probably have still happened but the fraud, and the systemic damage, would have been much less.

Anyway my point was that Bush has drastically weakened our freedom of action *in general* via the massive tax cuts and deficit fueled spending on things like the Iraq War and Medicare D. We now depend on a constant influx of money from foreign central banks to keep the government running and that gives the FCBs, especially China, Russia, and the Gulf States, tremendous influence on our government’s policy. This isn’t restricted to mortgage funding, it’s just that the bubble and its effects are truly huge and this is the first issue important enough for the FCBs to actually wield their power.

Sorry…but I had to say WTF.

A bubble is a bubble regardless of consequence.  The LOOSE LENDING you speak of started back in 1998 with Franklin Raines after the LTCM collapse…under Bush…ahem..Clinton presidency.

Your second comment…well lets be an isolationist country shall we?

usctrojanman29 - 08 September 2008 06:20 AM

Interest rates are down by about .50% from Friday.

A friend of mine was inquiring whether I thought interests would drop tomorrow and later through the week (apparently her friend is in the middle of determining whether to lock a loan).  I have no clue.  I told her I would ask some knowledgeable people.

Basically, should she lock today or wait the next couple of days to see if rates continue to drop.  I think she saved a 1/4 point by not locking on Friday.  Obviously, she’s scared it will rebound tomorrow.

I imagine this is exhilirating - and nerve racking - at the same time.  Sort of like gambling.  Lock or no lock today!?  She needs to know!

JLegend - 08 September 2008 01:41 PM

usctrojanman29 - 08 September 2008 06:20 AM

Interest rates are down by about .50% from Friday.

A friend of mine was inquiring whether I thought interests would drop tomorrow and later through the week (apparently her friend is in the middle of determining whether to lock a loan).  I have no clue.  I told her I would ask some knowledgeable people.

Basically, should she lock today or wait the next couple of days to see if rates continue to drop.  I think she saved a 1/4 point by not locking on Friday.  Obviously, she’s scared it will rebound tomorrow.

I imagine this is exhilirating - and nerve racking - at the same time.  Sort of like gambling.  Lock or no lock today!?  She needs to know!

I’d say that rates may drop another .25% of the next week or two, but who the hell really knows.  If she is risk adverse, I’d take the gift of the rate drop today and lock in tomorrow.  It’s not like rates are gonna go to 4% and even if they did, she could always refinance later.

see this article:

http://www.bankrate.com/brm/news/mtg/mortgage-news-a1.asp