Fannie and Freddie Are Surviving, But Barely

Fannie Mae and Freddie Mac are surviving but at a steep price to taxpayers.

Private Banks are providing just 10% of mortgage loans down from 60% at the mid-2006 housing peak. Fannie and Freddie now account for 70% with the Federal Housing Administration (FHA) 20%.

Foreclosures will continue to rise this year putting pressure on home prices. While home sales have improved the inventory of foreclosed homes are extremely high, and will increase.

One in ten mortgages is in arrears and one in twenty-five homes are in foreclosure. Homeowners have lost 40% of their equity since mid-2006.

Fannie and Freddie are “surviving” on their $400 billion lifeline from tax payers, Yet homeowners are not getting sufficient help to stay in their homes. The GSE’s are responsible for $5.2 trillion in US residential mortgage debt and have tapped their lifeline by $95.6 billion since November 2008.

Decisions need to be made on the future role of Fannie and Freddie, as the Conservatorship of the GSEs calls for their portfolios to begin to unwind in 2010. This could put additional stress on the housing market and on community and regional banks, as new sources of mortgage money need to be found, and fast.

If our banking regulators extend Conservatorship look for the cost to taxpayers to double from the trillion dollars already spent.

Making Home Affordable Program

The US Treasury reports that only 12% of homeowners eligible for loan modifications have had mortgages reworked and millions more homeowners face foreclosures.

The Home Affordable Modification Program (HAMP) intended to reduce monthly payments to 31% of a borrower’s income is off to a slow start. Expected to help 3 to 4 million homeowners the plan will be lucky to achieve 500,000 trial modifications by November 1^st. If the homeowner makes three trial payments the modification becomes permanent.

Keep in mind that Fannie and Freddie are the cornerstones to the Making Home Affordable Program, and that the program has not made a dent in the upward trend in foreclosures.

Comex Gold stuck at a Grand. Comex Copper and Nymex Crude Oil are having trouble at their 200-week simple moving averages. Charts courtesy of Thomson / Reuters

Gold is above the down trend that goes back to March 2008, but resistances at 1010 to 1012 are blocking the next 100 dollars higher. A close below 991 negates the breakout.

Copper has been trading back and forth around its 200-week simple moving average at 290.74 with my monthly resistance at 295.88. The risk is to my annual pivot at 240.20.

Crude oil continues to find resistance at its 200-week simple moving average at $74.86 with monthly resistance at $75.53. My annual pivots remain $68.81 and $66.51.

The weekly chart for the S&P 500

The S&P remains positive, but overbought on a weekly close above the five-week modified moving average at 1002. The Ascending Wedge resistance is 1060 next week. My call remains 800 before 1200.

Disclosure: I Hold No Positions in the Stocks I Cover.

Comments

[blondino:]

The GSE’s are responsible??? WTF??? Unreglated market and irresponsible loan-takers are responsible. And noe taxpayers pay the bill.

Sep 11 08:20 AM

[Bruce Krasting:]

Richard, You are correct, the conservatorship mandates a run down of the GSE portfolio starting in 2010. That does not matter. They still have unrestricted capacity to guarantee new MBS. They have $3t of that. They could issue as much as they wanted under the exiting rules.

They are already in wind down. The balance sheets have been flat for both of them. Ginnie Mae and FHA having been picking up the on book asset side of this.

I do agree with you that this is a rat hole.

Sep 11 08:32 AM

[recession g...:]

On Sep 11 08:20 AM blondino wrote:

> The GSE’s are responsible??? WTF??? Unreglated market and irresponsible
> loan-takers are responsible. And noe taxpayers pay the bill.

the government played a significant role in expanding credit. they took it upon themselves to vastly increase american home ownership and lowered credit standards to meet politically motivated targets, forcing private sector lenders to further misprice risk to stay competitive. the mortgage interest subsidy played a role at the margin. also, i don't think there's even a need to mention the decade or so of a stimulative fed funds rate.

politically motivated lending always ends in disaster. government meddling in capital markets (the greenspan fed) has been a disaster and no one seems to have learned their lesson.

Sep 14 05:03 PM

[Milton Saba:]

BANKING CHANGES NEEDED to SAVE OUR BANKING SYSTEM:
CHANGES IN BANKING NEEDED TO SAVE OUR BANKING SYSTEM:
1.-The law that was put into effect {to prevent depressions} in the 1930's to prevent banks from buying other banks and mortgages in states other than their own should never have been changed in the 1980's. We need to go back towards the law that was reversed in the 80's, that prohibited banks and other financial institutions from buying mortgages and banks outside of their state. Mortgage administration should stay close to the mortgagee. I know it would be hard to completely reverse this law, but maybe a regional banking idea would work, such as: For Example: Banks could only operate in states that touch their borders limited to a maximum number of people they could possibly serve [this number could be 2 or 3 times the number of people in our largest state, and this number would be revised every 10 years after the census.] These firms should be allowed 5 years to sell the assets that would violate this law. Of course any bank could do business with any foreign country, do Credit Cards on a worldwide basis. Because Banks were allowed to go across State lines and gobble up smaller banks in the 80's, they started growing to big & have become “to big to fail.” These huge Banks and Financial Institutions soon captured the mortgage business and helped cause the failure of most of the smaller Savings and Loans in the 80's, and their greed eventually led to the financial debacle we have today.

2.- The 1907 law that was put in to stop commercial Banks from doing derivative trading, Hedge Funds, etc should be put back into effect. This law was put on the books because these practices were identified by the politicians of that era as problems that helped cause depressions, but President Bill Clinton and Greenspan went before the Congress and ask for it to be repealed in Clinton's last days as President and it was repealed. Commercial Banks should not be allowed to do risky gambling with government backs funds-that should be reserved to Investment Firms that are funded with investor money and not guaranteed by the U S Government.

BECAUSE MUCH OF THE COMMERCIAL BANKS ASSETS ARE BASICALLY GUARANTEED BY THE U S GOV'T THEY SHOULD NOT BE ALLOWED TO GAMBLE ON DERIVATIVES, HEDGE FUNDS, etc. IN MY OPINION BANKS SHOULD NOT BE ALLOWED TO OWN OR MANAGE MUTUAL FUNDS, SELL INSURANCE, etc either.

3.-If our tax dollars are going to back the commercial banks, insurance companies and other business's that are to big to fail, some things should be done to assure us this won't be happening again. Here are some of my additional recommendations:
Since we are guaranteeing the solvency of Banks, etc. We should have strict, firm regulations. For Example: No Airplanes, Boats, Yachts, Condos, Houses or other expensive extras should be paid for by the company Also, no one working for a firm which is backed by the governments money should be allowed to earn ridiculous salaries and options and warrants should not be paid to management in any year when the Bank fails to earn money..

4.-Regardless of the size of a Bank, it should be allowed to fail. If it becomes financially troubled and is going to have to file for bankruptcy, the Government should not let it go into Bankruptcy, it should take over the bank, divide it's good assets among strong surviving regional or one state banks, and guarantee these institutions that they won't loose money on these loans, etc, or sell the good assets and loans. The bad loans, assets, etc should be turned over to a an administrator and be distributed to regional or state banks or sold when loan deemed good or sold to investors.

5.-The power of 5 large banks & financial institutions persuaded the Security and Exchange Commission in January 2002 to increase the lending leverage from 15 times reserves to as high as 40 times reserves. With this type of leverage, these institutions were doomed to failure. Leverage should not exceed a reasonably limit, such as 12 times by Federal Law.

6.- Banks insured by FDIC should not be allowed to do Derivative Trading or own or run Hedge Funds or Equity Funds. These type of business's should only be done with private equity as they are speculative or gambling type ventures and should not be done by an institution with most of it's assets guaranteed with the people's money. Since banks are guaranteed by the Government they should be heavily regulated with regular financial inspections to protect the depositors and the Government.

7.-UPTICK RULE should be put back into effect. A short trade should only be made on an up tick in the stock or index fund. The short traders should not be allowed to jump on a stock and drive it down like they have been doing! I believe that short trading should not be allowed unless the person or institution already owns the stock to be shorted!

If we don't get changes like this done for our banking and investment system, we will continue down the path we are on and will find ourselves in a deeper recession within 10 years from now.
If you agree with these ideas make a copy of this and send it to the President and at least 5 U S Senators or Congressmen.

Other Notes-The Federal Reserve Board has been the main cause of the problems we have-by running the interest rates up and down to rapidly and dramatically, This Board has caused by itself or helped cause almost every boom and bust since it was founded. The President of the USA gets the blame for their mistakes, so he should get to appoint the chairman and each board member as a limited term for members expires. The interest rates should be determined by the market-not by the Federal Reserve Board-and the FED should concentrate on the checking the financial stability, assets to liabilities of the Banks, & they should regulate the pay and stock options.
The President should have 3 to 5 Economic Advisers on His staff with equal salary and equal title to advise him on the Economy, changes in the law that might adversely effect our economy, etc. Only one should have ties to the banking industry or own stock in it. He should also have a committee of successful older business executives that he meets with regularly to receive economic advice, not political favors.

Reproduction or use of any of this is approved by me. Please * the use and give credit for it.
Thanks for spreading these ideas in advance!
Milton R Saba, CLU & Economist
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Sep 14 06:44 PM