What Will Fannie / Freddie Mean for Monday? 25 comments
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Here is all we know so far:
WASHINGTON (Reuters) - The U.S. government announced on Sunday that it was taking control of troubled mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE), effectively wiping out shareholders' interest in the publicly traded companies.
The regulator of the two companies, the Federal Housing Finance Agency [FHFA] will manage the two companies on a temporary basis.
The takeover is the second rescue bid engineered by the U.S. Treasury Department in little more than six weeks. It came as confidence in the firms' ability to keep operating amid a deepening housing crisis continued to erode.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart, regulator for the so-called GSEs or government-sponsored enterprises, called a Sunday-morning news conference to spell out the latest rescue effort.
The announcement followed an intense round of meetings on Friday and Saturday with directors and top leaders of the GSEs, who are expected to be dismissed after having come under stiff criticism for their high pay and management shortcomings.
The two mortgage companies are a vital cog in the United States housing industry because they own or guarantee almost half the nation's $12 trillion in outstanding home mortgage debt. The housing sector would have difficulty recovering from its deepest slump since the Great Depression unless Fannie or Freddie are stabilized and able to continue their role in buying mortgage loans and packaging them into securities sold around the world.
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I'm sure this will lead to a big relief rally on Monday. But the rumors and expectations for this bailout have been building for some time. As such, this news is not a total surprise for the market, and thus I do not think it has the potential to completely change the bearish sentiment on Wall St. in one fell swoop.
But so far, the market has held above the July lows. We still have quite a bit of time before the Election, but if the market does not make new lows in the interim, it would be a bullish technical pattern that should support a nice year-end rally. Patience is key.
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This article has 25 comments:
Isn't the implication that the dollar will be down and that interest rates and commodity prices, including oil, will be up?
The truth, nothing as changed and rally or no, the facts are very unsettling to any investor because his fiat specie just fell in value - greatly. Celebrate, but it is not the last harpoon to be thrown by the government as it fights national insolvency. We all have good days on the way to the gallows. Was there any choice? Probably not, but poison is still poison. No winners anywhere to be seen.
So where are we going? Probably into an inflationary ere with our Uncle Sam doing nothing to stop it. Cash or cash equivalents could be in trouble. Where to be...could be gold.
www.ehow.com/how_45036...
How to Trade Fannie Mae (FNM) and Freddie Mac (FRE) Stock During Conservatorship
Whether they trade higher or lower remains to be seen!
Government action may lower mortgage interest rates slightly. Yet they want to phase out in 2009 by 10percent annually. This means more tightening of the housing market at the time when more than 1 million more houses will be added to foreclosure list.
They are also tightenign lending standandards. People expect houses to fall another 10-15% and housing correction will only increase.
With global slow down and continuing credit crunch worsening with further losses to the banks stocks will hit a new low and then go into a panic crash in October.
I am more concern how the government is going to [pay] for this takeover, and I get the feeling the tax payers will be footing the bill for this one.
This is just the prelude of one of the worat transfer of wealth in history. WHY? Because others want a piece of the pie, OPEC is tired of giving their life blood away to pampered Americans while thier citizens standard of living is sacrified to the gluttons. All they have in many cases is oil and how long will it last?
We have reached a new paradigm where bubbles are everywhere ans compounding to create super bubbles. Those in denial will suffer in their debt.
dollars are used to foot the bill I want all equity wiped out including
preferred and bond holders.
FRE,FNM are gone as common stock investments,many big cap stocks that went bust before made similar rallies as investors are not ready to give up on something they had for tens of years and new greed enters buying when blue chips are down 80%.
If FNE,FRE would be Wal Mart or IBM they would recover after 10-20 years and continue but financial companies have different structures as their assets are not real.Same as many banks went Chapter 8 lately and were liquidated as going business same FRE,FNM will be liquidated as going business of public company.Bondholders will must to wait 20 years to get anything significant of their bonds,preffered shares will be exchanged for bonds but at what rate and what quality of bonds?
Bank holders of senior secured debt are safe the most.
I will sell my DJIA futures tomorrow market on close but not sure if 200 points and I am out or should I wait for 500 points?
DJIA closed on Friday at 11.220 so you judge me by tomorrow.
Because the market is manipulated, however, I am sure that it will be flooded with cash by the Fed, in the morning, and they will be buying everything in sight, on the taxpayer's dime, while real investors are selling. The dollar will also be up tomorrow, and gold and silver will be down, giving us an opportunity to get out of stocks and buy precious metals.
The dollar is going to be collapsed, in the long run, by this, because it is incredibly inflationary. The government will now need to print $250-500 billion dollars, over the next 2-3 years, to compensate for all the defaults.
Sep 07 12:45 PMThis is great news if " YOU HAVE A SECURE JOB AND WANT TO BUY A HOUSE AND HAVE GOOD CREDIT".
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One little detail, even then you have to sell your old house first, which is close to impossible.
If you a first time buyer, i.e. you didn't buy the house last year when it was so easy, most likely you are not qualified to buy a house at all.
Had i known that purchasing a house was a no-lose situation, i would have went ahead and bought several years ago. Who knew they would just steal taxpayer money to prop up the the prices.
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Sep 07 02:35 PMUnless, inthemoney, you are like me and have avoided purchasing a house at these over inflated prices for the last several years ( i live in nyc area). Not that i would purchase now, mind you, but i do think we are getting within 20%-30% of a reasonable mean price. However, it would be hard to overstate my disappointment that my tax payments are going to be used to prop up housing prices at inappropriate levels, and that even worse the value of my dollar is being damaged so severely.
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Never make assumptions, this is one of the useful lessons I learned in my life. I live in Houston, Texas, the economy here is boioming thanks to oil. I didn't buy a house at overinflated prices Texas never had a boom due to sky high property tax. Even so, people are scared to buy houses. It is very difficult to sell a house here for 3 months now. Mostly because potential buyers cannot sell their old houses. It is circle that needs to be broken. I can't imagine what it is like in other areas.
I am actually not looking to sell the house. I am looking forward to its going down in market value to get a break on the preperty tax. But either way, the situation is bad. It means also local government will be cash strapped.
And do you know, the transportation fund is running out of money. Here in Houston we have no public transportation, we need the highway money to keep functioning.
Where all this money is going to come from, may I ask? I think I know, I just don't want to admit it -((
Buy stocks that are "positioning themselves". Can you give us the names of a few of these gems? Is there a fund manager alive who hasn't been trying to find these gems forever? I direct you to the mutual fund statistics for the past 8-10 years. Seems to me that Cash has been the best asset to hold over that time and zero risk. But I guess that there are many out there who just can't get over the "buy and hold" mantra that Wall Street has been selling for 30 years. Its over.
While we're at it, in order to understand the impact on banks we have to look at:
a. how much preferred and common stock they hold (though any bank still holding FNM or FRE common should also be taken over by the government, as they have failed risk management) - this will be way down tomorrow.
b. how much FNM and FRE debt they hold - this will be way up tomorrow and is a significantly larger pot than the above pot.
c. how this affects bank's access to capital and ability to securitize mortages (complicated, may take some time to figure out).
“It was just one of those things” as the song lyrics point out.
And ZgartZ thinks that one of those things that triggered the mortgage crisis in the USA could have been the crackdown on illegal immigrants. As 12 million (or more) illegals scampered to flee the INS they obviously vacated millions of housing units. And it was just a few months later that the cracks appeared in the housing demand.
As we all know now, if you had a driver’s license and a job, you could get financed. So as usual, government rules always have unintended consequences. Those housing units may not have been in the name of the illegal person but the illegal person created a demand. Thus a speculator could buy a unit with little or nothing down and rent it to the illegal person. Certainly Florida had its share of immigrants.
And who was speculating? Many real estate agents took on the “bargain” deals that would not be economically feasible without a tenant. I heard on a real estate program that the number of licensed agents in Florida dropped from 87,000 two years ago to 52,000 now.
Oh well, today the USA government (read taxpayers) bailed out Fannie Mae and Freddie Mac. Will there be unintended consequences? You can bet on that!
Then again the mummy stocks may come back as mummies return. They may await the return of the scorpion king..now at an undisclosed location or perhaps in the haunted Treasury building.
This buyout should have come as no surprise to anyone, nor the bullish market reaction that will likely follow.
This action stabilizes a critical element of the US financial system, and as the bondholders from many foreign countries will add, also stabilizes the global financial system.
One last comment - while loose lending practices have trashed mortgage markets, in the end housing is a tangible asset. It has intrinsic value. Yes, current market values may be inflated, depending on whether you live in Ohio or CA. But unlike the CDOs and other derivatives, it is simply not possible for housing to go to zero.
Something to keep in mind.