Fannie Mae: 'Business As Usual' 14 comments
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Thomas Lund, Executive Vice President of Fannie Mae (FNM), issued the following Statement To Fannie Mae Business Partners:
As you know from recent official statements, Director James Lockhart of the Federal Housing Finance Agency (FHFA) has appointed FHFA as conservator of Fannie Mae and he has also indicated that Fannie Mae is operating “business as usual.”
Accordingly, this action has not altered the manner in which Fannie Mae is interacting and working with our business partners or the processes we use in working with them. In addition, the U.S. Department of the Treasury has agreed to provide up to $100 billion in capital as needed to ensure our company continues to provide additional market stability and liquidity as well as enhance mortgage affordability.
FHFA has announced that existing contracts with Fannie Mae remain in effect and that we continue to have the authority to enter into new contracts. FHFA’s full statement regarding our contracts during the conservatorship is available at www.ofheo.gov. In fact, the conservatorship is specifically designed to enhance our ability to serve the market, and we will be working closely with FHFA and Treasury to ensure operations of our company continue uninterrupted. The 5,700 employees of Fannie Mae are committed to serving the nation’s housing market every day.
As the conservatorship proceeds, we will be updating all of our customers and other stakeholders about changes that affect them.
We value your business and our relationships in the mortgage finance industry greatly, and look forward to maintaining and strengthening them as we work together, with the support of the U.S. government, to sustain the market through this period.
Sincerely,
Tom Lund
Sorry, I do not have a link to the above. The statement came to me in a PDF sent by "KC".
Business As Usual
Fannie Mae (FNM) and Freddie Mac (FRE) have squandered every penny of capital they had. One might have thought that insolvency would have been reason enough to start taking less lending risks instead of continuing on the same foolish path. A reasonable person just might have expected to see a statement of what went wrong and what changes would be made to fix those problems.
But no! Fresh with a $100 billion taxpayer bailout, the very first thing out of Tom Lund's mouth is to inform everyone that nothing has changed, and it's business as usual. "Business as usual" is exactly why we are in this mess in the first place.
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This article has 14 comments:
Of course they've changed their business. They are no longer buying Alt-A "lemon loans" from the crooked originators who created this mess.
Yes, FNM/FRE were badly managed. IF ONLY the rest of the banking system had been manages that WELL!
With their thin capital base, these companies could not hold mortgages itself - let alone the "lemon loans" with their "broken" odometers of inflated appraisals and "get-that-documentatio... docs.
We are enduring the natural consequences of the largest securities fraud in history, perpetrated by almost the entire U.S. banking system.
dansdeepcreekblog.blog...
Fannie Mae, even its common stock shareholders, will be fine. I've actually purchased shares of Fannie Mae common stock on Monday. I did so with the assumption that they could go to zero, but the knowledge that they won't.
Fannie Mae common stock will not go to zero.
The reason is this: I'm going to give these shares to my grandchildren someday and I want to accompany the gift with a story. I'm going to tell them that the US went through some tough times back in 2008. But a miraculous thing is going to happen. You're all going to wake up someday soon and re-realize that you live in one of the most incredible places on this planet. You will start fixing your education system and you'll chill out on the carbs and win back your waistlines. You will again find your humility on the world stage. Apologize for your past actions, don't carry the past with you. The past is a burden. You will not assume that those outside the US, irrespective of their race or beliefs, are out to hurt you. They are not. Their just a little upset that they've been douched around. You'd be upset too if someone killed your father. In time, that rage, too, will pass. As things heal slowly, you will begin to find the sense of purpose and the energy to sort out your own affairs. And your internal peace, which is the one thing that you cannot buy, will return. And when the internal peace returns, everything else follows. Including--you guessed it--your housing market, the solutions to your energy supply, and your dignity. This is the story I'm going to tell. When the Roman empire fell, no one sent out a memo. It happened slowly, quietly. Your empire if falling. But as an external observer I offer this: it's not broken beyond reproach. Just get back to your roots baby. Start enjoying yourselves again. Everything else will heal.
As far as I'm concerned, Fannie Mae common stock is the single best numerical representation of the entire US mindset. When it heals, so shall you.
I wonder what would happen if each American bought $500 bucks worth of it? (In addition to the $600 or so worth that your government already purchased for you over the weekend, thankyouverymuch). You could actually begin to fix everything just by doing that. Of course you'd have to punish those that got you into this mess in the first place and ensure that it could not happen again. This problem of yours was foreseeable at the very start. Don't blame Wall Street, they play an exceedingly important role. Hell, Wall Street's processes built half your great nation.
So, I'll check the value of my FNM common stock in five years from now, then again in ten years, then in twenty. I'm betting that you guys are smart enough to get back on track. Please don't let my grandkids down.
The GSE book will expand ad infinitum.
On Sep 10 08:24 PM DansDeepCree kBlog wrote:
> Amen! $100 billion more to buy loans no one else wants in the short
> then. But then what happens in 2010 when they have to start selling
> off these loans at a rate of 10% per year? What if no one wants
> to buy them either?
>
> dansdeepcreekblog.blog...
Whenever the government bails out incompetent capitalists it's a "power grab".
Why do conservatives want to get grabbed so often, I wonder.
Maybe Barney Frank and Larry Craig can tell you.
On Sep 10 06:54 PM vanyali wrote:
> Fannie & Freddie weren't broke. Citi, Merrill & Goldman all said
> so in August, and Paulson and Barney Frank both said so during the
> takeover. Paulson said thought that there was some danger that they
> *might* go broke in the future *if* market conditions continued to
> worsen *and* market participants decided to stop lending to them.
> This isn't a bankruptcy reorganization, it's a power grab by the
> feds.
A wonderful sentiment, and I thank you for it. But it will take a massive cultural change for any of those events to become possible. That is a change Americans are not ready or willing to contemplate. Imperial rot is far advanced in the hearts and minds of the common people. They fully intend riding this thing all the way to zero and will be flabbergasted and in denial even when they arrive. In return for your kind words, I'll offer you some good advice: dump all but one share of that FNM and buy some silver instead. Your government is kindly offering a C$5 embedded put on coins (which come with a lovely engraving of a maple leaf, no less), and at less than C$12 the metal is silly cheap. If you prefer a real investment, look in your own back yard. The TSX has plenty of great names, some of which are profitable even without the backing of the Finance Ministry. Oh yeah, and that one share of FNM? Get the certificate and have it framed. One of your grandkids can put it on the wall as a reminder that every empire, however strong, eventually falls. Might come in handy when China starts shoving them around.
Good luck to you, sir, whatever you choose.
So if they fully intend to nationalize the home loan industry where does it stop? Do they make mortgage brokers and loan officers agents of the federal government as well?
I do not believe that they can be successful in artificially propping up home prices forever, so eventually something has to give. Look at the home price index from 1890-2000 and then 2000-2005 (en.wikipedia.org/wiki/...), something is clearly wrong with the picture and something is unbalanced. Then look at this new chart (seekingalpha.com/artic...) from another Seeking Alpha writer within the last few hours and observe how Fannie and Freddie debt relative to GDP exploded in the same time.
My question then is can the government really step in and provide long-term support to bubble prices or is it only a short-term allusion of doing so? Even if they really do not intend to re-privatize Fannie and Freddie in 2010 or beyond.
On Sep 10 09:39 PM dlaw wrote:
"They are not going to sell at 10% a year. That's a nonsensical soak to the laissez-faire crowd.
The GSE book will expand ad infinitum."
The private system simply can't touch the capital efficiency of the agencies. If Fannie and Freddie's book exploded in size, Mr. Shedlock's site will show you that the private book double-exploded. Maybe triple.
If you're a goldbug, you think that all fiat money is nonsense and the world has to be de-leveraged by 95% or something. Obviously that's silly. The government's capital efficiency is what got America out of the Great Depression and it's what we're going to turn to now.
There are plenty of capital-inefficient, commoditized financial services which can and should be absorbed by government or quasi-government agencies - running them not as programs but as going concerns with balance sheets.....and a little credit enhancement. Since the entire banking system depends on either loaning money to or borrowing money from the government at the risk-free GOVERNMENT rate, it's not a question of whether the government CAN handle the debt load, it's that the government already does, whether we want to acknowledge it or not.
If you want to call that socialism or something, fine. Look at the growth in world GDP since the end of WW2. If that's socialism, we need more of it.
Socialism is good until it isn't. But after it hits that point there is no turning back. The gov't owns you as if you were their livestock.
It saddens me to think of all the real men who got turned into hamberger in all the wars that made this great nation independent and free. It saddens me because people like you get to benefit from it while happily pissing it away for future generations so you can get yours in the here in and now.
Warren Buffet has said repeatedly that he never considers Macro-economic theory when evaluating a business. In firms as huge as these, they follow the business cycle just like everything else and people who only read articles and watch pundits bail on their own investments taking losses in a panic.
The demand for housing will always be present, just like the big utilities prior to de-regulation. Buying shares in Fannie and Freddie now who are taking losses as a result of a general downswing in the economy will make quite a few nobodies rich in the coming years. As Americans come to terms with their own finances and cut up their credit cards in lieu of saving actual money for down payments on homes the 30-year fixed rate will become the next model-T ford.
This began with bad consumer debt.
The one thing NOBODY wants to admit is that the bubble was the result of PRICES. Financing allowed for higher PRICES and now that inventories are high and inventory turnover is low in the housing market the price of housing MUST COME DOWN and as homes become affordable again, so will the demand for the 30-year fixed rate.
The common shares are a steal. Don't put you life savings into them put your beer money into them. You'll get more than a cheap drunk in the long run.