More On Fannie and Freddie [Housing Tracker]

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

Quote of the Day

"We are not just going through deleveraging, but through a castration of capital not seen during my lifetime." - Mark Grant, managing director of structured finance at Southwest Securities, based in Dallas. (Reuters, Sept. 15)

Subprime Banking Fallout

... Subprime Also Due for Fresh Look? “One or both of Merrill's (MER) two subprime servicing units might help BofA (BAC) work through the problem loans it got with Countrywide… Merrill Lynch Credit Corp., a unit that makes prime jumbo mortgages for the brokerage's clients, has outsourced much of the work to PHH Corp. (PHH) for 10 years. But Countrywide's capabilities would make such outsourcing unnecessary after Merrill's contract with PHH expires in 2010… National Mortgage News: Countrywide serviced about $100 billion of subprime loans as of June 30. Countrywide August SEC filing: The delinquency rate in its subprime servicing portfolio jumped nearly 9 percentage points from a year earlier, to 28.9% at midyear. The share of loans in this portfolio that were in foreclosure more than doubled, to 8.55%, during the same period.” (American Banker, Sept. 16)

Capitalism - It's Painful, But It Works. “Paulson understands that the unraveling of Lehman [shows markets] work best when driving out weak and inefficient operators. Creation and destruction are part of the game… Fannie and Freddie were special… Had [the] “government-sponsored” private companies gone under, it would have told the world that Uncle Sam was happy to renege on his promises. While… wiping out Fannie/Freddie’s shareholders… the US Treasury was determined to preserve value for their bondholders [because] these bonds are held in vast quantities by foreign governments, notably China's, whose confidence Washington is desperate not to lose. With more than $1 trillion of foreign-exchange reserves, China is equally anxious that America's economy, and with it the dollar, does not get flushed away.” (UK Telegraph, Sept. 15)

S&P Downgrades BofA, Questions Merrill Acquisition. “S&P’s Ratings Services downgraded its long-term counter party credit rating on Bank of America Corp.  to ‘AA-’ from ‘AA’… S&P termed [BofA’s Merrill buyout] “opportunistic.” … The deal does little to resolve Merrill’s pile of bad assets, besides potentially put them into the lap of BofA — and with the toxic waste already tied to the bank’s other quarry earlier this year, Countrywide Financial… some are worried about contamination of what was previously a nearly-pristine balance sheet.” (Housing Wire, Sept. 15)

Can't Live With Them, Can't Live Without Them. “Democrats, traditionally much more sympathetic to Fannie and Freddie, may well find themselves in the ascendancy after the November Congressional election, and a Barack Obama presidency would give them added clout to insist on, if not a return to the status quo ante, at least a powerful, continuing, counter-cyclical role for the two companies. And that talk last Sunday of forcing Fannie and Freddie to shrink their investment portfolios? Barney Frank, Democrat chairman of the House Financial Services Committee, insisted it will be for a future administration and a future Congress to decide on that.” (UK Independent, Sept. 14)

The Politics Of Bailout: A Waiting Game. “The authorities now know that the banking system is beyond self-healing, is in a downward and self-reinforcing spiral, and traditional measures are exhausted. Ordinary rate cuts and discount-window lending will not fix the fundamental problem: "Capital" in the banking system is net worth and equity, and the large end of the system is just as underwater as too many homeowners. Truly extraordinary measures are required… The Fannie-Freddie takeover was routine except for the astounding, plain-English word that the Treasury will begin to buy mortgage-backed securities to drive down spreads. Housing must bottom and it will require cheap credit.” (Inman News, Sept. 12)

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Comments

[MarvinMBA:]

I'm amazed as I look at my new Homowners Policy and note that the valuation is less than the cost of the house 7 years ago. At least I should break even!!! I suppose you can say I lived in the house for 7 years I had to pay rent the valuation would be zero for me. But the house is worth less than I paid for it so I might have well rented anyway..this is home ownership??

2008 Sep 16 08:21 PM