Beginning of the End? Freddie / Fannie in Big Trouble

[TonyMacaroni]

More bad news out of the US:

Fannie and Freddie: A Run on the Bank?


Fred W. Frailey
Kiplinger
July 12, 2008

Fannie Mae and Freddie Mac are not banks. But like most financial companies, they stand or fall on public trust -- and right now, fewer and fewer people are confident that the two government-chartered mortgage-finance companies can survive on their own.
...
Fannie and Freddie are crucial to the smooth flow of everyday American life. They are the cement that holds the nation's housing markets together. The companies buy home loans from banks that issue them, repackage those loans as bonds, and either hold them as assets or sell them to the public. Roughly 70% of U.S. home mortgages pass through the hands of Fannie and Freddie. Together, they own or guarantee $5.2 trillion in mortgages. Without Fannie and Freddie, it could soon become all but impossible to buy or sell a home.

Full article at http://www.kiplinger.com/columns/pic...8/pick0711.htm

What do you guys think? With US money supply at $9 trillion or a bit over, a failure of this magnitude is a big deal...

[Commercial Dan]

IndyMac has gone under, is the banking system finally collapsing?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aAYLeK3YAie4&refer=home

[whitt]

Yes it is in terrible trouble.

These two companies were founded to hold the USA housing industry together post WW2. They are part of the US economy and this has dire results.

Everyone else have a read on the net and work out how much hinges on these 2 companies.

If they go under then nobody in the US can get mortgages at present.

PS

That is twice in day I have agreed with CD. Maybe a sign of the times to come. Note to self: Take everything CD posts seriously he warned us about the property bubble and we all ignored him till it was too late. I am unsure on CD background but he does know his stuff.

[Commercial Dan]

Great summary for all to read

Q&A: Freddie Mac and Fannie Mae



Investors are losing confidence in Freddie Mac and Fannie Mae


Troubled US mortgage giants Freddie Mac and Fannie Mae are at the heart of the US housing market.
Their shares have plunged on fears that they might need to be bailed out by the US government.
Who are Fannie Mae and Freddie Mac?
They are both shareholder-owned companies mandated by the US Congress to provide funding to the housing market.

Fannie Mae is short for Federal National Mortgage Association. Freddie Mac is short for Federal Home Loan Mortgage Corporation.
Fannie Mae was founded in 1938 at a time when millions of families could not become homeowners, or faced losing their homes, because of a lack of mortgage funds. It was a government agency until 1968.
Freddie Mac was created in 1970.

What do they do?
The two firms do not lend directly to homebuyers, instead buying mortgages from approved lenders and then selling them on to investors.
They guarantee or own roughly half of all the $12 trillion US mortgage market.
Almost all US mortgage lenders, from huge financial institutions like Citigroup to small, local banks, rely on Fannie Mae and Freddie Mac.
Lenders look to Freddie Mac and Fannie Mae for the funds they need to meet consumer demand for home mortgages.

By linking mortgage lenders with investors, the two firms keep the supply of money widely available and at a lower cost.

There is no direct UK equivalent to the two firms.

Why are they in trouble?
Fannie Mae and Freddie Mac have made billions in losses as the US housing market has seen a big increase in defaults and repossessions.
To cover these losses the two firms are raising funds but investors fear they may not be able to raise enough to cover their liabilities.
They have to pay out if ordinary homeowners cannot pay back their home loans.
What would happen if they failed?
Markets assume that the taxpayer would take on the burden of all their mortgages because they underpin the whole US mortgage market. If they were to collapse, mortgages would be harder to get hold of and much more expensive. US Treasury Secretary Henry Paulson has said the government's primary focus is in supporting Fannie Mae and Freddie Mac in their current form.

[whitt]

I guess that post says it all really CD.

It could be a rough time ahead in the states and potentially other countries.

[Tucker]

Quick get a mortgage there as it might get forgiven if they collapse

[Commercial Dan]

My point is that even when Bollard cuts the OCR soon, rates may drop initially but will rise again as soon as things collapse even more in the USA.

Essentially the cost of debt will rise because it will be tough to get a large pool of debt.

I'm picking vendor finance will be back on the cards, this will create tremendous opportunities in the next year or so for the newcomer with little or no capital.

[Tucker]

Also just use long settlements or options

[Tucker]

All you have to do next year if there is a slight drop in rates is fix it for five years if you are worried, 9% is still pretty manageble

[Badger]

As long as you have a income in recessionary times

[Commercial Dan]

Hanover Gone!!!

http://www.nzherald.co.nz/section/3/story.cfm?c_id=3&objectid=10523117

[Badger]

Yep to be expected!

[Commercial Dan]

Yup, the rumours were true...I'd be bloody worried if I had a lot of borrowings with them, this is going to be 87 all over again!

[Badger]

worse

This time theres resource depletion much harder to get out of the hole

Golds looking good!