Fannie Mae & Freddie Mac - the big bailout?

[Soriak]

From this Bloomberg article:

Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, are too big for the government to allow them to fail, leading Republican and Democratic lawmakers said. ...

``They must not fail,'' McCain, of Arizona, said yesterday during a campaign stop in Belleville, Michigan. Fannie Mae and Freddie Mac ``are vital to Americans' ability to own their own homes,'' he said at an earlier stop in the state, one of the worst affected by the surge in foreclosures. ...

Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair-value accounting rules. The fair value of Fannie Mae assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, former St. Louis Federal Reserve President William Poole said.

``Markets should be assured that the federal government will stand by Fannie Mae and Freddie Mac,'' Schumer, of New York, said in a statement yesterday. They ``are too important to go under,'' and Congress ``will act quickly'' if necessary, he said. ...

The federal government can't afford to take over all of Fannie Mae's and Freddie Mac's operations, because such a move would more than double federal government debt outstanding and ``have disastrous consequences for the dollar,'' said Joshua Rosner, an analyst with Graham Fisher & Co. Inc. in New York.

Both their stock prices fell by about 30% yesterday.

Another article I've read said that as much as 80% of mortgages in the US are backed by either Fannie or Freddie. Another 10% come from the Federal Housing Administration. When you also consider mortgages with VA benefits, then more than 90% of all loans are made more attractive by the government. No wonder so much money ended up in the housing market...

There are two questions then for this topic.

1. Should the government do anything to help Fannie and Freddie? This is going way beyond a bank bailout, the bill would be in the trillions. Assuming they should, is there a cutoff amount when it's no longer reasonable to hold off a real market crash?

2. Should the two GSEs (Government-sponsored enterprises) still be around after this is over? How about the FHA? If their whole purpose is to make it easier to get mortgages, don't they invite another bubble and another crash simply by doing their job? The FHA requirement, for example, is 2 years since bankruptcy and 3 years since foreclosure. Is that really enough time to get back in shape to buy a house? And why should the government take that risk if banks won't?

[Phoenix]

Good god no. The whole housing problems in America right now are a giant cluster fuck beyond epic proportions. Every stupid fucking lender and buyer who sold or bought more than they could cover needs to learn a damn lesson.

Live within your means and buy a house you can afford and you wont have any problems.

[kedwyn]

I don't really think they have much of a choice. If a bail out is necessary they will have to step up its one of those situations where they are simply too big to fail, there is just too much at stake.

Again what it boils down to is the massive excess that has been occurring in the US for the past 10 years or so. The "I have to have it NOW" mentality here and the general lack of personal responsibility is now coming back to bite us in the ass.

People have been raping their home equity for years, buying toys and shit they really couldn't afford. Spending more and more on bigger houses, new cars, new furniture, new everything. In general taking on so much debt that most are one pay check away from not being able to make their payments.

A lot of these fuckers have 2, 3 + mortgages. Not too mention the other toys. Seriously what the fuck were they thinking? Sure the banks deserve some blame but ultimately its the consumer that seeks the mortgage, signs the papers, lies about their incomes or rental agreements and has to pay the bill.

Then they have the nerve to blame everyone else for their misery. Unfortunately the problem ran unchecked for too many years and its so big now that there isn't much choice.


Newsflash, same thing is going to happen with Medicare and social security. One day we are all going to be scratching our heads wondering how it got so bad when we refused to take the smaller steps earlier to get the problem fixed.

[Tyen]

Sallie Mae should fail, and then burn down to the ground with my student loan records.

[Kaosu]

Originally Posted by Tyen

Sallie Mae should fail, and then burn down to the ground with my student loan records.

It'd just be bought out by a loan retrieval company and then get bought out again, and again. Sooner or later you wouldn't know who you were paying, because it certainly wouldn't be the people you bought it from.

I had a friend that ended up not paying, because the loan was bought so many times by different companies that when he called to find out who he was paying, the loan collector on the other end couldn't/didn't know and ended up leaving him alone because at that point in their systems, he owed money to a company that didn't exist anymore (and the loans were never properly transferred to another company).

[Faille]

There's just so many people at fault that there's plenty of blame to go around. Consumers are probably the obvious choice since they should know better then to borrow more then they can afford, but when you live in a society that actively promotes that mentality, combined with no regulations or restrictions to prevent it, then you can't really blame totally.

As for government bailouts, I can understand the philosophy that bailing out those companies may cost less then letting them fail, though that's probably just in the short term and not the long term, but I really want to know how those companies are allowed to grow to the point that they can't be allowed to fail. That indicates some really serious issues.


here's a audio program that gives a good explanation of some what happened that led to this situation.

This American Life

[Lyrical]

Originally Posted by kedwyn

Newsflash, same thing is going to happen with Medicare and social security. One day we are all going to be scratching our heads wondering how it got so bad when we refused to take the smaller steps earlier to get the problem fixed.

Its going to suck for people our age when baby boomers start demanding that we pay for all of their excess in the form of extra taxes. As an economics professor of mine once said, baby boomers have really screwed up this country. They have the mentality to spend all of the money before it comes in (and data shows that they have been one of the most fiscally irresponsible generations in the US, if not the most). And we are going to feel the pain from their decisions decades from now.

Thanks Mom and Dad.

[Lyrical]

Originally Posted by Phoenix

Good god no. The whole housing problems in America right now are a giant cluster fuck beyond epic proportions. Every stupid fucking lender and buyer who sold or bought more than they could cover needs to learn a damn lesson.

Live within your means and buy a house you can afford and you wont have any problems.

Normally, I'd agree about letting people wallow in their decision. But sometimes, you have to do what is best for the economy as a whole. Not bailing them out could make the economy that much worse. I am all for regulating future lending, though.

[Lyrical]

Originally Posted by Soriak

From this Bloomberg article:



Both their stock prices fell by about 30% yesterday.

Another article I've read said that as much as 80% of mortgages in the US are backed by either Fannie or Freddie. Another 10% come from the Federal Housing Administration. When you also consider mortgages with VA benefits, then more than 90% of all loans are made more attractive by the government. No wonder so much money ended up in the housing market...

There are two questions then for this topic.

1. Should the government do anything to help Fannie and Freddie? This is going way beyond a bank bailout, the bill would be in the trillions. Assuming they should, is there a cutoff amount when it's no longer reasonable to hold off a real market crash?

2. Should the two GSEs (Government-sponsored enterprises) still be around after this is over? How about the FHA? If their whole purpose is to make it easier to get mortgages, don't they invite another bubble and another crash simply by doing their job? The FHA requirement, for example, is 2 years since bankruptcy and 3 years since foreclosure. Is that really enough time to get back in shape to buy a house? And why should the government take that risk if banks won't?

I was reading an interesting article in BusinessWeek that were talking about people that were purposefuly walking away from their loans (and they had good credit). In some places like California, homes are selling for half of what they were last year. The author talks about someone who bought a house for $340K that was once 650K last year. Anyway, the article talked about how some people were so mad that housing values were coming down, that they would buy a second house in the same neighborhood (but with a mortgage payment that was half). Once they were in their new house, they would stop making payments on the other inflated house. They knew that this would ruin their credit, but were so mad they didn't care. They could claim bankruptcy, but at least they would be in a house that was protected under the BK laws. They were willing to not be able to finance anything in the future.

What made some of them even madder is that some of them had to enter into some of those loans where they only paid part of the mortgage (to keep the mortgage price down). The hitch with this was that any unpaid balance would be added to what they owed. So you had people that were in homes they couldn't afford, and the debt kept going up every month. This was fine when there was no other choice, but when homes prices started dropping like a rock, and they knew they could get a home for 50% off, they started switching homes and defaulting on the old one.

The scary thing is that the banks know the people are doing this, and don't care. As the author said, since it takes awhile for a BK to disappear off of one's credit rating, those people will be locked into those homes for years to come. They won't be able to buy a different home anytime soon.

Scary.

[spronk]

Yeah these two entities control over $12 trillion in loans so its pretty significant. They provide massive liquidity to the mortgage market, without them a ton of loans would stop going through.

The stocks both are in the $5 range at the moment, I believe Fannie was over $100 just a short while ago... and a very popular investing stock a few years ago too.

Whats really bullshit are the economic and real estate "experts" who keep predicting "its turning around now!", and in the meantime every month the real estate market gets worse. At what point do you get your crystal ball taken away, when you are wrong 12 months in a row?

[AladainAF]

Consumers are probably the obvious choice since they should know better then to borrow more then they can afford, but when you live in a society that actively promotes that mentality, combined with no regulations or restrictions to prevent it, then you can't really blame totally.

In reference to my bold above, maybe people need to learn to think more for themselves. I know this is impossible for 90% of the idiots in this country, but really.. people that are easily swayed by too-good-to-be-true deals that anyone with a tiny amount of common sense can scream BULLSHIT on, are useless people that deserve everything thats coming to them. I think they should be forced out of their home, etc. Additionally, I dont think fannie/freddie should be bailed out.

[Soriak]

Breaking News: People react to incentives.

[Zerai]

Originally Posted by Faille

There's just so many people at fault that there's plenty of blame to go around. Consumers are probably the obvious choice since they should know better then to borrow more then they can afford, but when you live in a society that actively promotes that mentality, combined with no regulations or restrictions to prevent it, then you can't really blame totally.

Actually you can blame them totally. It's one of those things. Do we really need signs on knives saying don't eat them? What if it has cake on it from when you cut it? There is no restriction stopping you from eating it...

The fact is, just because other people do it, and whatever, you should know better than to do it. If you can't afford it...don't fucking buy it.

[Lefazz]

Can anyone educated in finances explain to me why banks sell mortgages to these companies?

I'm ignorant on the subject -- but it sounds like, to me, that the ability for a bank to sell a mortgage to an individual THEN off load it to another institution creates a situation where the bank itself doesn't give a shit whether or not the individual can afford it. The bank effectively removes the risk of a shitty borrower since they're immediately selling that loan to Fannie Mac, Freddie Mac, or whoever.

Is this part of the reason why we're in this mess?

[Etoille]

Originally Posted by Soriak

Breaking News: People react to incentives.

lol