Posted on 02/11/2010 3:57:58 PM PST by Libloather
UPDATE: Fannie, Freddie Delinquent-Loan Plan Rattles Market
Thursday, February 11, 2010
Dow Jones Newswires
NEW YORK -(Dow Jones)- Higher-coupon agency mortgage-backed securities got slammed Thursday as investors reacted to the unexpected news that Fannie Mae (FNM: 1, -0.03, -2.91%) and Freddie Mac (FRE: 1.2, -0.04, -3.23%) plan to buy back as much as $200 billion worth of delinquent home loans.
Risk premiums on bonds with 6.5% interest coupons were as much as 25 basis points wider than comparable Treasurys in the secondary market, while the 6% coupons were 20 basis points wider in the morning. As risk premiums rise, bond prices fall.
**SNIP**
"The news of Fannie and Freddie buyouts took the investment community by surprise," said David Cannon, global co-head of asset-backed and mortgage-backed trading at RBS.
Older, higher-coupon securities traded for more than their face, or par, value, in part because they offered a better return but also because newer, lower-coupon bonds are expected to fall in value once the Federal Reserve concludes its $1.25 trillion market-support program on March 31.
On Thursday, however, the older bonds fell because Fannie and Freddie said the day before that together they may buy back billions of dollars worth of loans in arrears for 120 days or more--and that they would exercise their right to buy them back at par.
"The good news is that Fannie and Freddie will come through with their guarantee on delinquent loans," said Ford O'Neil, senior portfolio manager at Fidelity Investments, one of the largest U.S. mutual fund companies. "The bad news is that something you bought yesterday at 108 cents is [now] worth 100 cents."
In addition to the loss up front, investors also face the risk of finding suitable assets in which to invest their cash once these loans are prepaid.
(Excerpt) Read more at foxbusiness.com ...
ON THE BRINK
Inside the Race to Stop the Collapse of the Global Financial System
By Henry M. Paulson Jr.
Business Plus. 478 pp. $28.99
**SNIP**
When the bailouts began, Paulson took charge, acting as investment banker in chief. He personally replaced the management of Fannie Mae and Freddie Mac and put the government's credit behind the faltering mortgage agencies. "We had, I thought, just saved the country -- and the world from financial catastrophe," he writes.
But just as one crazy caper ended, a new one was about to begin. The reason: The Wall Street banks were royal screw-ups. Without passing judgment on them -- these were members of his former fraternity -- Paulson treats us to a parade of big shots asking the government to save their banks from their own incompetence. Here's Chuck Prince, Citigroup's hapless chief executive, at a dinner in June 2007: "Isn't there something you can do to order us not to take all of these risks?" Lehman Brothers chief executive Richard Fuld calls from India to ask if Paulson can get him flyover rights from Russia to get home more quickly. Then on the day before Lehman Brothers went bankrupt, Fuld pleads: "Hank, you have to figure something out." John Mack of Morgan Stanley begs: "Hank, the SEC needs to act before the short sellers destroy Morgan Stanley." "On the Brink" will do little to dispel the notion, which Paulson acknowledges, that some Republicans believe him to be a closet Democrat. His wife, Wendy, held a fundraiser for her fellow Wellesley classmate, Hillary Rodham Clinton, in 2000, and the Paulsons are big-time tree huggers. His mother, a once-staunch Republican, had so soured on Bush that she urged her son not to take a job in his administration. Paulson love-bombs Barney Frank as "scary-smart, ready with a quip, and usually a pleasure to work with," praises Senate Majority Leader Harry Reid and notes that then-Sen. Barack Obama was "always well informed, well briefed, and self-confident."
This is an excerpt.
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/05/AR2010020503960.html?wprss=rss_business/government
Bush got had by ‘Slam Dunk’ Tenant, by the CIA, by the Army, especially in the first three years of Iraq, by State all the time, and by Paulson, Ted Kennedy.
At least.
Now we got Obama.
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