Skip to comments.Fannie Mae & Freddie Mac: Too Big to Wind Down?
Posted on 03/17/2011 6:12:25 AM PDT by EBH
The problem with winding down Fannie and Freddie is the GSEs buy about 70% of all mortgages originated in the U.S. and there just isn't enough capital or risk appetite in the private sector to fill the void.
"You can't pull that much liquidity out of the mortgage market without crashing it," Muolo says. "If you crash it, home prices will fall by 50% and we'll be in a worse situation than we were three years ago."
Given that and the political calendar, Muolo predicts there will be a lot of talk but very little action on Fannie and Freddie before 2012, at the earliest.
"They're kicking this can down the road as long as they can," he says.
(Excerpt) Read more at finance.yahoo.com ...
...but I don't like the sound of this at all.
The democrats sound like they are going to get us on the hook permanently.
OK, if the value of houses goes down 50% doesn’t that mean that the value of the dollar has gone up a corresponding amount?
I am not sure how that works, but if the GSE’s lose 50% of their value....the taxpayer is on the hook to the investors.
PS...which I think would trigger them into printing more dollars to pay off the guarantee
Fannie Mae & Freddie Mac: Too Big to Wind Down?
But not too big to replace the board with honest people.
Well, I’m just trying to justify staying in cash for now. I think however it goes I’ll end up losing...
The way I see it is; 50% loss SO WHAT!!! I am so underwater now that it would take an eternity to be able to find a buyer to give me what I owe. My mobility is gone, my equity is gone, but being in a fixed rate mortgage my payments cannot go up. As long as i don’t lose my job i can keep my home. My home is not an investment, it is a place for shelter. Too bad if the investors lose money, isn’t that the risk with investing?
I say wind them down and get rid of MERS while your at it.
No. That would occur if prices of all goods, and not just of housing, were to drop by 50%.
Yea, I oversimplified. How about 25%? 30%????
This has nothing to do with people running the companies but with acts of Congress. The Community Reinvestment Act of 1998 made it a law that a certain, ever increasing, proportion of loans must be (bad) loans given to those that cannot afford them. That is the sole reason we had a housing bubble and crash. That is why Freddie and Fannie hold so many bad loans. Law is law, and any other management team would have to abide by it.
No percentage is relevant here.
It is true that all prices rise when dollar drops. But it is NOT true that a change in price of any one good indicates any change in dollar value.
True enough but for purposes of argument a 50% decline in housing costs does represent a 50% increase in the value of the dollar visa vie housing no?
When you say relative the housing, your statement becomes technically correct. Most people simply don't speak of the value of the dollar in this context. They refer to it with respect to foreign currencies because those affect the entire economy or with respect to a representative bundle of goods for precisely the same reason. Any one good is so unrepresentative of the ecocomy that most people would prefer to say that it is that good that changed its value --- relative to a representative bundle of goods, hence with respect to the dollar.
But that is just it...there is that little implicit guarantee on the good faith and credit of the American taxpayer...