U.S. seizes Fannie and Freddie

CNN ^ | 9/7/2008 | David Ellis

[CodeToad]

NEW YORK (CNNMoney.com) -- Federal officials unveiled an extraordinary takeover on Sunday of troubled mortgage giants Fannie Mae and Freddie Mac, signaling the most dramatic move to date aimed at shoring up the nation's housing market.

[Obadiah]

LOL. You fool, they only do that sort of thing for the Wall Street fat cats.

[iThinkBig]

Glass-Steagal, that is the name of the bill that was repealed by Clinton in 1999, just before he left office. Don’t forget, Fairness in Lending. Some blame gets put on the Republicans as well from 2004-2006 when they held the majority of the House. The President and that House shares some blame for doing nothing at that time. The 2006-2008 corrupt House of Dems made it worse of course.

[TheThinker]

It seems to me that Bush is just being hit by an avalanche of sh#t started by Clinton and Gorelick. What's Bush going to do? Not provide low income loans to people who can't pay it back? I can hear the howls now of racism and classism. Besides, Congress started this ball rolling.

The present subprime financial strains have as its genesis the policies promoted in the Community Reinvestment Act (CRA), compliance with which is a prerequisite for financial institution innovation. The CRA requires the “[A]ppropriate Federal financial supervisory agency” to assess a financial institution's record of “[m]eeting the credit needs of its entire community, including low- and moderate-income neighborhoods…” 12 U.S.C. § 2903. The supervising agency then, “[S]hall prepare a written evaluation of the institution's record of meeting the credit needs of its entire community, including low-and moderate-income neighborhoods. 12 U.S.C. § 2906(a)(1). In this report, it assigns a rating of: "outstanding"; "satisfactory"; "needs to improve"; or "substantial noncompliance." 12 U.S.C. 2906(b)(2).

[BatGuano]

Real Estate has always been a solid, long term investment not the get rich quick business it became a few years ago. I agree that credit available determines value somewhat. Lenders, appraisers, brokers, and sellers all wanted to maximize the flow of money. Speculators licked their chops and dove into the market with gusto. We saw a 32% spike in home prices here in Florida..what would have taken ten years, in a little over a year. The result is short sales, foreclosures and bankruptcy for those who have to move or whose financial situation has changed by sickness, loss of job or jobs etc. A structure that allows one to buy a house with only a small fraction of the cost invested (all leverage) is certainly going to collapse.

[shadowgovernment]

“It started with a bunch of ivy leaguers on wall street and in the Fed thinking they were a lot smarter than everyone else “
>>>>>>>>...........
bingo and they where..Gorelick and the heads of F&F for the last decade or more have walked away with millions $$$
Wall st has golden parachutes by the hundreds where the insiders got paid..now the stock holders get the bill and worst yet the tax payer..
It is obvious they were a lot smarter on wall street and in government..they will not pay a cent back.

[CRBDeuce]

Coming from a banking perspective, what caused the subprime market was affirmative action. The gov’t forced banks to loan to low-income minorities to meet the requirements of the Community Reinvestment Act. Stupid gov’t.

You're 90% correct, but it was the extension of the CRA, with the drug overdose from Congressional Black Caucus+Hispanic Caucus in Congress, Vincente Fox, and others that created the current mess:

"Community Reinvestment Act Rules

In July['06], the Board, FDIC, and OCC approved a joint final rule to revise certain provisions of their rules implementing the Community Reinvestment Act (CRA). (Regulation BB is the Board's CRA regulation.) The revised rules are intended to reduce regulatory burden on community banks and make CRA evaluations more effective tools for encouraging banks to meet community development needs.

The final rules raise the small bank asset-size threshold from less than $250 million in assets to less than $1 billion in assets without regard to holding company affiliation. Accordingly, the new rules reduce data collection and reporting burden for "intermediate small banks" (banks with assets at least $250 million and less than $1 billion) and, at the same time, encourage these banks to engage in meaningful community development lending, investment, and services.

Under the new rules, intermediate small banks will no longer need to collect and report CRA loan data. Nevertheless, examiners will continue to evaluate bank lending activity during their CRA examinations of intermediate small banks and will disclose those results in the public evaluation. Intermediate small banks will be evaluated under two separately rated tests: (1) the small bank lending test and (2) a new, flexible community development test that includes an evaluation of community development loans, investments, and services in light of the community's needs and the bank's capacity. Satisfactory ratings are required on both tests to obtain an overall satisfactory CRA rating.

For banks of any size, the new rules expand the definition of community development to include activities that revitalize or stabilize designated disaster areas and distressed or underserved rural areas. By doing so, the agencies seek to recognize banks' community development efforts in these areas and encourage further efforts in other rural areas. The rules also clarify when a bank's (or its affiliate's) discrimination or other illegal credit practices will adversely affect an evaluation of its CRA performance. The joint final rule became effective September 1, 2005." Fed Rules

Also see the HMDA sidebar, and other articles showing the path the regulatory agencies took to bend over backwards as 'corruption enablers' at the behest of the Congressional Caucuses....

[shadowgovernment]

seems to me that Bush is just being hit by an avalanche of sh#t started by Clinton and Gorelick. What’s Bush going to do? Not provide low income loans to people who can’t pay it back? I can hear the howls now of racism and classism. Besides, Congress started this ball rolling. ‘
................................
Seems I remember BUSH pushing HOME OWNERSHIP , something like 5 million more new home owners as a goal..
The dems and GOP with Bush continued the good time party
This is why I say we are all being had...There is no two party system it’s all about elites knowing each other and
protecting each other (think sandy berger as prime example or Scouter Libby both VP Chaney and Marc Rich’s right hand man)..the republic is no more and until we vote each of these pols out it will remain so

[TheThinker]

I see what you’re saying. I guess we could add George Tenant to your list...

[WOBBLY BOB]

link no workee

[palmer]

I've been told multiple times that a GSE bailout would result in a long term INCREASE in mortgage interest rates, which would in turn accelerate the RE market's price deflation.

Basically true. Mortgage interest rates are a convergence of a number of factors, essentially prevailing rates plus the risk premium for mortgages. The risk premium (and to some extent the base) is set by the market in the secondary market for mortgage securities. Before the takeover, the agency securities sold for treasuries plus 43bp (0.43%). That was rather low (actually ridiculously low) considering the state of the typical American borrower and factors that increased risk (e.g. 14% of the securities were made up of Alt-A loans).

The reason that the securities had such a low risk premium was their implicit gov. guarantee. Now the guarantee is explicit. The agency paper will now be treasuries plus 0 bp (or some arbitrary premium declared by the US Gov and not set by the market). Does it mean that the risk from US borrowers defaulting is now reduced? Did their incomes increase? Did their house prices bottom out? The answer to all those questions is no. So what happened instead today was the risk premium of the entire US government just went up. Treasuries fell and their yield increased.

The short answer is looking at today, rates are up, and looking long term, there is no decrease to risk of American default, it only rises with these bailouts.

[Crystal Cove]

When did taxpayers start paying the bonus of the Freddie Mac CEO?

[happygrl]

RE: Gorelick

Just more evidence that "we've come a long way, baby" when it comes to women's equality.

We can be just as corrupt as the men who play this game.

I hope that we will, in my lifetime, see one of these women going to The Big House on corruption charges.

I doubt that Gorelick is the only woman who deserves to be charged, tried, and punished.

[happygrl]

I've read that it was the Chinese, who hold huge amounts of Fannie Mae and Freedie Mac, that forced this.

Any truth to this ?

[Attention Surplus Disorder]

When you say “force”...that’s open to interpretation.

My understanding, without of course having any proof, is they let Paulsen know in no uncertain terms “quit screwing around”. The Chinese own massive amount of F&F preferred stock and senior debt. They have significant financial power with these holdings as well as their holdings of Tsy debt.

[palmer]

The Fed has been buying mortgage securities which has raised the price (or kept it from falling as much) and thus kept rates lower than they would have been otherwise. In this case though, the Treasury is not buying the agency securities, it is guaranteeing the income stream from them. Those guarantees are obviously worth something in the short run since the price of agency debt rose today and yields dropped. However, also today treasury prices dropped and yields rose, so rates in general went up. That is the more general scenario that will come out of this (with fluctuations of course); the yields for Treasuries will rise and mortgage security yields will rise along with them.

The American taxpayer has to ultimately pay off treasuries, or they must default (which is a rising risk) or the Fed must inflate to buy Treasuries to keep prices high and yields low (Bernanke said he would do this in his most famous speech). All that means that inflation expectations will inevitably rise along with treasury yields and interest rates in general.

[Revolting cat!]

Tomnorrow's headlines today:

Feds Grab Freddie's Fannie!

[CodeToad]

lol!

[happygrl]

Thank you for your reply to the poor choice of words on my part.

I am a financial amateur, just know enough to be dangerous, ha!

But this is no laughing matter.

I have advised all within my range of communication to tighten up, live frugally, and look to each other and we'll get through whatever lies ahead.

My instinct tells me that we haven't seen anything like this in over a generation.

I am most worried about a collapse of the dollar.