Black People : Government may take over fannie mae and freddie mac

Discussion in 'Black People Open Forum' started by oldsoul, Sep 6, 2008.

  1. OldSoul

    OldSoul Permanent Black Man PREMIUM MEMBER

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    Government may soon back troubled mortgage giants

    The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night. Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced. Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.
    The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions. The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.
    That confirmed what investors saw in Fannie and Freddie's recent financial results: trouble in the mortgage market has shifted to homeowners who had solid credit but took out exotic loans with little or no proof of their income and assets.
    Fannie Mae and Freddie Mac lost a combined $3.1 billion between April and June. Half of their credit losses came from these types of risky loans with ballooning monthly payments. While both companies said they had enough resources to withstand the losses, many investors believe their financial cushions could wither away as defaults and foreclosures mount.
    Many in Washington and on Wall Street hadn't expected Paulson to intervene unless the companies had trouble issuing debt to fund their operations. This summer, Congress passed a plan to provide unlimited government loans to Fannie and Freddie and to purchase stock in the two companies if needed. Critics say the open-ended nature of the rescue package could expose taxpayers to billions of dollars of potential losses. Supporters, however, argue the Bush administration had little choice but to support Fannie and Freddie, which together hold or guarantee $5 trillion in mortgages — almost half the nation's total.
    Representatives of Fannie and Freddie declined to comment on the government assistance plan...
    Mudd, the son of TV anchor Roger Mudd, was elevated to Fannie Mae's top post in December 2004 when chief executive Franklin Raines and chief financial officer Timothy Howard were swept out of office in an accounting scandal.
    Syron was named Freddie Mac's CEO in 2003, replacing former chief Gregory Parseghian, who was ousted in after being implicated in accounting irregularities. He formerly was executive chairman of Thermo Electron Corp., a Waltham, Mass.-based maker of scientific equipment, served head of the American Stock Exchange and was president of the Federal Reserve Bank of Boston in the early 1990s.
    Fannie Mae was created by the government in 1938, and was turned into a shareholder-owned company 30 years later. Freddie Mac was established in 1970 to provide competition for Fannie. A government takeover could cost taxpayers up to $25 billion, according to the Congressional Budget Office.
    But the epic decision highlights the size of the threats facing the housing market and the economy. On Friday, Nevada regulators shut down Silver State Bank, the 11th failure this year of a federally insured bank. And earlier this year, the government orchestrated the takeover of investment bank Bear Stearns by JP Morgan Chase.
     
  2. Clyde C Coger Jr

    Clyde C Coger Jr going above and beyond PREMIUM MEMBER

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    In the Spirit of Sankofa!





    oldsoul,

    Good info! This bit of information ties in well with the current discussion of economics in this thread started by Lokman: http://destee.com/forums/showthread.php?t=55454
     
  3. Zulile

    Zulile Well-Known Member MEMBER

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    US takes over mortgage giants

    it's in the headlines on aljazeera as stock markets brace for impact.

    http://english.aljazeera.net/news/americas/2008/09/200897162555369926.html

    Fannie Mae and Freddie Mac together account for about half of all US home mortgages.

    "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," he said. (Henry Paulson, the Treasury secretary)

    Shares in Fannie and Freddie have lost about 90 per cent of their value amid continued fears of losses due to customers defaulting on their mortgage payments.
     
  4. LadyLC

    LadyLC Well-Known Member MEMBER

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    Some of those defaults are from people that really didn't qualify in the first place for loans, some of the loans are going into default because the economy is bad and so many people have lost their jobs. I know several people that got involved with real estate agents and brokers that let them falsify documents proving income and employment just to get the loans. Now this is all coming back around to bite these mortgage companies/banks in the butt. This is also hurting those that got loans with balloon payments and people that did not get fixed rates. When I get ready to step out there and purchase a home I will do my homework and make sure I have my ducks lined up in a proper row.
     
  5. jamesfrmphilly

    jamesfrmphilly going above and beyond PREMIUM MEMBER

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    lemme see now...if i can't make i'm on my own but if the big corporations can't make it....they get a buyout.
    in america socialism is reserved for tha rich
     
  6. Clyde C Coger Jr

    Clyde C Coger Jr going above and beyond PREMIUM MEMBER

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    In the Spirit of Sankofa!




    Yup, you got to pull yourself up by your own bootstaps, even if you don't have any boots, that's what he said!

     
  7. Omowale Jabali

    Omowale Jabali The Cosmic Journeyman PREMIUM MEMBER

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    Let me see...what is the date of this post?

    Ok. Pluto supposed to be going direct. Wonder what sign the moon is in?
     
  8. Zulile

    Zulile Well-Known Member MEMBER

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    Q&A

    The US government has taken over Fannie Mae and Freddie Mac in an attempt to help them recover from massive losses.

    We answer here some questions about that big bail-out.

    Who or what are Fannie Mae and Freddie Mac?

    More here

    What is it exactly that Fannie Mae and Freddie Mac do?
    More here

    Are Fannie Mae and Freddie Mac victims of the housing crisis, or one of the perpetrators?


    More the victim. The overly aggressive primary mortgage lenders knew full well that Fannie Mae and Freddie Mac would have to buy up all the mortgages below the Congressional cap of $417,000.

    The primary mortgage companies get their profits from commissions and fees per mortgage that they make, and not from the repayments of principal plus interest from the mortgage borrowers, that is, the homeowner. That is why they were so reckless in their lending - it is a classic case of "moral hazard".

    As the housing prices have plummeted, there have been two problems that have hurt Fannie Mae and Freddie Mac very badly. First, they have had to make increasing payments to cover the defaults in the MBS which the two institutions have sold.

    Second, they have had to set aside reserves for those mortgages in their own portfolios which are "non-performing", meaning that the borrower cannot keep up with their payments. These set-aside reserves do not earn any income for the two mortgage institutions and hence, contribute to losses.

    As the profitability of Fannie Mae and Freddie Mac decreased, their borrowing costs went up, squeezing the interest rate differential between what they earn from the mortgages they hold and the rate they have to pay on the bonds that they issue.

    Fannie Mae and Freddie Mac did not help themselves during the crisis much either. They did not implement the guidelines they normally impose on the primary mortgage lenders, but instead they accepted many bad mortgages including "sub-prime" mortgages.

    "Sub-prime" mortgages refer to those loans which were made without the necessary information on the borrowers. For example, a "sub-prime" mortgage may not require borrowers to disclose their incomes!

    In addition the two institutions followed highly spurious accounting concepts to overstate their capital base. And lastly, they continued paying their top executives obscenely high salaries, even when their stock values fell by 80 per cent.

    So what then does the US government's take-over of Fannie Mae and Freddie Mac imply?

    Legally speaking, the US government has put the two institutions under its "conservatorship". It’s not clear what exactly does that mean.

    The following is what we know now: The US government will immediately take hold of $1 billion worth of equity in each of the institutions. These will be in the form of preferred stocks with a guaranteed 10 per cent rate of return. These $1 billion infusions are however, not real cash infusions but rather, just compensation for the privilege of being expropriated by the US government!

    The Government has allowed itself to infuse as much as $100 billion to each of the institutions, and thus the American tax payers could be out $200 billion by the time the housing crisis plays itself out. The Savings and Loan crisis cost the tax payers $120 billion. Presumably, this bail-out will be less expensive.

    In addition, all cash infusions by the US government will be more like an investment because they will receive a 10 per cent return. Lastly, the US government has set a maximum ownership of 80 per cent for each of the two institutions.

    Some of the benefits of the US government take-over are already visible. Asian investors have been relieved of their anxieties, and the Asian stock markets have surged.

    American stock markets have also surged and the mortgage interest rate has declined significantly now that Fannie Mae and Freddie Mac will be back in the secondary mortgage market with renewed vigor.

    Was this, then, the last piece of the puzzle that needed to be put in place to make the housing crisis start ebbing? Most probably.

    Full Article
     
  9. Zulile

    Zulile Well-Known Member MEMBER

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    I know you cant be asking me ;)

    What do the signs say?

    :heart:
     
  10. emanuel goodman

    emanuel goodman Well-Known Member MEMBER

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    Please dont be alramed or shocked by this . There are just taking out the middle man. It was and has allways been ran by the gov ment. They are just going to lower the rates and make a profit. Times have gotten to hard to allow a middle man. It's the old gut a company out drop it's stock. allow it to recover and reap the rewards. hotep
     
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