Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.
Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury’s $700 billion Troubled Asset Relief Program.
[...]
“For now, they’re under conservatorship and they have to be used to keep the flow of capital going to the housing market,” former Treasury Secretary Lawrence Summers said in an interview on Bloomberg Television’s “Conversations with Judy Woodruff.” “They’re important to maintaining the flow of government finance” and need to be used actively, he said.
I mean, they are kidding, right?
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets [Bloomberg]
first bitches
does it break my lifetime “no pay for ass” streak if she was a stripper…and i made her leave immediately thereafter? thoughts, suggestions?
OK, here are the names of MS MDs who got the bad news
Richard Angfang
Rosa Ramos Qwok
3:20am on a Friday? wow
But seriously this news is so fucked up. People think the $700b from Congress actually means something. It doesn’t, it was supposed to represent a vote of confidence from the voting public but they couldn’t even get that the first time around! The fed is spending untold billions with the CP facility, we are nationalizing banks now, and Frannie Mac are spending taxpayer dollars too on toxic sludge. Not to mention the inflation tax from the rate cut, I know I am forgetting some other ways my money is being spent.
That 700B is just a sovereign wealth fund. As long as they don’t pay crazy prices, the US Treasury is going to make a tidy profit because they are borrowing at the risk-free rate to buy distressed assets.
The same is true for this commercial paper facility. Right now the Fed can borrow at ridiculously low rates through the Treasury and they are making very low risk loans to corporations at a penalty rate. What a business.
We are finally at price levels where FNM and FRE should be supporting the mortgage market. $40B a month is nothing, but if they are paying even 20% below the real FV, that’s $8B / month in potential profits for those two.
Sure, this is the government and they are likely to screw it up somehow, but it’s a good gamble for them to take. If they stabilize the market these asset prices will rise and they’ll look like heros and if they don’t, well the US will just have to renege on its debt.
Why is EP surprised? From the early stages of the subprime debacle a few “grown-ups” in the government thought that FNM and FRE were going to be part of the “solution” in spite of the political attacks (deserved or not) that those companies were subjected to. There hasn’t been any fundamental changes in the mortgage market that would mandate the elimination of the GSEs. Now that they are part of the government they are going to be stuck with a lot of the costs of the bailout, but with a potential for a profit.
Move on, nothing to see here.
Not that impressed with the analysis here. Can you please put Carney on the phone.
#5, my God, that is the most salient comment made here this week. Bully to you, sir or madam.
fnma/fhlmc have always been asked to buy portfolio to prop up the housing market, not that surprising of news…
@3, where the heck do you get your info?
Qwok is “Kwok”, is this a crock?
(Also she’s not an MD.)
This is exactly the role the GSEs should have played. The problem is that they got too big in the good times and so they are just as overstressed as the banks in the lean times.
The smart thing to do is to lever up FNM and FRE now while assets are distressed and then when the housing market returns – in 6 months or 6 years or 60 years – wind them down to a sensible size and let the banks take over the lending. That way they’ll have clean balance sheets and be ready to help in the next crash.
Second #7.
@5 & 8,
Are you claiming that everyone has missed this trade except the US Treasury?
You sir/madam are nuts.
@#11…
“The smart thing to do is to lever up FNM and FRE now while assets are distressed…”
Question for you: If it does take “6 years” for the housing market to return, a lot of interest has to be paid in the meantime for that “lever up”, does it not?
The Guy from Delaware
#1 – what are you, a Pavlov dog?
#2 – yes it does, you’re now officially a loser
#3 – wrong blog, this one’s for people who DON’T care about MS MDs
#4 – let’s stop referring to “toxic” anything, that doesn’t help, get a little precision into your life, they’re underperforming assets (way underperforming, ok?) and need to be dealt with as such. They won’t hurt you if you touch them, I promise. But they need to be cleaned up, and better the government takes the hit than my bank.
#5, #6 – correctamundo
and so on
@#13…
I agree with your comment; however, might I add that SalesRep(#8) is a particularly irksome individual, but then again, he claims to “have a degree”. He has said so himself. Amazing. Bully to him.
The Guy from Delaware
@13 – no I think many investors realize there are a lot of underpriced assets out there. Maybe not the equity tranche of a MBS, that might be worth 0, but the super senior stuff genuinely has value.
No one is willing to step up and buy that stuff because a) they cannot get any financing – look at what Libor is doing, 4+% is a lot to pay for 3-month money, and b) every day prices have been getting lower so there is no incentive to buy now.
Because Treasury can borrow at a low, low rate (what did they issue those 3 months at, ~1%?), they have a tremendous funding advantage (and certainty) and therefore requires a much lower return.
By stepping into the market and buying, Treasury will put a floor under these prices which will give other investors confidence and incentive to step in.
This massive deleveraging is not about future returns, it’s about risk management.
#17, Why do they refuse to just put this stuff on an exchange, just put it out there and let the market take care of it. What are they hiding, because, even if they aren’t hiding something, at this point they look like they are. Perception versus reality is very real in this market and no one wants to step up to the plate until they know what is on that plate and what is on everyone else’s plate
Wilbur Ross on Fox just said “in the real world you need a lot of arms and legs to do due diligence” Ross is not in favor of the government being involved and not have a voting stake. He is saying basically these guys made a lot of mistakes to get into the position of needing to be bailed out and then, if there is no oversight, they will repeat the mistakes. He is saying it would be better to have private equity in there to be able to turn things around and get accountability. He also said that the government doesn’t make guys like him want to step up and help because of the rules they have set for those guys concerning divestiture.
Makes sense as to why no one wants to step up from the private sector and lead.
Here is something everyone is missing. They passed that stimulus package. It will truly benefit the middle class first time home buyer. Someone in the 28% bracket gets a $7,500 tax CREDIT if they are a first time home buyer. That is no small incentive. You would think people would be out there buying, something anything to take advantage of this. So why aren’t they? Heck, the government should be advertising this one on SNL.
Cavuto has a congressman on who is defining this as a “homeland security issue”.
@20 that credit isn’t as good as it looks as it has to be paid back over time. It’s basically a 0-interest loan from the government.
But you are right, there is massive stimulus out there now and more is coming.
As much as anyone, I blame Greenspan’s easy money policies for the mess we are in. But I think it’s clear that the massive asset-price deflation we’ve seen in the past year ($8 TRILLION of value taken out of the stock market) coupled with the collapse in commodity prices show the problem we face now is massive deflation which might be far worse than inflation.
A 1.5% Fed Funds rate is incredibly accommodating and will help support the earnings of banks that survive this turmoil – right now they are making a nice spread borrowing from the Fed and lending in the CP market.
By my count, the Feds are planning to pump more than $2 TRILLION into the economy through the Fed lending, Fed purchase of CP, the $100+B that’s gone to AIG, and the TARP. That’s a lot of stimulus.
@ 20 — I haven’t heard about that tax credit in a while, but if I remember, it’s not free and clear. You have to pay it back over the life of your mortgage.
@19 – of course Wilbur Ross doesn’t want the government involved – they would be competing with him.
Ross would rather wait until assets worth 25 fall to 15 then have to compete with Treasury’s bid of 20.
Treasury really does need to structure these investments so they encourage private equity. Limiting the government involvement and the number of warrants they take could help encourage private co-investment.
Seizing banks and wiping out capital that was raised less than 12 months ago is definitely NOT going to help the system.
Wilbur and all of the distressed investors know that we are at or near distressed prices. Once the market finds some stability, you’ll see them start to bite.
One thing that will help mark the bottom is a bunch of strategic mergers (I don’t know if the GM/Cerebrus talks count).
#22/23 I know, but it is something and you would think people would be out there trying to find that first house now while the values are depressed and there are a lot of incentives for the first time buyer with the new home builders. Can’t figure out what is stopping them.
I thought it was a good sign that wilbur is out there.
Sham wazawwwwww! Bitches!
@25 I haven’t been out looking but my guess is that the real problem with house buying is getting the mortgage with the improved lending standards, etc. I hear that borrowers with impaired scores and/or less than 20% down are having a lot of trouble.
Housing prices have come in a lot – and in some areas may have hit bottom – but I feel like other plays (like Manhattan) are behind the curve and will see dramatic sell-offs in the coming year.
I think Manhattan gets hit worst of all in this. The layoffs in finance will spread to law firms to real estate to restaurants and strip clubs. That’s going to crush the NYC tax base and lead to service cutbacks which will altogether make Manhattan a less stellar place to live.
I for one am at least waiting until next year before buying anything in NY…
” On October 11th, 2008 at 12:05 pm, Kathianne said:
I was listening to a special on Fox, hosted by Neil Cavuto this morning. Huckabee was a guest and mentioned that he had a source that intimated that the stock markets may have been terror manipulation in the final hour of trading the last 12 days?
Then Bush gave his radio address and said they were looking into manipulation of the markets. Anyone else hearing anything like this?”
from Michelle Malkin’s comment section.
#27. Manhattan seems to be holding up. I always look to see if there are any bargains for my friends who live and work there.
I think the one who will be hit the worst are the new grads. Firms will try to hold onto those who are already there and they will hire a fraction of new associates. Bonuses will be a thing of the past as you will be thankful to have a job.
#27. In the town I grew up in, driven by WS, they are having meetings in the library. Some are starting to look at their firing as an opportunity to do something else with their lives. By and large these are amazing people. They are learning about starting small businesses and I think we will see great stuff coming from these people in the future.
Do you mean *this* film?
http://ml-implode.com/articles/mortgagesareforever.html
@ 25- I’m not even sure if the mortgage industry has structured a product that can handle that sort of thing. They’ll want to escrow for it, since the gov’t will get first lien if there’s any kind of default. It’s one thing to escrow property taxes, which they determine with certainty at the time of the close, and can keep current on from there. It’s another thing to escrow a second down payment that actually belongs to the US. If I were an underwriter – in this economic/regulatory climate – I would be wary.
The other angle is — at the end of the day, what kind of audience is there for this program, really? People in that range are probably (a) already paying a mortgage on a 0-3% down mortgage, or (b) figured they would borrow off their – now substantially reduced – 401k for their down payment, or (c) are $10k deep in credit card debt or student loans, and don’t feel in a position to buy right now.
With student loans nowadays can you get a settlement number and just pay them off? The same thing with credit cards?
My neighbor has actually contacted his bank telling them that he wants to buy his mortgage for cents on the dollar. He is a very clever accountant. They were shocked but they are talking to him so I will let you know what they tell him. He has even said, if he can’t buy his he will buy someone else’s mortgage and have them buy his. Should be an interesting discussion.
@ 29 – it still makes no economic sense to buy in Manhattan. Without the promise of rapidly increasing market values, it makes less sense than it ever did (unless you’re looking at a free standing property). If you take a good look at the numbers, it still pays to rent, despite the fact that you’re not building up equity.
@27 et al.:this was a housing BUBBLE. Expecting home buying to come back to recent levels (even by the end of 2009) is a little overzealous.
It will be interesting to see how long this dog can tread water.
As long as the idiots run the asylum, we’ll never fix this mess.
The lack of basic economic understanding is simply astounding.
I think the point I’m getting at is that in order to get through the housing part, people have to buy houses. It also isn’t good for everyone, while hedge funds and the like are having to sell, to also be selling. I have a friend who on Friday invested a lot of money in the market and when I asked him why he said “I’m a contrarian, everyone is running from the fire, my reaction is to run the other way.” He started his career at GS so I’m always inclined to listen when he speaks.
#36, I agree with you completely.
Lets talk about some reel news for ounce. This weakends G-7 meating will be nothing more then a circle jerk and i-pods. Seven diffrent country’s meeting who donts speak the language of the others. How the hell are they going to resolve these liquidities crisis’ when they cant even understand each other? Obviously they werent thinking a head on this. And to ad insult to injured knee they sit around with headphones on listening to their i-pods.
Fucking bullshit.
SPODE
@ 28 Huckabee is an idiot. And so is anyone who believes this is “financial terrorism”.
Remember a couple of days before the short ban a couple of MSM operations picked up the theme of terrorists purposely shorting the financial stocks in an attempt to harm the USA. IT WAS COMPLETE BULLSHIT. It had as much validity as WMD.
The republicans only hope to avoid getting killed on Novemeber 4, 2008 is to introduce terrorism and fear.
We did this to ourseleves – wash, lather, rinse repeat.
#40, increasingly I am concerned about the disconnect that both candidates seem to be showing as regards the american people and the economy. I mean BO and Mc are still talking about programs. I mean you need money for programs and where are they going to get the money? Off the backs of the small business owners? After a while people start to read and digest and think that we are going to get screwed no matter who is in the WH.
larry kudlow agrees with you. On his radio program he had a bunch of nuts calling this morning. Sort of felt bad for him but he was saved by Army football.
@40
Bush started this market manipulation story yesterday in his morning speech. It was rebroadcast this morning in his radio message.
Here’s what he said:
“Third, we are concerned that some investors could take advantage of the crisis to illegally manipulate the stock market. So the Securities and Exchange Commission is launching rigorous enforcement actions to detect fraud and manipulation in the market. ”
So from that allegation, we now hear Huckabee’s nonsense, plus other nonsense in wingnut blogs. Like this one:
“Someone once said that there is no such thing as coincidence in politics. My observation that the near inevitability of a weak, or failing, or disastrous (pick an adjective) economy when a Republican is in the White House leads me to believe that statement. I am of the opinion that a large part of the current crisis on Wall Street is due to manipulation. It’s a gut feeling, like the feeling I had that Bob Rubin and crew were managing or at least assisting the market’s rise during the Clinton years. I have the feeling that George Soros and gang may be up to the same thing now.
But I’m not an expert, just an interested observer. So I pose the question to the more knowledgeable in the Freeper audience: Is the market crash being managed for the benefit or Barack Hussein Obama?”
# 18. Agree.
Geez, just watched Obama on CNN. He is in Iowa. My God, I had no idea how “anti business” this guy actually is. Guess the market truly is reflecting how it feels about an Obama presidency. With friends like BO, if he gets elected, wonder if WS will ever come back to even a fraction of its former self?
@44
Wall Street is smarter than you when it comes to politics. Go back to your wingnut blogs if you believe that nonsense.
I don’t know #45, WS got us into this mess so right now they aren’t looking or acting all that smart. But honestly, watch CNN BO is starting to look decidedly anti business and anti wall street. You may not like it but it is sure looking as though his true feelings are trickling out.
WS is not smarter than anyone. They make sure they give an equal amount to both candidates so they will hedge their bet.
@34 It will NEVER make sense to buy in Manhattan since you can’t count on renting out what you bought if circumstances change and you don’t want to live in it. Between the socialist laws that make it take over a year to evict a tenant who isn’t bothering to pay the rent, and the communist coop boards that won’t let you rent to anyone who doesn’t belong to their little social circle (and even then will only let you rent for a year or two), you don’t really own the property.
I understand #48, and will pass this information on to my friends. They think if they buy a brand new condo they will be ahead of the game. What do you think of that game plan?
Seriously man, stop talking about games and game plans. I’m already hung over, putting up with your bullshit is unacceptable at this point.
I promise you we don’t give a fuck if your friends buy a brand new condo.
@44 Wall Street is more in the pocket of Barack than they are in McCain, this is a matter of record. So don’t expect the end of WS under Obama.
#51. Definitely the end of WS as we know it.
@50
But what if the condo came with a brand new banjo?
I bet you didn’t think about that now did you?
The Guy from Dellawhere
Don’t forget Obama is a big fan of “redistribution of wealth”. which is why it amazes me that WS is behind him. Here is a guy who want to rob form the rich and give to the poor, just like Robin Hood and he comes right out and says it and WS goes right along with him. So I guess they must not want all the bonuses and the money and the nice houses, I guess they want to give it all away in taxes for social programs that will go out of control and can never be rescinded. Me, I don’t want to work for 6 months for the government, I’d like to keep some of my hard earned cash.
Saw this one coming a mile away…
http://yourmortgageoryourlife.wordpress.com/2008/08/23/gse-failures-are-actually-a-massive-regional-bank-bailout-in-disguise-how-the-fed-is-planning-to-get-the-lipstick-on-this-pig/
We are being robbed nine ways til sunday!
@32-
You are a idiot…there is NO lien with the $7500 tax rebate for first time home buyers. Two years after you receive it you have to start paying back $500/year on your income taxes…no interest in the property is held at all. If you sell the house and make enough of a profit to pay it back you, you pay it back. If you sell the house and don’t make enough to pay back the rebate…it is forgiven. As far as getting financing for a home, it’s very easy if you go the FHA route, they have to same standards as before. As long as your last 12-24 months of credit history is ok, you can get a FHA loan. I know somebody that bought a $240,000 home in Houston (cheap real estate there)last month with a FHA loan and he had a 590 FICO. The negative stuff was all 3 years or older so it was not problem…the builder even paid closing costs, all he had to do was put 3% down.