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I’m in the Airport
Tomorrow is the meeting of the Professional Standards Interpretations and Procedures subcommittee in Chicago. I arrived at Philadelphia International for my 11:30 flight only to find that it had been cancelled (due to bad weather in Jacksonville) and I was rescheduled for a flight three hours later. Being one of those people who always needs to be doing something, and being the proud owner of a new MacBook, I opened a Wifi connection looked at the news and saw the headline … “Fannie, Freddie Takeover Appears Near”. Obviously my delayed flight isn’t the worst thing happening today.
In an article written by Alan Zibbel of the Associated Press, the Federal government is predicted to take over Fannie Mae and Freddie Mac as soon as this weekend to protect the secondary mortgage market by taking over the operations of two GSE’s. The article went on to mention that in a meeting between Fed Chairman Ben Bernanke , Treasury Secretary Henry Paulson and the chief regulator of the companies’ James Lockhart, Lockhart was informed that the companies were going to be placed in a conservatorship by the government. Stocks on both companies have reportedly fallen in the 20% range yesterday, but that’s somewhat moot since the government plan will render the stock essentially worthless.
I’m not surprised
I’m not surprised that the government is willing to step in and bail out Fannie Mae and Freddie Mac , since they are the players in the secondary mortgage market, and it is inconceivable that the government would allow them to fail. What does surprise is that the government seems to be stepping in before the need to do so has actually occurred.
Obviously the players on the federal level have much more information then a real estate broker from Philadelphia, and I’m sure that their intervention was well considered, and probably a reaction to the 3.1 Billion dollars in losses Fannie and Freddie posted in the 2nd quarter of this year. But both companies claim to have the assets needed to stay in business and haven’t asked for the “help” being offered.Of course that may be because of the impact on the value of their stock, but that’s just speculation.
What Does it Mean?
As a salesperson I was always told never to ask a question I don’t have an answer for, but I think I just did that. I’m not sure that we in the trenches will be effected by this, since the tightening of credit in the country is already a fact. Could be that this is when we all remember that “it’s always darkest before the dawn”. Sure hope dawn gets here soon…
Maybe (though this is a scary thought) the government will do a better job of running the companies as a government entity.The cynic in me says that would be a first, but I would love to know in the comments if a private sector company ever benefited by being converted to a government agency. Maybe this will be that time. I hope so – Fannie and Freddie have been important to the housing market as long as I’ve been in business, and I think we still need them.But there’s always FHA as a great fall back for buyers.
September 6, 2008 at 9:36 am
I feel the exact same way and see hope as masquerading as optimism, as the alternative – the utter collapse of the secondary market – creates consequences I cannot fathom.
September 6, 2008 at 12:12 pm
Jim I can not name one not one instance when the government has done a better job than the private sector.
September 6, 2008 at 5:21 pm
Wow, I guess I have been waiting for this to happen since the beginning of the year. It will be interesting to see how the takeover plays out. I, for one, am choosing to be positive about this change. While I would be very suprised if the government is more efficient leading the two GSE’s, this may be a necessary step to a new begining. Hopefully Bill is correct and “dawn” is now in the near future. I like to say…give me the rules and I will play the game. Even if the government goes to extremes, it will be a welcome change to be able to identify the rules. I am confident that our industry and the clients we serve will land on our feet. Until then – FHA, FHA, FHA, all the way!
September 7, 2008 at 8:45 am
I’m no expert in government-owned corporations, but I do know a little bit about the United States Postal Service (my father and step-mother are both local Post Masters). The government has owned or operated this vital service since 1776 and the USPS has operated as a “quasi-independent agency” since 1971. I know the Postal Service is not perfect, but it does work and I can’t recall a collapse due to lack of funds or mismanagement. Perhaps our government can provide similar management of Fannie and Freddie. Or perhaps I am just as hopeful as Bill.
September 7, 2008 at 9:03 am
Starting any minute:
U.S. Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart to release details of the planned conservatorship of Fannie Mae and Freddie Mac at an 11 a.m. press conference in downtown Washington.
September 7, 2008 at 2:55 pm
OK, so now its offical –
@Brad – I gotta tell you if we can get the mortgage industry working as well as te Post Office, even with its challenges- I’m a happy guy-
@Al Perry – Looks like we have a new day – lets hope we have the dawn that goes with it
September 8, 2008 at 5:33 am
Fannie and Freddie, have been bailed out, its official, but its not enough…
September 8th, 2008
Over the weekend the two largest secondary market (where loans are bought and sold) players in history FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan Mortgage Corp.) were officially bailed out and had their leadership axed for new Generals!
great if you’re talking about a quick fix, but not an answer that will work for the long term.
By the way the FHA is an insurance company, govenment but insurance, FNMA and FHLMC are secondary market providers they provide liquidity not insurance…
The answer is a quick fix, not a cure if you want to read a much longer explanation its the latest post onmy blog, you can find it you really want to 🙂
This was a simple solution, and whensimple solutions are used for complex problems those answers are usually incomplete…