Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Steep Increase In Fannie/Freddie DelinquenciesThis is bad news: Fannie and Freddie mainly deal in prime, not subprime, mortgages. Job losses are the culprit. From The Wall Street Journal:By JAMES R. HAGERTY JUNE 29, 2009, 4:44 P.M. ET Wall Street Journal Fannie Sees Jump in Overdue Home Loans Fannie Mae reported a steep increase in the percentage of home mortgages with overdue payments. The government-backed mortgage investor said in a monthly summary released Monday that 3.42% of the single-family mortgages it owns or guarantees were 90 days or more delinquent in April, up from 3.15% a month before. Fannie's main rival, Freddie Mac, reported last week that its single-family delinquency rate for May was 2.62%, up from 2.44% in April. Fannie and Freddie are the main providers of funding for U.S. home mortgages. Although the two companies bought many of the riskier types of home loans in recent years, their main business is in prime mortgages. More prime borrowers have been falling behind as they lose jobs or their incomes fall. Richard DeKaser, an independent economist in Washington, D.C., blamed the continuing rise in loan delinquencies on the spike in job losses and on what her termed the "evaporation" of home equity amid falling home prices, leaving many borrowers without a cushion when they lose their jobs. Read the rest of the article Labels: economic indicators, Fannie Mae, financial crisis, Fredddie Mac, housing market Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Delasantellis on Foreclosure EndgameHe has some great observations about US politics setting the upper middle class against the working and lower classes as well. From his Asia Times column:A scam at the heart of the US By Julian Delasantellis Asia Times, February 26th, 2009 Travelers visiting New York city from Americas's rural heartland in the 1980s might have been able to regale the folks back home with tales of encounters with knife-wielding drug addicts and/or disease-scourged prostitutes, but it's not like their predecessors who made the same trek back in the 1950s didn't have a tale to tell around the cracker barrel as well. They might have come back to the square dance and talked about playing and losing at the game of three-card monte. Set up on rapidly movable folding card tables, in order to remain mobile against the disproving eyes of the constabulatory, three-card monte games were operated by New York sharpies who, when spying a rural rube from Racine, Wisconsin, or maybe Red Wash, Utah, would invite the visitor to play a simple card game. Three cards from a deck would be dealt face up-one a face cardsuch as a King or Queen. Then the cards would be turned face down, the "dealer" would arrange and re-arrange them on the table, and, the contestant would be invited to chance a wager as to which card was the face card. This was a lot harder than it seemed, especially with the dealer usually employing sleight of hand to hide the face card in his sleeve. No matter how hard he tried, no matter with how much concentration he watched the dealer's hands, the contest could never be won by its very nature; the player was destined to lose the card and his wager - rather like the chances of those facing foreclosure in the current mortgage and financial crisis of ever gaining relief from their hardship. Read the rest of the article Labels: Fannie Mae, financial crisis bailout, Fredddie Mac, housing market, Julian delasantellis, mortgage innsurance, mortgage meltdown, securitization Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Obama Mortgage Relief PlanReuters just posted a preview of the plan to be delivered later today:Obama mortgage plan to aid up to 9 million families Wed Feb 18, 2009 9:52am EST WASHINGTON (Reuters) President Barack Obama's much-anticipated plan to deal with the U.S. housing crisis aims to help as many as 9 million families avoid foreclosure on their homes, one of the root causes of the global financial meltdown. "The plan not only helps responsible homeowners on the verge of defaulting but prevents neighborhoods and communities from being pulled over the edge too," according to a summary of the plan that Obama is due to formally unveil at 12:15 p.m. EST in Mesa, Arizona. It aims to help 4 million to 5 million "responsible homeowners" to refinance and another 3 million to 4 million homeowners by lowering the risk of imminent default with a $75 billion "homeowner stability initiative" that will help to reduce their monthly payments. The Obama administration's summary said the plan could offer a buffer of up to $6,000 against value declines on the average home. The plan also aims to increase confidence in mortgage giants Fannie Mae and Freddie Mac through Treasury funding to "ensure the strength and security of the mortgage market and to help maintain mortgage affordability," the plan summary said. "This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly," the summary said. As part of the housing rescue plan, the Treasury Department will double its financial support for housing finance giants Fannie Mae and Freddie Mac to allow them to play a bigger role supporting housing as part of a fresh foreclosure mitigation plan. The Treasury said it was increasing its preferred stock purchase agreements with the two government-controlled companies to $200 billion each from $100 billion. It also said it was raising the limit on the size of the mortgage portfolios the two companies can hold by $50 billion to $900 billion each, along with a corresponding increase in their allowable debt outstanding. (Editing by Bill Trott) Labels: Barack Obama, Fannie Mae, financial crisis bailout, Fredddie Mac, housing market, mortgage meltdown Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Related Post on Fed Balance SheetFrom Brad Setser:One easy thing China could do to help stabilize global markets: buy Agencies! Posted on Saturday, October 25th, 2008 by bsetser There is constant talk -- too much, in my view -- about whether sovereign funds will come to the rescue of western financial institutions. Qatar did put a large sum of money into Credit Suisse recently, but in general the Gulf funds are reeling from large losses on their existing portfolio even as they are facing increased domestic demands (see Mufson and Pan of the Washington Post and Steven Johnson of Reuters) . "Rescuing*" US banks but not your own countries' markets -- and our own countries financial institutions -- is hard. And some Gulf countries' ability to carry out their ambitious local development plans will hinge on the availability of financing from their sovereign funds is oil stays at its current levels. China is still cash rich. But the CIC has yet to prove that it can manage a $100 billion balance sheet (its "frozen" investment in the Reserve Primary Fund is the latest case in point) let alone manage a US or European financial institution with a far larger balance sheet. Moreover, it would seem a bit bizarre -- at least to me --for the US taxpayer to guarantee the liabilities (and thus be on the hook for most future losses) of an institution that is effectively owned by China's government. As Uwe Reinhardt notes, US taxpayers are already on the hook for most of the downside -- and handing over both the upside and control to another country's government (typically a non-democratic government) hardly achieves the goal of keeping major financial institutions in private hands. Read the rest of the post Labels: currencies, Fannie Mae, Fredddie Mac, People's Bank of China, The Fed Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). News Alert from the WSJNEWS ALERTfrom The Wall Street Journal Sept. 19, 2008 U.S. Treasury Secretary Hank Paulson, in public remarks, called for "further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," adding that hundreds of billions of dollars may be needed to fix the problems. He said the federal government must implement a program to remove illiquid mortgage assets that are weighing down financial institutions and threatening the economy. More immediately, he said, Fannie Mae and Freddie Mac—which were taken over by the government this month—will increase their purchases of mortgage-backed debt. To facilitate that effort, Treasury will also expand the MBS purchase program it announced earlier this month. Labels: credit crisis, Fannie Mae, Fredddie Mac, Henry Paulson, mortgage meltdown, Wall Street Journal Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Statement on the Bailout of Fannie Mae and Freddie MacA statement from Dean Baker of the Center for Economics and Policy Research:The collapse of the housing bubble has put the survival of Fannie Mae and Freddie Mac in jeopardy, as those of us who warned of the bubble have long predicted. While there can be no question of supporting these mortgage giants at such a critical moment for the housing market, the public should place serious conditions on this support. These companies face bankruptcy because of the incompetence of their management. They should not be given unlimited access to taxpayer dollars without any strings attached. Read the full statement. Labels: affordable housing, Center for Economic and Policy Research, Dean Baker, Fannie Mae, Fredddie Mac, housing bubble Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Fannie Mae/Freddie Mac, RevisitedThe bailout of Fannie Mae and Freddie Mac that was announced yesterday was predictable. In fact, D&S collective member and frequent blog contributor Larry Peterson was on this story back in early May:The New York Times reported today that the two mega government-sponsored mortgage lenders, who have single-handedly kept the US mortgage market from sinking through the quicksand altogether since private mortgage finance dried up in the wake of the subprime crisis (they account for no less than 80% of mortgages bought by investors in the first quarter of 2008), may themselves require enormous taxpayer-financed bailouts if properties they hold continue to decline in value. Fannie and Freddie, who use their unspoken government guarantee to clinch cheap financing (which they do, to a degree, pass on to consumers), buy mortgages from banks and keep some of them on their books, while securitizing and selling the rest off (retaining the liability for repayment if consumers default). For example, Fannie Mae sits on an enormous pile of debt and outstanding loans (nearly $3 trillion), while investments, retained earnings and equity (or "core capital") chalks up at only about %800 billion, while Freddie has about $2 trillion in liabilities and $750 billion in assets. If these some of these loans follow the prevailing trend and continue dropping in value, it is clear that Fannie and Freddie could find themselves facing a serious shortage of capital, especially since they've been doing all in their power to avoid ramping up capital, in order to concentrate on paying off shareholders. Shareholders, remember, were put off by a series of scandals at the agencies, and Fannie and Freddie have been using Congress' desperation to keep the mortgage markets open to extract better terms from Congress (for one thing, Congress increased the cap on mortgages they can buy to $730,000 from $417,000); and now, Fannie and Freddie want Congress to repeal the very laws Congress made in the wake of the scandals. Labels: Fannie Mae, Fredddie Mac, housing bubble Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). If You Liked Bear Stearns, You'll Love Fannie Mae/Freddie MacThe New York Times reported today that the two mega government-sponsored mortgage lenders, who have single-handedly kept the US mortgage market from sinking through the quicksand altogether since private mortgage finance dried up in the wake of the subprime crisis (they account for no less than 80% of mortgages bought by investors in the first quarter of 2008), may themselves require enormous taxpayer-financed bailouts if properties they hold continue to decline in value. Fannie and Freddie, who use their unspoken government guarantee to clinch cheap financing (which they do, to a degree, pass on to consumers), buy mortgages from banks and keep some of them on their books, while securitizing and selling the rest off (retaining the liability for repayment if consumers default). For example, Fannie Mae sits on an enormous pile of debt and outstanding loans (nearly $3 trillion), while investments, retained earnings and equity (or "core capital") chalks up at only about $800 billion, while Freddie has about $2 trillion in liabilities and $750 billion in assets. If these some of these loans follow the prevailing trend and continue dropping in value, it is clear that Fannie and Freddie could find themselves facing a serious shortage of capital, especially since they've been doing all in their power to avoid ramping up capital, in order to concentrate on paying off shareholders. Shareholders, remember, were put off by a series of scandals at the agencies, and Fannie and Freddie have been using Congress' desperation to keep the mortgage markets open to extract better terms from Congress (for one thing, Congress increased the cap on mortgages they can buy to $730,000 from $417,000); and now, Fannie and Freddie want Congress to repeal the verylaws Congress made in the wake of the scandals. On top of this, it appears as if the agencies aren't accounting for their losses in conventional ways (i.e. "unrealized" losses don't affect earnings), and that, even worse, according to The Times, that they are betting that the housing market will rebound by 2010. If the crunch lasts longer, say analysts who spoke with the paper, "unexpected" losses could overwhelm reserves. Well, Fannie reported its third straight quarterly loss today, and Freddie reports next week. Meanwhile, the headlines are full of sentiments like "Is the Housing Tsunami Receding?" Labels: Fannie Mae, Fredddie Mac, housing bubble Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
