Freddie Mac
-
A Helpless Housing Market Keeps Fannie and Freddie in Limbo
Mortgage-industry industry leaders will attend a summit with government officials today (Tuesday) to discuss how to reform Fannie Mae (NYSE: FNMA) and Freddie Mac (OTC: FMCC), the two mortgage giants that so far have devoured close to $150 billion in taxpayer bailout funds.
However, that meeting is likely to be derailed by a far greater problem: After making modest progress, the housing market again appears on the verge of collapse.
"There's been a feeling in government, which seems to be more pervasive than it was six months ago, that says, 'We've solved this housing problem; let's move on to Fannie and Freddie,'" Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York told The Wall Street Journal. "But you haven't solved this housing problem. We have another round of home prices going down a little more."
-
With Mid-Term Elections Looming, Will Democrats Fire Back with a Second Stimulus
Data last week showed a job market that's careening down a steep street with no breaks. Yet investors were able to shrug off employment concerns, as the stock market actually ended the week up 1.5% due to that rockin' Monday on the first day of the month.
That's because there is growing speculation that the Democrats are plotting a surprise stimulus in the run up to November's mid-term elections.
Let me explain...
Click here to read on...
-
$13 Trillion in Obligations Show Shadow Banks Still Threat to Financial System
A report issued by the Federal Reserve Bank of New York shows that so-called "shadow banks" still hold more obligations than regular banks, representing a continuing threat to the financial system.
Three years after the beginning of the financial crisis, the shadow banking system had about $16 trillion of obligations in the first quarter, compared with $13 trillion for banks, the report said. The gap has narrowed from 2008, when obligations were $20 trillion and $11 trillion, respectively.
Throughout the early part of the decade, shadow banks grew in importance as they acted as intermediaries between investors and borrowers. Familiar examples of shadow institutions include Bear Stearns and Lehman Brothers, which were swallowed by the financial crisis, as well as Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).
While this system became a huge and vital source of money to fuel the housing market and the rest of the U.S. economy, the subprime mortgage crisis and ensuing credit crunch exposed a major flaw.
-
Cost to Fix Fannie Mae and Freddie Mac May Reach $1 Trillion
The cost to fix Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the government-backed mortgage companies that bought or guaranteed three-quarters of all U.S. home loans last year, could run as high as $1 trillion, according to a report by Bloomberg News released yesterday (Tuesday).
The minimum amount required to keep them afloat will be $160 billion, or $15 billion more than they have already drawn from an unlimited line of government credit granted to keep the home mortgage market functioning. That exceeds the amount already spent on bailouts for American International Group Inc. (NYSE: AIG), General Motors Co. or Citigroup Inc. (NYSE: C).
"It is the mother of all bailouts," Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry told Bloomberg.
Fannie and Freddie own or guarantee 53% of the nation's $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Their books are loaded with millions of bad loans, and delinquencies are on the rise.
-
How to Stop Greedy Banks From Killing U.S. Capitalism
A white paper on bank reform delivered to Congress and regulators last week by the Association of Mortgage Investors - the powerful lobbying group that represents huge institutional investors - warns that if the securitization market isn't radically reformed "it will be difficult if not impossible for capital market investors to return to funding economic activity."
What the report doesn't say is that banks - standing in the way of bank reform - don't want a simplified, standardized, and transparent securitization market, because that would revitalize free-market disciplines and undermine the control they exercise over the credit markets.
Right now, the stock market is discounting news about tight credit conditions. But analysts worry about an increasing disconnect between rallying stock prices and the hoped-for rebounds in consumer-driven growth and the U.S. housing market - both of which are struggling with a lack of access to credit. This disconnect is fostering fears of a stock-market correction.
Investors need to understand exactly what's at stake here. And they need to know how to protect themselves and - even more important - how to profit from the volatile-but-powerful capital waves that will result from this fundamental battle over our future.
To understand the escalating risk – and strategies needed to protect the free markets – please read on... -
New Banking Regulations … Same Old Story
U.S. banks, drunk with greed, drove the nation's economy to the brink of financial Armageddon.
To save U.S. banks from losing their license to dangle the nation's economy over a cliff, the U.S. Federal Reserve and the country's elected elite threw them a bailout party and gifted them with the accounting- world's version of "Transformers. "
Unfortunately, new banking regulations aimed at solving these problems are little more than the same old song and dance that forced the bailout - and stuck U.S. taxpayers with a multi-trillion-dollar tab.
To see how reformers have failed to fix the banking system, please read on...
-
Epitaph For the ARM: Is the Adjustable-Rate Mortgage Finally Dead?
[Editor's Note: This analysis of the adjustable-rate-mortgage (ARM) market is part of a two-story package on the U.S. mortgage market. To read the package mainplay - "Mortgage Markets Show Increased Stability, But Limited Opportunity" - please click here.]
Is it the end of the line for the adjustable-rate mortgage (ARM)?
A close look at the interest-rate paradox involving credit cards and ARMs indicates that it may be time to start writing the epitaph for adjustable-rate home loans. Here's why.
The U.S. Federal Reserve's benchmark Federal Funds rate is at all-time lows - with a target rate near 0.00% - but credit-card interest rates linger at record highs. The all-in rate on some credit-card transactions approaches 30%.
-
The Chinese Are Selling Treasuries – So What Are They Buying?
In the monthly U.S. Treasury report this week, it was announced that China had sold $34.2 billion of Treasuries in December (or allowed short-term ones to run off), making Japan once again the largest holder of U.S. Treasuries.
The battle between China and Japan for the title of largest holder of this dubious asset is not very interesting. What's more interesting is the question of where China is instead opting to invest. After all, $34.2 billion is a fair chunk of change, and China's overall reserves are growing - not shrinking - and now total $2.4 trillion.
The People's Bank of China usually keeps its holdings a carefully guarded secret, much more so than for most central banks - our knowledge of its holdings of Treasuries comes from U.S. data, not from China. We do, however, have some evidence about the Chinese government's investment thinking, thanks to the holdings of China Investment Corp., the country's $200 billion sovereign wealth fund.
To discover the details of China’s global investments, please read on... -
How Banks Are "Crowding Out" the U.S. Rebound
When U.S. President Barack Obama unveiled the $787 billion "stimulus" bill of extra spending and modest tax cuts last year, it became clear that the U.S. budget deficit was going to eclipse the 10% of gross domestic product (GDP) level for at least one year (and, as we now know, probably three years).
On those grounds, I opposed the "stimulus" - a position that was a lot less popular then than it has since become. However, as I'll show you below, it now looks as if I was right - and the implications for the U.S. economy are highly worrisome.
You see, the theory postulated by economist John Maynard Keynes holds that the extra spending stimulates additional output fails to address the question of where the money comes from.
Government cannot create wealth - it has to borrow it. If, before the stimulus, government finances were in good shape, as was the case in China, then stimulus does indeed stimulate: The modest budget deficit that it causes is easily financed, and the extra spending creates some jobs and maybe some useful infrastructure, depending on how well targeted it is.
In the United States, however, government finances were in a mess before the stimulus began.
To find out how banks are blunting the recovery, read on .... -
As Washington Turns on Wall Street, Investors Should Expect a Rough Stretch for Financial Stocks
Here in the United States, investors have been startled by the realization that Washington no longer appears to be acting as a benefactor to Wall Street, the financial markets, and the economy. Ever since the collapse of Lehman Bros. Holdings Inc. (OTC: LEHMQ) back in 2008, a Faustian deal was forged between Wall Street executives and the politicos in Washington: Ideologies would be thrown by the wayside to prevent a meltdown of the American financial system and the precipitous collapse of the economy.
First, the Bush administration swallowed its free-market credentials to take over Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), while handing the largest banks and the Detroit automakers big piles of taxpayer cash to keep them afloat. Then, the Obama administration resisted populist pressure to punish the bankers getting rich thanks to rising financial markets while unemployment continued to climb.
But that's changing now, and the attack dogs have been unleashed. Policy is moving from supportive (crisis management) to restrictive (crisis prevention and the scoring of political points) at a faster pace and to a much-more-severe degree than many imagined.
It started with extra taxes on bank liabilities to fund a reserve for financial crises, then moved to include a congressional commission to review the causes of the financial crisis, and then to more onerous regulatory oversight. But now it's growing into something more. And that's one big reason stocks in general and the financial sector in particular sold off so severely.
