I look at that chart and think things will be okay as long as housing prices don't do something completely outside historical norms.
The thing is, look at the book-year concentrations on page 12. The recent vintages are certainly at risk there, but OTOH Freddie still has a lot of old loans on the books. 33% of the portfolio was originated in 2003 or earlier. Not only is there equity there, but those loans have a lot of seasoning.
OT - I see report after report suggesting that retail, cars top the list, are very soft and blaming the "subprime" situation. That is totally absurd and I hope BB recognizes this is nothing but pure shilling.
The truth is, the fantasy market of '02-'06 was fueled by unsustainable ill-conceived MEW liquidity. That stopped. It won't come back, consumers will be reeling and will slow spending. That's the NEW REALITY and markets need to adjust their estimates to account for it.
Another set of assets that need to be re-priced to reflect the end of free money - equities.
My view is that 2005 was the year it got so bad that even Freddie bought some OAs. Fortunately they quit that a little before the lightbulb went on for everyone else.
How much seasoning does it take these days for a loan not leave a bitter taste? wouldn't even the seasoned loans turn bitter if the prices declined enough?
WASHINGTON (AP) - Freddie Mac (NYSE:FRE) , the nation's second-largest buyer and guarantor of home mortgages, said Thursday its second-quarter profit fell 45 percent as it had to record larger provisions on its books for bad loans.
The government-sponsored company, which is returning to normalcy after an accounting scandal four years ago, said it earned $764 million, or $1.02 per share for the three months ended June 30. That contrasted with profit of $1.4 billion, or $1.93 a share, a year ago.
Revenue rose 4.8 percent to $2.26 billion from $2.15 billion in the quarter a year ago. Freddie Mac makes money from interest payments on mortgages it holds on its books, and fees from insuring mortgages sold to investors.
The company said it recorded a $320 million provision for credit losses in the second quarter due to problems with loans originated this year and last year, amid a deepening mortgage crisis nationwide that has bankrupted more than 50 lenders.
The earnings results missed Wall Street expectations, with analysts surveyed by Thomson Financial expecting a profit of $1.16 per share on revenue of $1.69 billion."
$36.3bn in market capitialization behind $1.7t in loans? Isn't that low? (No sarcasm, I'm asking.)
The other thing I noticed was their portfolio had lots of non-MBS on the books. What's with that in the context of their GSE mission?
Freddie's portfolio has a fat tail of low CLTV's. However, its capital base reflects the low expected losses: $36b of equity on a $700b retained portfolio, plus the guaranteed portfolio on top of that.
So the issue is not the quality of Freddie's collateral, but whether losses will fall within the ultra-tight tolerance levels necessitated by their leverage.
As Stag-Mark points out, a 14% decline in prices is not in their assumptions. They are woefully under-reserved for such an event. And they are using up capital to buy back shares!
I would expect both GSE's to have multiple recapitalizations in the next few years if the Goldman house price forecast is correct.
At what stage of defaults will FRE or FNM seasoned loans no longer support recovery rates when REO's are marked to market (ie-sold). It is hard for me to imagine that after what we have seen from them the past several years, that they were profitable during this period (before the housing downturn). My fear is that they will need to expand to try and keep the game going. I am of the belief that FNM equity MAY be worthless or close to it, and that is not taking into account whatever FC they are experiencing the past year or in the future. Expansion could prove wildly bullish for the stock, I have no position, just skeptical.
How much seasoning does it take these days for a loan not leave a bitter taste? wouldn't even the seasoned loans turn bitter if the prices declined enough?
If it gets so bad that even a fully amortizing loan made at 2003 valuations is underwater things will gone past the bankerdome phase. Thunderdome would be more like it.
They said on the call that they'll still do business with the insurers if they get downgraded to A from AA. No-problema, since Freddie's own stress-testing shows their re-insurance suppliers have plenty of capital to soak up losses.
Hmmm...wonder how stressful those tests are. Six-sigma declines in house prices!?
What is that, a 2% drop?
How about 14%? The Lehman quant guy that was quoted as saying we just had three 10,000 year storms in a row comes to mind.
Let me see if anyone can answer this question. The roaring 20's were known not only for the rise in stock prices but also for the rise in land prices. (Florida was the exception). This was especially true in rurual areas. Why doesn't this chart show this? In fact it shows the opposite. According to this, house prices rose through the great depression. That doesn't make sense.
I think too many people take this chart for ground-truth as if it were sent down from Heaven. I think it needs some serious questioning. I don't think we really have enough information to plot data before 1970. Shiller may be misleading people.
The thing to remember about a loan that has four years of seasoning is that that reflects a borrower who has been making mortgage payments for four years.
They have proven that they aren't flippers, at the least.
By and large, these are the borrowers who are least likely to walk away just because they are underwater. For them, steep declines in prices just put them back to where they were when they bought. And since most of those loans are amortizing, you have people who consider that they earned some of their equity the hard way: by paying down the loan.
This time would have to be really different indeed if such borrowers turned to jingle mail in droves. I cannot see that happening outside a nasty recession.
I don't disagree about the 2003 buyers. However, the other (unseasoned) tail of the portfolio CLTV distribution is big enough to sink Freddie. Plus they are already assuming no losses from the low CLTV tail, so any losses there are unreserved for, IMO.
CR and Tanta,
There is a blogger named floridabuilder over at the Motley Fool CAPS game that you may find interesting.
And thanks, this is a great weblog and has helped me to be much less ignorant.
Re: "seasoned loans made before 2003."
If real income for those with under $100k incomes has actually declined since 2000 (which it has), don't we have to go back to pre-2000 to find a fair price for run-of-the-mill single-family homes?
So, if housing prices come back in line with incomes, won't they have to drop well below 2003 levels, thus putting far more homeowners underwater? Aren't we talking about 40-50% drops in price?
David, I don't think they're just like a hedge fund.
For starters, 99.99% (that's from the slide show) of their structured holdings are AAA rated. Yes, we've all gotten a bit concerned about what ratings mean, but there's still a lot of CE out there for someone else to supply before Freddie takes it.
There's a lot of losses for the MIs to take before Freddie takes it. Ditto with second lien holders.
I'm not saying they're bullet-proof. I'm saying that bullet will go through a lot of bodies first before it hits Freddie.
And I firmly believe that Freddie's funding sources are much more stable than any hedge fund's. MTM is a problem when you're forced to sell at that price.
But I have not been arguing for raising the portfolio cap or the conforming loan amount, either. I certainly don't want to see the numbers get worse.
Tanta- All kidding aside, the trend of the last few years for massive MEW has undercut the quality of mortgages of all stripes. There is a lot of discussion about the 'living on credit cards' crowd, but that has been fallback for the living on refi crowd. I'm speaking for the crowd of us that have been pushed back down the wage scale from real tech and other jobs. That nasty recession is just down the pike, q4 at latest. Add the ARM resets to the tech '00 victims that have nothing else left to give up except the house.
I see a prolonged steep slide into not a happy place as next summer rolls around. It could be sooner if gas goes skyward again. The fed keeps bailing, the margin calls keep rolling , commercial paper shrinking too? There is nothing structural to push back on any of this.
"The thing is, look at the book-year concentrations on page 12. The recent vintages are certainly at risk there, but OTOH Freddie still has a lot of old loans on the books. 33% of the portfolio was originated in 2003 or earlier. Not only is there equity there, but those loans have a lot of seasoning."
Oh, I agree. Sometimes I just like to heckle for heckling's sake. I think the risk is higher than they are willing to admit, but in the grand scheme of things I certainly don't lose much sleep over what they have. I'm more concerned where all the hidden cockroaches are hiding. I get this "sinking" suspicion that if the lights go off for even a few moments I'm going to hear some serious scurrying.
That's twice you've ruined a perfectly good heckle of mine by the way. The last time was the Alt A vs. subprime. While you were certainly right to do so, it did have a certain "this garbage isn't quite as bad as that garbage" feel to it if you know what I mean. I was simply trying to heckle the garbage in general. Not the quality of any particular garbage. cough
Add a cup of wine to a barrel of garbage and you get a barrel of garbage.
Add a cup of garbage to a barrel of wine and you get a barrel of garbage.
The power of garbage is often underestimated! Maybe I should run for office and make that my campaign motto (and/or promise).
Sorry to harsh your buzz, Snarkflationary Mark, but it's my job.
I mean, at some point we have to recognize that yes, mortgage lending has risks and always has. If we're going to start wringing our hands over 80% LTV fixed-rate conforming balance purchase-money loans made in 2001 that have been amortizing ever since, well, then we are imagining a scenario in which more or less the entire financial sector is going up in flames.
I am not necessarily expressing an opinion on the likelihood of financial armegeddon. I am just suggesting that that is the scenario you are implying if you believe that, say, Freddie's seasoned portfolio is in grave danger.
Plus, people are thinking about what is wise lending policy going forward. I'll tell you right now we'll strangle the economy and live to regret it if we decide all new loans must have 50% down in case there's ever a 50% drop in home values after the loan has been on the books for 5 years.
The chart is inflation adjusted and you aren't accounting for the difference between real versus nominal. You are thinking in nominal terms and not accounting for rampant inflation and the deflation that happened after which the real prices are showing.
If the USA wants to be the defacto world currency it needs much more transparency in its financial system. It was a supposed strength of our nation but has been shown to be false with the rise of hedge funds and derivatives.
We either make the change internally or with the worlds help. If we dont we lose our status as a financial world leader and all the consequences that go with that.
Wow.. That could be a real embarrassment for Washington and the Fed Chris. I suppose that we should have seen something like that coming, they don't like getting worried sick over our securities. I think we'll start seeing the screws tightened more and more. Time for the long delayed U.S. financial diet to start shortly.
I am not necessarily expressing an opinion on the likelihood of financial armegeddon. I am just suggesting that that is the scenario you are implying if you believe that, say, Freddie's seasoned portfolio is in grave danger.
I did not intend to imply that Freddie was in grave danger. I was simply attempting to point out that their risks might be higher than they will admit. Do I think they'll implode? No. Do I wish to short them? No. Do I want to invest in them? Not really.
That's the problem with heckling. It is hard to distinguish between a minor heckle and a full out heckle. This was a relatively mild and minor one from where I stand. I'm much more concerned about what happens to the actual cockroaches if the lights start to dim. What was that scurrying sound behind me? Oh no!
Now I just need to find out the definition of snarkflationary. I sense that I may need to do some Katrina level damage control to restore my good name.
I thought I was "doing a heck of a job." But now I think I might just be slightly above average, and based on your recent article on that, I'm now terrified.
I still find it hard to believe that inflation explains the Shiller plot. The changes in house prices before and after the great depression was surely much greater than the change in CPI. The deflation rate in the great depression was not that large.
After all, "inflation" is whatever you want it to be depending on your definition of which there are probably hundreds.
I don't dispute that houses are over priced. However I do have some skepticism that this is really as unprecedented in the US as Shiller makes it seem. I would be surprised the run up and fall around the GD was not larger than now.
Shiller has made some dubious plots in the past including his Stock Return versus P/E plots that have been criticized by others. The further you go into the past for data, the more dubious the conclusions.
thought I was "doing a heck of a job." But now I think I might just be slightly above average, and based on your recent article on that, I'm now terrified.
I've never yanked a finer chain than yours.
I look into my crystal ball and predict I will live to regret what I just typed . . .
Foreign nations demanding better
US financial oversight.
So foreigners paid Mercedes Benz prices, and just discovered the Chrysler emblem that was snapped off and thrown into the glove box....and now they want better oversight?
Let me talk to the sales manager.
He wants to know if you would like rust proofing with that?
In the rare case a chain yanking lasts for more than four hours, I will seek immediate medical attention.
I just couldn't stand to see you bear the burden of uncertainty any longer. You knew you'd live to regret what you had typed but you clearly didn't know when you would regret it. The time to regret it is now. You no longer need to fear the unknown.
There's no need to thank me. That's what gentlemen do when they see ladies in distress.
If only I could work this miracle cure on the housing market and relieve its uncertainty. If only.
As a former GSE exec (recently left) the worst is yet to come. The market has taken comfort in the conforming market remaining liquid b/c of their low risk book. Fact is FNM and FRE were falling all over themselves to buy Alt A and Subprime in 2005 and 2006 but couldn't win a bid! They therefore started cutting their risk premiums on deals that even the street thought were too ugly just to win some. Remember, about 50% of their business must come from low-moderate income borrowers just to keep their charters. If the PL issuers and Wall St buy up all that paper than the GSEs will be waaay off their goals numbers - won't let that happen. Word is that FRE is having MAJOR performance issues on those vintages and that if the problems persist they will be insolvement...no joke. When your flight to quality choices are leveraged 20:1 and are swimming in the same cesspool as all the junk choices...we're in deep trouble. Please don't mention the rep/warrants or counterparty insurance...not worth the paper it's written on.
thanks for that chiller, Bigcat (seriously, these 2: Fannie and Freddie, are too big to worry about...I consider it a Godsend if they fill out an annual report...izzat army of accountants permanently occupying Fannie's offices?)
You're right, the 2005 - 2007 season at FNM was sponsored by McKinsey and Deloitte! The employees, all the employees, were ushered out of their headquaters to make room for all these guys. Last count was around $200-$300M a yr for all these knuckleheads...
Knuckleheads? I'll admit that the "best and brightest" weren't nominated to go on tours of duty there. It was usually the guys that nobody at the office wanted to pick up for an engagement.
Don't feel bad though. They had much worse things to say about you.
First!!!!!!!!!!!
"Single-family portfolio characteristics demonstrate
relatively low inherent risk"
I look at that chart and think things will be okay as long as housing prices don't do something completely outside historical norms.
You know, like dropping 7% in 2007 and 7% in 2008. Who'd be crazy enough to predict that though?
(Looks like I might want to consider changing my name to Sarcastic Mark.)
Snark to Mark?
Snark to Market is better than Snark to Model.....
Page 12 of the presentation, slide thirteen..........."Single family delinquency rates by region"
Can someone please comment on the 'total delinquency rate' of 42%?
A total delinquency rate of 42% would be undesirable in any portfolio, much less one of Freddy's, no?
Troll is back. Hope you are having a good day
That's 42 basis points, or 0.42%.
Ooooooooooooooooooooooh.
Thanks Pablo. I'll go back to my special section of the blog, now.
p. 16
25% of retained portfolio is Alt-A and sub-prime non-agency MBS
I look at that chart and think things will be okay as long as housing prices don't do something completely outside historical norms.
The thing is, look at the book-year concentrations on page 12. The recent vintages are certainly at risk there, but OTOH Freddie still has a lot of old loans on the books. 33% of the portfolio was originated in 2003 or earlier. Not only is there equity there, but those loans have a lot of seasoning.
Putting together pp. 10 & 11, it looks like 2005 was the year of the option-ARM flipper.
OT - I see report after report suggesting that retail, cars top the list, are very soft and blaming the "subprime" situation. That is totally absurd and I hope BB recognizes this is nothing but pure shilling.
The truth is, the fantasy market of '02-'06 was fueled by unsustainable ill-conceived MEW liquidity. That stopped. It won't come back, consumers will be reeling and will slow spending. That's the NEW REALITY and markets need to adjust their estimates to account for it.
Another set of assets that need to be re-priced to reflect the end of free money - equities.
My view is that 2005 was the year it got so bad that even Freddie bought some OAs. Fortunately they quit that a little before the lightbulb went on for everyone else.
How much seasoning does it take these days for a loan not leave a bitter taste? wouldn't even the seasoned loans turn bitter if the prices declined enough?
Related article on CNN/Money:
CNNMoney.com: 404 Page Not Found
"Freddie Mac profit down 45 percent in 2Q
WASHINGTON (AP) - Freddie Mac (NYSE:FRE) , the nation's second-largest buyer and guarantor of home mortgages, said Thursday its second-quarter profit fell 45 percent as it had to record larger provisions on its books for bad loans.
The government-sponsored company, which is returning to normalcy after an accounting scandal four years ago, said it earned $764 million, or $1.02 per share for the three months ended June 30. That contrasted with profit of $1.4 billion, or $1.93 a share, a year ago.
Revenue rose 4.8 percent to $2.26 billion from $2.15 billion in the quarter a year ago. Freddie Mac makes money from interest payments on mortgages it holds on its books, and fees from insuring mortgages sold to investors.
The company said it recorded a $320 million provision for credit losses in the second quarter due to problems with loans originated this year and last year, amid a deepening mortgage crisis nationwide that has bankrupted more than 50 lenders.
The earnings results missed Wall Street expectations, with analysts surveyed by Thomson Financial expecting a profit of $1.16 per share on revenue of $1.69 billion."
$36.3bn in market capitialization behind $1.7t in loans? Isn't that low? (No sarcasm, I'm asking.)
The other thing I noticed was their portfolio had lots of non-MBS on the books. What's with that in the context of their GSE mission?
Freddie's portfolio has a fat tail of low CLTV's. However, its capital base reflects the low expected losses: $36b of equity on a $700b retained portfolio, plus the guaranteed portfolio on top of that.
So the issue is not the quality of Freddie's collateral, but whether losses will fall within the ultra-tight tolerance levels necessitated by their leverage.
As Stag-Mark points out, a 14% decline in prices is not in their assumptions. They are woefully under-reserved for such an event. And they are using up capital to buy back shares!
I would expect both GSE's to have multiple recapitalizations in the next few years if the Goldman house price forecast is correct.
Tanta,
At what stage of defaults will FRE or FNM seasoned loans no longer support recovery rates when REO's are marked to market (ie-sold). It is hard for me to imagine that after what we have seen from them the past several years, that they were profitable during this period (before the housing downturn). My fear is that they will need to expand to try and keep the game going. I am of the belief that FNM equity MAY be worthless or close to it, and that is not taking into account whatever FC they are experiencing the past year or in the future. Expansion could prove wildly bullish for the stock, I have no position, just skeptical.
Is there a possibility that one of the monoline PMI insurers might go under, and if so what would that do to Freddie and Fannie?
How much seasoning does it take these days for a loan not leave a bitter taste? wouldn't even the seasoned loans turn bitter if the prices declined enough?
If it gets so bad that even a fully amortizing loan made at 2003 valuations is underwater things will gone past the bankerdome phase. Thunderdome would be more like it.
Pablo,
They said on the call that they'll still do business with the insurers if they get downgraded to A from AA. No-problema, since Freddie's own stress-testing shows their re-insurance suppliers have plenty of capital to soak up losses.
Hmmm...wonder how stressful those tests are. Six-sigma declines in house prices!?
What is that, a 2% drop?
How about 14%? The Lehman quant guy that was quoted as saying we just had three 10,000 year storms in a row comes to mind.
CC transcript from the WSJ:
http://wsj.com/documents/FRE-Transcript20070830.pdf
Better than I had thought, overall. Wonder if they have tightened up that low FICO/High LTV bucket yet? At least, most are fixed rates............
Shlliers's plot looks suspicious
http://www.investingintelligently.com/wp-content/uploads/2006/09/shiller.gif
Let me see if anyone can answer this question. The roaring 20's were known not only for the rise in stock prices but also for the rise in land prices. (Florida was the exception). This was especially true in rurual areas. Why doesn't this chart show this? In fact it shows the opposite. According to this, house prices rose through the great depression. That doesn't make sense.
I think too many people take this chart for ground-truth as if it were sent down from Heaven. I think it needs some serious questioning. I don't think we really have enough information to plot data before 1970. Shiller may be misleading people.
Yes, Shiller is a shill and David Lereah is God - gimme a break man, whaddya smokin' ?
Does 'inflation-adjusted' ring a bell?
The thing to remember about a loan that has four years of seasoning is that that reflects a borrower who has been making mortgage payments for four years.
They have proven that they aren't flippers, at the least.
By and large, these are the borrowers who are least likely to walk away just because they are underwater. For them, steep declines in prices just put them back to where they were when they bought. And since most of those loans are amortizing, you have people who consider that they earned some of their equity the hard way: by paying down the loan.
This time would have to be really different indeed if such borrowers turned to jingle mail in droves. I cannot see that happening outside a nasty recession.
Tanta,
I don't disagree about the 2003 buyers. However, the other (unseasoned) tail of the portfolio CLTV distribution is big enough to sink Freddie. Plus they are already assuming no losses from the low CLTV tail, so any losses there are unreserved for, IMO.
Their problem is not collateral, its leverage.
Just like a hedge fund.
Robert C.:
F&F buy AAA private-label MBS but make the issuers structure GSE-eligible securities that are only fed by mortgages with balances under $417k.
Of course that makes the non-GSE eligible part of the deal top-heavy.
CR and Tanta,
There is a blogger named floridabuilder over at the Motley Fool CAPS game that you may find interesting.
And thanks, this is a great weblog and has helped me to be much less ignorant.
Re: "seasoned loans made before 2003."
If real income for those with under $100k incomes has actually declined since 2000 (which it has), don't we have to go back to pre-2000 to find a fair price for run-of-the-mill single-family homes?
So, if housing prices come back in line with incomes, won't they have to drop well below 2003 levels, thus putting far more homeowners underwater? Aren't we talking about 40-50% drops in price?
David, I don't think they're just like a hedge fund.
For starters, 99.99% (that's from the slide show) of their structured holdings are AAA rated. Yes, we've all gotten a bit concerned about what ratings mean, but there's still a lot of CE out there for someone else to supply before Freddie takes it.
There's a lot of losses for the MIs to take before Freddie takes it. Ditto with second lien holders.
I'm not saying they're bullet-proof. I'm saying that bullet will go through a lot of bodies first before it hits Freddie.
And I firmly believe that Freddie's funding sources are much more stable than any hedge fund's. MTM is a problem when you're forced to sell at that price.
But I have not been arguing for raising the portfolio cap or the conforming loan amount, either. I certainly don't want to see the numbers get worse.
Tanta- All kidding aside, the trend of the last few years for massive MEW has undercut the quality of mortgages of all stripes. There is a lot of discussion about the 'living on credit cards' crowd, but that has been fallback for the living on refi crowd. I'm speaking for the crowd of us that have been pushed back down the wage scale from real tech and other jobs. That nasty recession is just down the pike, q4 at latest. Add the ARM resets to the tech '00 victims that have nothing else left to give up except the house.
I see a prolonged steep slide into not a happy place as next summer rolls around. It could be sooner if gas goes skyward again. The fed keeps bailing, the margin calls keep rolling , commercial paper shrinking too? There is nothing structural to push back on any of this.
Tanta,
"The thing is, look at the book-year concentrations on page 12. The recent vintages are certainly at risk there, but OTOH Freddie still has a lot of old loans on the books. 33% of the portfolio was originated in 2003 or earlier. Not only is there equity there, but those loans have a lot of seasoning."
Oh, I agree. Sometimes I just like to heckle for heckling's sake. I think the risk is higher than they are willing to admit, but in the grand scheme of things I certainly don't lose much sleep over what they have. I'm more concerned where all the hidden cockroaches are hiding. I get this "sinking" suspicion that if the lights go off for even a few moments I'm going to hear some serious scurrying.
That's twice you've ruined a perfectly good heckle of mine by the way. The last time was the Alt A vs. subprime. While you were certainly right to do so, it did have a certain "this garbage isn't quite as bad as that garbage" feel to it if you know what I mean. I was simply trying to heckle the garbage in general. Not the quality of any particular garbage. cough
Add a cup of wine to a barrel of garbage and you get a barrel of garbage.
Add a cup of garbage to a barrel of wine and you get a barrel of garbage.
The power of garbage is often underestimated! Maybe I should run for office and make that my campaign motto (and/or promise).
Sorry to harsh your buzz, Snarkflationary Mark, but it's my job.
I mean, at some point we have to recognize that yes, mortgage lending has risks and always has. If we're going to start wringing our hands over 80% LTV fixed-rate conforming balance purchase-money loans made in 2001 that have been amortizing ever since, well, then we are imagining a scenario in which more or less the entire financial sector is going up in flames.
I am not necessarily expressing an opinion on the likelihood of financial armegeddon. I am just suggesting that that is the scenario you are implying if you believe that, say, Freddie's seasoned portfolio is in grave danger.
Plus, people are thinking about what is wise lending policy going forward. I'll tell you right now we'll strangle the economy and live to regret it if we decide all new loans must have 50% down in case there's ever a 50% drop in home values after the loan has been on the books for 5 years.
Foreign nations demanding better US financial oversight. The loose standards are becoming a foreign affairs problem.
Expired
just one thing, there's 20% of ARM/IO in the 1.7T portfolio so we are talking about 340b of junky funky loans right ?
DaveJ,
The chart is inflation adjusted and you aren't accounting for the difference between real versus nominal. You are thinking in nominal terms and not accounting for rampant inflation and the deflation that happened after which the real prices are showing.
"Foreign nations demanding better US financial oversight. The loose standards are becoming a foreign affairs problem.
Expired? .v=2"
If the USA wants to be the defacto world currency it needs much more transparency in its financial system. It was a supposed strength of our nation but has been shown to be false with the rise of hedge funds and derivatives.
We either make the change internally or with the worlds help. If we dont we lose our status as a financial world leader and all the consequences that go with that.
Wow.. That could be a real embarrassment for Washington and the Fed Chris. I suppose that we should have seen something like that coming, they don't like getting worried sick over our securities. I think we'll start seeing the screws tightened more and more. Time for the long delayed U.S. financial diet to start shortly.
God forbid we earn equity by paying down our loan... what a world.
//pays his loan
//pays extra
//30 years--ha, I'll have it done in 10!
Tanta,
I am not necessarily expressing an opinion on the likelihood of financial armegeddon. I am just suggesting that that is the scenario you are implying if you believe that, say, Freddie's seasoned portfolio is in grave danger.
I did not intend to imply that Freddie was in grave danger. I was simply attempting to point out that their risks might be higher than they will admit. Do I think they'll implode? No. Do I wish to short them? No. Do I want to invest in them? Not really.
That's the problem with heckling. It is hard to distinguish between a minor heckle and a full out heckle. This was a relatively mild and minor one from where I stand. I'm much more concerned about what happens to the actual cockroaches if the lights start to dim. What was that scurrying sound behind me? Oh no!
Now I just need to find out the definition of snarkflationary. I sense that I may need to do some Katrina level damage control to restore my good name.
I thought I was "doing a heck of a job." But now I think I might just be slightly above average, and based on your recent article on that, I'm now terrified.
FEMA! Help me before it is too late!
I still find it hard to believe that inflation explains the Shiller plot. The changes in house prices before and after the great depression was surely much greater than the change in CPI. The deflation rate in the great depression was not that large.
After all, "inflation" is whatever you want it to be depending on your definition of which there are probably hundreds.
I don't dispute that houses are over priced. However I do have some skepticism that this is really as unprecedented in the US as Shiller makes it seem. I would be surprised the run up and fall around the GD was not larger than now.
Shiller has made some dubious plots in the past including his Stock Return versus P/E plots that have been criticized by others. The further you go into the past for data, the more dubious the conclusions.
thought I was "doing a heck of a job." But now I think I might just be slightly above average, and based on your recent article on that, I'm now terrified.
I've never yanked a finer chain than yours.
I look into my crystal ball and predict I will live to regret what I just typed . . .
So foreigners paid Mercedes Benz prices, and just discovered the Chrysler emblem that was snapped off and thrown into the glove box....and now they want better oversight?
Let me talk to the sales manager.
He wants to know if you would like rust proofing with that?
To coin a Cobertism:
Caveat Empty.
In the rare case a chain yanking lasts for more than four hours, I will seek immediate medical attention.
I just couldn't stand to see you bear the burden of uncertainty any longer. You knew you'd live to regret what you had typed but you clearly didn't know when you would regret it. The time to regret it is now. You no longer need to fear the unknown.
There's no need to thank me. That's what gentlemen do when they see ladies in distress.
If only I could work this miracle cure on the housing market and relieve its uncertainty. If only.
As a former GSE exec (recently left) the worst is yet to come. The market has taken comfort in the conforming market remaining liquid b/c of their low risk book. Fact is FNM and FRE were falling all over themselves to buy Alt A and Subprime in 2005 and 2006 but couldn't win a bid! They therefore started cutting their risk premiums on deals that even the street thought were too ugly just to win some. Remember, about 50% of their business must come from low-moderate income borrowers just to keep their charters. If the PL issuers and Wall St buy up all that paper than the GSEs will be waaay off their goals numbers - won't let that happen. Word is that FRE is having MAJOR performance issues on those vintages and that if the problems persist they will be insolvement...no joke. When your flight to quality choices are leveraged 20:1 and are swimming in the same cesspool as all the junk choices...we're in deep trouble. Please don't mention the rep/warrants or counterparty insurance...not worth the paper it's written on.
thanks for that chiller, Bigcat (seriously, these 2: Fannie and Freddie, are too big to worry about...I consider it a Godsend if they fill out an annual report...izzat army of accountants permanently occupying Fannie's offices?)
and to stagMa for bein such a sport.
Yo da Man!
Pardon me, the leverage ratio is more like 30:1...God help us...
Calmo,
You're right, the 2005 - 2007 season at FNM was sponsored by McKinsey and Deloitte! The employees, all the employees, were ushered out of their headquaters to make room for all these guys. Last count was around $200-$300M a yr for all these knuckleheads...
Knuckleheads? I'll admit that the "best and brightest" weren't nominated to go on tours of duty there. It was usually the guys that nobody at the office wanted to pick up for an engagement.
Don't feel bad though. They had much worse things to say about you.
AZ,
I dragged myself out of the sea of sycophants and know what you mean...