Fannie, Freddie Portfolio Caps Could be Lifted Next Year
Submitted by
CalculatedRisk on Sat, 09/22/2007 - 10:41am (35 comments)
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Recent Recommendations
Bloomberg.com
U.K. May Insure 100,000 Pounds of Depositor Funds In Future
U.K. May Insure 100,000 Pounds of Depositor Funds (Update1) - Bloomberg.com
This brings up a point about getting tough. Whyinthehell are they still listed if they don't have their filings in order? Bend a rule here, bend a rule there and pretty soon you run the risk of approving bad loans.
Anything to keep people from saving by making them pay out the majority of their cashflows. Slavery is not dead, the process just changed.
There is a caveat to this, note that OFHEO said nothing about lifting the current 30% surcharge to the minimum capital requirement. Currently with the statutory min capital requirement at 2.5%, the 30% add-on that OFHEO added after the accounting scandals means that FNM and FRE face a 3.25% requirement. This significantly increases the ROE hurdle rate for executing transactions. Thus, even if the cap is lifted, unless spreads blow out, there is little incentive for the GSE's to ramp up purchases...
I didn't see anything about loosening standards either. As I understand it 80% LTV is their metric. I would imagine this will help the market a little but those in trouble likely either purchased 90%+ LTV, jerked out equity & refi'd 90%+ to ARMs and then of course property values have been falling too so GSEs can't help any of those that are in a real jam.
What standards are in place to assure that the loans in the GSE portfolios are not the 80 part of an 80/20 loan package held by the consumer? What is to prevent borrowers with loans in the conforming pool from subsequently taking on more home loan debt?
The issue at large is has probably nothing to do with now. Just provides more flexibility in the next bull run.
FFDIC,
"U.K. May Insure 100,000 Pounds of Depositor Funds In Future"
Meanwhile, China is releasing many pounds of pigs from its Strategic Pig Reserves (SPR).
It is enough to make me want to pull out my pig poundage to currency poundage sliderule and delve into some serious math, lol.
(This is so not going to end well, in my opinion.)
I have a two part question for the community. First, does the current run on the dollar into Euros solve the currency thirst problem outlined in the FT back in August? The FT reported:
The Fed is likely to be sympathetic to an ECB request for a currency swap since it would be seen as a helpful way of dealing with pressure on the overnight federal funds rate caused by European banks thirst for dollars. It would be the first such arrangement between the worlds two biggest central banks since 2001.
FT.com / Markets - Central bank action calms investor nerves
Second, by stirring inflationary fears, is the Fed trying to persuade bond investors to migrate away from treasurys and long term debt back to shorter maturities like commercial paper? If you recall, back in August, a lot of money mangers rushed into treaurys.
Uncle Al,
I know this doesn't answer your questions but I can't help but be amused by a few quotes from your article.
A sense of calm had begun to return to the markets...
The article was written on August 12, 2007.
Investors fear that some hedge funds and other institutions will soon have no option but to start a fire sale of their assets to cover losses on their portfolios. Any rapid liquidation of trading positions would exacerbate the volatility in financial markets.
One week later (August 20, 2007) investors' fears were realized in a major way.
Uncle Al,
This is a big stretch. But I think much of the illiquidity going on has to do with UK/Euro banks over exposure to the dollar. The run the dollar is killing them, as they try to get pull bank.
The Fed, as a result is actually killing Europeans even further by lowering rates causing an even weaker currency.
BB's BOLD 50bpts move - Forestall further weakening. He KNEW if he gave the market 25bpts it would sell off hard and every 401k & Mutual Fund holder would have liquidated this week. He managed to postpone the liquidation.
re: Mark
Meanwhile, China is releasing many pounds of pigs from its Strategic Pig Reserves (SPR).
I thought you were kidding at first. During the madcap EU Common Agricultural Policy years we used to hear about wine lakes and butter mountains and now we have SWINE lakes ? We need to make a song and dance about that: YouTube - swan lake,Nureyev
-K
I fled with 500000 2 weeks ago to a euro fund, and Australian and Canadian Bonds. Only time will tell if this was the right move but I am tired of these idiots I'll try theirs for a while. Hopefully no C students running things.
re : SPR
sign at mickey d's in china . . .
"MC rib available for limited time"
Just like the US strategic oil reseve, the SPR in China is being opened to lower pork prices
(quote)
Chinese officials offer several reasons for the high pig prices. The cost of animal feed has risen by one-quarter in the last year, partly because more corn is being made into ethanol and partly because more prosperous workers are eating more meat, which requires more animal feed....
(end quote)
Maybe coming to a country near you soon.....
30,000 tones of pig released from the SPR
Just like the Strategic Oil reserve in the US
(quote)
China consumes 130,000 to 150,000 tons of pig a day, so 30,000 tons is "a drop in the bucket,"
(end quote)
For the community : does anyone besides myself think / fear that the caps being lifted is simply the first step in the bailout of the mortgage mess here in the US and the foisting of same on taxpayers ? If the removal of caps on FNM for example , which can't even file their mandated 10 Q or annual reports ( which they haven't for several years now if my back of the envelope recollection of events is accurate )could be considered under these circumstances , why wouldn't any additional limits such as portfolio cap limits or surcharges to the statutory minimum cap requirement be magically waived as well ? After all , desperate times call me desperate measures. Who else other than the taxpayer can this mess be dumped on , really ?
Trouble entering prime jumbo territories:
September 18 - Bloomberg (Jody Shenn): "Securities backed by prime U.S. jumbo mortgages may be riskier than investors think because almost half of the underlying loans are from California, where home prices may again collapse, according to Barclays PLC. California accounts for 45% of jumbo mortgages in securities sold last year, up from 35% in 1989, Barclays mortgage-bond analysts wrote... Following a housing boom, home prices in California declined by 12.5% between 1991 and 1995. Losses after foreclosures on jumbo loans securitized in 1989 rose to 3%, which would be enough to cause many current investment-grade bonds to default. 'The current housing environment in California appears similar to the 1990s,' wrote the...analysts led by Ajay Rajadhyaksha. 'Many investors believe that jumbo credit is sound. We think that this sense of security is misplaced.'"
I should have noted that it will be contained after prime is taken out.
IF they file "timely and audited financial statements"...and if pigs could fly.
fred w,
yes , i fear it will be the first of many steps (bailout imelda).
given that any re-fi on a home debtor prison does not make sense .
just walk , recover try again, eh ?
fred w.
p.s.
why not just leave the lenders / ib / liar borrowers with the mess.
allow markets to clear it out . .
'hey, where did that black helicopter
come from ' ... end of transmissio
I'm with everyone else.
Actually doing it and intending to do it are the same thing in government.
They will raise the caps when they say "we forsee filing timely audited financial statements very soon and therefore in anticipation of this have begun raising our portfolio caps to reflect the....blah blah blah blah......"
Lost in Translation,
i've seen analysis comparing 2006/2007 jumbos to a combination of the 1995 and 2000 vintage performance in California (95 due to the housing market, 2000 due to looser underwriting standards). loss projections depend on product type but you're right that there could be some IG bonds in trouble...i would also expect jumbo alt-a to perform worse generically than conforming balance alt-a due to the higher CA concentration...plus, prepayments should be slowing on those pools.
which is contrary to the last several years, in which jumbo alt-a has outperformed conforming balance alt-a by a decent margin.
So this should be good if I want to get a Jumbo loan in California. Will Jumbo rates drop to conforming?
Joe D. Banks - I am with you, but watch for US market dropping followed by emerging markets dropping. Between there I think it will be time to repatriate.
That was me.
So this should be good if I want to get a Jumbo loan in California.
what?
Don't underestimate the power of the blogosphere in helping to outsmart the C students running the show.
They may think they're in control, but the reality is that times have changed. The internet and telecommunications advances have made wiring money out of the country, or investing in foreign bonds and security much easier than in the past.
Joe D. Banks example above suggests to me that if it becomes common knowledge that the US dollar is toilet paper, people will start to pull their money out of the country. This will in turn force the Fed and the Treasury Dept. to start defending the dollar by raising rates. Game over, insert coin please.
What really worries me though is a concerted effort to bail out California in particular. Massive bailouts to prop up home prices there are preferable to the pigs in DC, as a 25-50% fall would probably bankrupt the state. This weeks hastily drawn up legislation to increase the conforming loan limits above 417K really smells like a panic move out of the House. Always fear legislation with broad bipartisan support, it usually means we're going to get hosed.
cent_scrut Agree with both points, but we had a saying in my college. "2.0 and go"
ot to make this an investment blog,
but how does one "flee" the US with our soon to be worthless dollars?
are you all simply buying international stocks/mutual funds/ETFs on a US stock exchange?
or using something like Everbank to buy other currencies?
Or is there a way to buy foreign bonds
or do you use foreign stock exchanges?
just wondering how one does this...
TIA
Look, the power elites are on the coasts, Freddie & Fannie will get both higher loan limits (whether they want them or not) and a removal of their portfolio limits (they are both nearly finished with their accounting reforms, but volatile derivative markets is going to make their soon-to-be GAAP reporting volatile).
You are right on about California, I wonder at what point institutional investors go on a buyers strike for California muni paper?
What really worries me though is a concerted effort to bail out California in particular.
California is a largely Democratic state, and even the Republican governor is not a favorite of the current regime.
Why on earth would a Republican administration want to bail out California?
It really doesn't matter what they do.. loans were given to people with no fundamental ability to pay them back, and you can't put that cat back in the bag.