This is pretty big news. That is a pretty decent discount on a purchase on real estate listed on HomePath.com. That kind of discount should get some inventory moving from Fannie Mae. I was browsing through the inventory and if you are looking at the areas with the most exposure to subprime loans you are going to find some steep discounts on top of the 3.5% that Fannie is offering.
Housing Wire - Fannie Mae will provide a 3.5% discount to those purchasing a real-estate owned (REO) property listed as part of its HomePath division, according to a company notice. The discount can be used for closing cost assistance or the buyer’s choice of appliances. The offer applies to any owner-occupant who closes on a property listed on HomePath.com before May 1, 2010.
No surprise should hit you if your reading this. We have already nationalized these two institutions and instead of de-leveraging to get there asset to debt liability ratio to something more reasonable, we have used them to try and support a declining real estate markets. Both GSEs have lowered credit standards and we have even allowed these real estate tax credits towards the down-payment which allows low credit borrowers to not have “skin” in the game with these purchases.
We are just hurting people who are saving money and waiting until they are ready to support a mortgage by trying to keep real estate at these inflated prices. I still feel in the end, deflation in real estate will win out because we do not have the income in the market to support these prices over the long run.
Taxpayer losses from supporting Fannie Mae and Freddie Mac will top $400 billion, according to Peter Wallison, a former general counsel at the Treasury who is now a fellow at the American Enterprise Institute.
Now we are getting more information on the OTC derivative market and the different liabilities that the different players had with their counter-parties. The more I am reading about these products (got a nice book on the subject that was written in 1993) and the more I read the more derivatives sound like insurance.
You know what that means? It means they should be regulated like an insurance product and that means the companies issuing this insurance needs strict capital requirements and their capital can only be invested in the safest financial instruments which we used to call “AAA” before the quality rating became a backroom Wall Street joke.
The Obama administration release a new program to assist state and local housing finance programs and agencies that focus on first time buyers and developing looking to add apartment rental stock in their market. The plan is for the two largest government sponsored enterprises to issue bonds backed by these mortgages and have them purchased by the U.S. Treasury. This process is similar to the securitization method used to create mortgage-backed securities (MBS).
According to the Associated Press, the volume of tax-exempt bonds that the two GSE’s issue is only 25% of the typical amount sold in a given year. This reflects the reduction in demand for this type of financial instrument. The recent collapse of the U.S. real estate market can be attributed to this drop in demand.
Howard Glaser, a mortgage industry consultant mentioned that this program came at a time when credit is scarce and we are in the middle of a very fragile recovery in the housing market. Treasury Department officials stated any losses from the loan defaults will be 100% covered by the fees paid by the state agencies. ”The expected cost to the federal government is zero,” said Michael Barr, an assistant treasury secretary.
The question I beg to ask is, where are these state agencies going to get the money to provide this financing for new home buyers and rental project developments. Just like the adage said, “There is no free lunch.
Honestly I see what is trying to be accomplished with this expansion of the acceptable loan-to-value amount to 125% of the home’s value. The goal of the program is to allow more people to refinance their home loan to a lower interest rate that will hopefully make it less likely the homeowner will default on the mortgage.
Instead, it is more likely going to set a “floor” in more home prices. This is actually preventing the market from reflecting the actual value of all these homes that are being refinanced through this government sponsored loan program. Yes, foreclosures are hard on the people being affected, there is no doubt in this. But on the other side you have to think about the people who are striving to own their own home. This in effect is artificially keeping prices higher than they would normally be without this intervention. That is counter-productive in the way it punishes people who did not get an regular mortgage over these more exotic loans that had a huge rate hike baked in the formula. Personally I would like to see less intervention and more market forces determining the outcomes of all these private contracts and agreements.
Mortgage finance companies Fannie Mae and Freddie Mac will expand efforts to prevent foreclosures by allowing refinancings by borrowers whose outstanding loans exceed the value of their homes by up to 25 percent, the Obama administration said on Wednesday.