Fannie Mae & Freddie Mac expand eligibility on home loan refinancing options

July 2, 2009 by · Leave a Comment
Filed under: Real Estate News 

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.

News (Reuters):

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.

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Archive 1999 – Fannie Mae Eases Credit To Aid Mortgage Lending

March 3, 2009 by · Leave a Comment
Filed under: Opinion 

My friend researched and found this article from the NY Times dated September, 30th 1999. After reading this, it is hard to not see how this would turn bad eventually with these “subprime” borrowers getting charged higher interest rates for their home loans.   By definition, if you are “subprime” you have bad credit, I would even assume that their employment might not be of the highest income so why would a lender to get around that risk, charge more interest?  Sounds like a losing game unless you had some way to not hold that toxic paper, which we all know now as “securitization”. Separating the lender from the borrower was the worst possible idea, with money being made in fees upfront, there was really no incentive to make good loans that a bank would traditionally hold on their balances sheet for the duration of the loan.

Archive Story:

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

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Fannie Mae and Freddie Mac to buy $40 billion a month of bad assets

October 10, 2008 by · 1 Comment
Filed under: Real Estate News 

Looks like they will be using these two GSEs to purchase these bad mortgages to help stem our real estate crisis.  At this point we are so far over the cliff that it really doesn’t matter what they do.  We are headed for a severe contraction in the world economy and the era of easy credit has come to an end for the foreseeable future.

News Piece:

Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of under-performing mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury’s $700 billion Troubled Asset Relief Program.

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Fannie, Freddie Seizure May Trigger Default Swaps on $1.4 Trillion of Debt

September 8, 2008 by · 1 Comment
Filed under: Industry News 

Is this the event that put us over the edge? $1.4 trillion is no small number. It looks like Freddie and Fannie debt were one of the most actively traded CDS contract and the market makers and major dealers are in conference on how to settle these contracts. In the article they discuss that is the bond were to rally and trade near par value then the losses could be minimal but I wouldn’t bet on it. This will be interesting to follow.


Investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.

Thirteen “major” dealers of credit-default swaps agreed “unanimously” that the rescue constitutes a credit event triggering payment or delivery of the companies’ bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.

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Government Sponsored Enterprise Credit Facility (GSECF) created to bailout GSEs & FHLB

September 7, 2008 by · Leave a Comment
Filed under: Economic News 

The U.S. Treasury announced via a press conference hosted by Henry Paulson on Sunday afternoon. They laid out a four point plan to rescue the beleaguered GSEs’ Fannie, Freddie and FHLB institutions. Here is a link to the Bloomberg coverage and a link to the video on the press conference.

Near the end they discussed the new credit facility (Government Sponsored Enterprise Credit Facility (GSECF))that was created to give liquidity to these entities. Here is the link to the PDF on the new credit facilities and their intended operations.

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