From Bloomberg yesterday:
Freddie Mac, the U.S. mortgage-finance company hobbled by record foreclosures, slashed its dividend at least 80 percent after posting a quarterly loss that was three times wider than analysts’ estimates.
From Bloomberg today:
Fannie Mae, the largest U.S. mortgage- finance company, cut its dividend [86*] percent after posting a loss that was more than three times analysts’ estimates and said the worst housing slump since the Great Depression is deepening.
It’s deja vu all over again (other than that little “deepening” reference).
UPDATE: Perahaps it wasn’t so easy for the Bloomberg copywriters this morning. The dividend cut for Fannie Mae has been changed from 80 to 86 percent.
∙ Fannie Mae Posts Fourth Straight Loss, Cuts Dividend [Bloomberg]
∙ QuickLinks: That Mischievous Little Freddie Is At It Again [SocketSite]
When Fannie, Freddie and WaMu’s stock graphs cross at zero, that is the bottom. 🙂
These guys are still lying. The true loss is easily 10 times this amount.
Anyway, it looks like the link provided by SS misses the key info for San Francisco:
“Aug. 8 (Bloomberg) — Fannie Mae, the largest U.S. mortgage- finance company, will stop buying or guaranteeing Alt-A home loans, such as those that require little or no documentation of borrower incomes or assets, by yearend.”
“Past changes have cut the company’s Alt-A business by 80 percent, it said. Fannie plans to stop financing “newly originated” Alt-A loans by Dec. 31.”
These quotes are from the earlier update of the story, (curiously?) omitted from update number 2. The link can be found on the Calculated Risk blog, together with some fun commentary.
Bay Area “deers”: meet headlights.
[Editor’s Note: Not omitted, different story (“Fannie Mae, Battling Losses, to End Alt-A Mortgages“). Thunder stolen once again (but we’ll still bring the lightening).]
I would love some feedback from those in the know here. What does this mean for the loan market? I need to get a refinance loan by the end of the year on a home in district 5. The LTV will be under 80% (likely 60-65%). If you provide fully documented income and have excellent credit, should you still be worried? What kind of money do you need in the bank as liquid to back up loans these days? I think they consider retirement accounts in your assets too? The amount to be borrowed is less than the $417K conforming limit. I would also appreciate your thoughts on interest rates between now and then. The bank I am thinking of going with offers a 60 day lock. Lastly, should someone stick with their bank since you have had a relationship with them in the past (which may help your application) or shop for a loan through a broker? Many thanks!
What a surprise, FNM reports that Alt-A defaults and foreclosures in California are starting to explode. They were called liar loans, after all. I’ll believe that the GSEs are really starting to enforce the anti-fraud provisions of the contracts when I see it. Who’s going to take the fraudulent loans back? Countrywide and IndyMac? And there aren’t enough DAs in the state to prosecute all the borrowers who committed fraud on their applications or the brokers who were their accomplices.
need a loan,
using a broker is better b/c you can see more of a variety of products than you would w/just one bank.
its a good time to shop around and a very good idea to leave yourself lots of extra time to close.
I would just add to investigate your mortgage broker. Don’t take anything at face value, and be sure not to just take the loan that offers you the lowest monthly payment. Brokers are not usually in the business of helping you out so check what kind of compensation they get from writing your loan.
Your current LTV of 60-65% sounds like you’ve got some kind of a serious problem.
Brokers are in the business of helping you out. They get a fee for there work, as we all do. Some will want more for the service than others. The main question these days for the mortgage broker is who do they work with. Lots of banks have gone to in-house lending only, so they won’t be looking at say WaMu, BofA, etc. If you have a relationship with your bank and the broker doesn’t rep them go for both and see what you get. Otherwise go for the broker, fees includes mine has always got me a better deal at my own bank than they give me.
Some brokers have not been honest because their compensation has been tied to writing loans that are not in benefit of their client. I don’t see how you can argue with that. My advice is simply to know who you are dealing with and it is hard-won by experience.
That’s true there obviously brokers who did that. There are banks who did it sans broker as well. Trust is key, and reviewing what your signing up for.
Thanks for the feedback and good tips. Michiko – Does a 60-65% LTV sound like a serious problem? I thought having 30-35% equity is pretty good in SF for young buyers. Basically, we are buying out the other owner in the property. I am being conservative on the value of the home in case the bank appraiser thinks it’s less than the our appraiser did. Thanks again.
Maybe I should add that we are going from no loan to having a loan worth about 50-65% (depending on the appraisal) of the value of the house. I have a problem being clear sometimes.
If you have good credit, good income, and a low LTV (which 65% is pretty low) then I think you’ll be able to get a loan.
the big question that nobody can really answer is “how high will rates be in the future compared to today”?
I think the lending will continue to tighten, and there MAY be an increase in interest rates going forward BUT I HAVE NO IDEA.
The most strict I think they’ll get by the end of THIS year would be something like:
-30% down (or 30% “equity”)
-PITI no more than 28% of gross income
-PITI plus ALL OTHER DEBT no more than 36% of gross income.
if you fit that I doubt you’ll have a problem getting a loan. I could be wrong. I’ve been wrong many times before.
Needingaloan,
Not sure I can answer your question because it’s not obvious without the details.
I’m approved for a re-fi (BTW through another broker) locked at 6.5% conforming, with a small equity line at prime – 1/2, so I’m following this closely. Rates went up, now they’re down a little.
I’m not a sophisticated finance guy like some other people on this site, I’m here to learn. A little financial literacy goes a long way, and many Americans are woefully uninformed about financial issues.
“Does a 60-65% LTV sound like a serious problem?”
I would highly doubt it — I and others have had no problems whatsoever getting loans at 80% LTV. I also highly suggest trying credit unions which in my experience have been able to offer much better rates and fees than the big players during the credit crunch. Try StarOne, Addison, etc. So long as you can afford the loan (and I use “afford” in the old-fashioned sense) you should have no problem.
“I think they consider retirement accounts in your assets too?”
Yes, but I chose not to let my loan officer know about these funds.
@Gdog
“I would highly doubt it — I and others have had no problems whatsoever getting loans at 80% LTV”
Do you mind sharing the source for 80% LTVs right now? I have a deal in the works and so far it is appearing as if 75% LTV is what’s out there.
Thank you.
I can get better advice here than scouring the internet. Many thanks. Thanks for the credit union tip. I didn’t think of it. How can I best vet a broker?
Apologies needingaloan, I misread your LTV ratio. Mine is 75.5 and it whiskered in. That’s what I mean by learning!
These guys are still lying. The true loss is easily 10 times this amount.
Since we are talking about these clowns already… it seems clear that the government’s “printing press” of choice will be using the Treasury to prop up Freddie/Fannie’s balance sheet. Is this likely to cause the dollar to fall against other currencies (given how beaten down it’s been and other countries’ “issues”, I find that hard to believe), or does it mean that financing the US debt gets a bit harder (better rates on Treauries). Or both? And I’m having a hard time processing whether this utimately shows up in the monetary base. My gut tells me this is simply replacing a future income stream that’s already been “destroyed” and helps ease deflationary pressures (or at least thats’s Ben’s hope?) So many levers, to push…
EBGuy,
The Fed is boxed in. Large scale printing leads to a rise in rates, collapse of the dollar, and the utter decimation of an economy that is 350%+ debt/gdp levered, AND relies on about $2B from the outside world to fund its foolish unproductiveness. “No” printing leads to a deflationary spiral, and perhaps collapse.
IF the Fed starts to print (meaning injecting currency in order to buy treasuries from the Treasury, which then uses the $$ to inject into FM/FM), then it will show up in the monetary base. This is because the Fed will not be selling treasuries (for $) to the open market in order to fund the purchase of new treasuries.
There is ALWAYS some printing. The Fed grows the base between 2 and 7% per year historically. This monetary inflation allows the banks to make more and more loans, putting more and more dollars in the pockets of their CEOs and other managers. This is primarily the reason the Fed exists. A highly levered banking and financial institution system produces highly concentrated profits to a few. There doesn’t appear to be any benefit to the society as a whole from a perspective of growth. Take a look at the charts in this 2001 article (only the first part, but its an interesting read nonetheless):
http://www.efficientfrontier.com/ef/702/2percent.htm
My guess is that in the early stage of the bust the Fed will walk this tightrope. They will start printing more, but this will not offset the massive destruction of private credit that is coming (just starting now). USG interest rates should trend lower if I am right, and the dollar should be ok. This was the experience of Japan in the 1990s and early 2000s.
Large scale monetary inflation at these debt levels would be an unmitigated disaster. Worse than the Great Depression. What do you think even 12% mortgage rates and 10-15% funding rates for US corporates would do? That’s the sort of stuff we saw in the early 1980s, when stocks were trading at 8 p/es and houses were priced at 2-3X median income (and savings rates were around 10%). Those rates still caused massive double dip recessions, and bank failures. Today would be catastrophic. The Fed wants to avoid this to the extent possible, and with today’s poor savings fundamentals, miserable demographics, and poor external accounts picture, those 80s rates would be a floor, not a ceiling.
I recently came across this link (it updates based on the latest Fed H.4 release) to monitor the Fed’s “balance sheet” that you may find helpful.
http://www.cumber.com/home/Factors.pdf
I hope that helps!
I recently came across this link (it updates based on the latest Fed H.4 release) to monitor the Fed’s “balance sheet” that you may find helpful.
Nice chart. Its a sad state of affairs these days as I check the H.4.1 data and TSLF auctions every Thursday (couldn’t have told you the difference between an H.4.1 report and a hole in the ground two years ago — or perhaps, they ARE the same thing). FWIW, according to this (PDF Alert) the Fed “Gold stock” as reported in the H.4.1 is valued at — get this — $42.22 per fine troy ounce. So the current Fed hoard, at today’s market price of ~$840/oz is worth:
$11.041 billion / $42.22 * $840 = ~$220 billion
Nice to know there’s something left if the Fed ever runs low on Treasuries…
I am assuming even through the direct route (Treasury auction -> money to Fannie/Freddie), the monetarty base grows as more debt is issued. Whether this is viewed negatively (inflationary) depends on the growth of the economy as a whole — I think?
This is what I said… I think:
Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co., said the U.S. government’s efforts to support Fannie Mae and Freddie Mac will lead to greater Treasury issuance and a weaker dollar.
“It’s ultimately inflationary as long as the global economy doesn’t collapse,” El-Erian said in an interview on Bloomberg Radio.
EBguy,
“I am assuming even through the direct route (Treasury auction -> money to Fannie/Freddie), the monetarty base grows as more debt is issued.”
Not necessarily, but this is a likely outcome. Base money is basically currency in circulation + reserves. When the Fed “buys” treasuries from the US Treasury, it “prints” the money to do it (it’s typically just book entry for a sterilized purchase). It then simultaneously “sells” treasuries out of its balance sheet to the open market, “sopping up” that book entry injection of cash. The base doesn’t grow. However, you can see that to the extent that it doesn’t sell offsetting treasuries to sop up the “cash”, then the base grows.
Whether this growth is inflationary or not really depends on how all the other sources of credit creation are faring. There are many ways to “create” money in a fiat system. For instance, every time a bank makes a loan against an asset, money (credit) is created. My view is that in the face of a massively deflationary detruction of money/credit in a credit deflation, limited government “printing” (unsterilized purchases of assets) is not too inflationary. I think that is sort of what El-Erian is saying (mostly talking his Pimp-co book) – more the likely result rather than the theoretics.
About the Fed’s gold, pretty interesting, isn’t it? They really can’t use it to effect directly the money supply because th ecurrency is no longer backed by gold. It would be like trying to trade hot dogs for veggies with the chef of a chi chi vegetarian restaurant: what’s in it for him?
They’re pretty slick, those fed guys. Probably a lot of that gold was siphoned back into the Fed following the confiscation of gold by the Fed and the Treasury in 1933 and 1934 (exec order 6102 and Gold Reserve Act). All that gold was swiped at $20 per ounce, and of course printing up that money was pretty easy for the Fed (which had the printing press). Once it was safely in the hands of the USG and the Fed, the dollar was devalued to about $35 per ounce. Too bad for those poor fools who handed over their gold to the USG and the Fed! Well, I guess if you want to make an omelette you have to break a few eggs….
Looks like Fannie and Freddie are gonna get thier bailout.
http://calculatedrisk.blogspot.com/2008/09/wsj-fannie-freddie-to-be-put-in.html
I always assumed that Uncle Hank and Dr. Ben would first have to slow down the economy and pop the commodity bubble before they could start the money printing and bailouts in earnest.