Lifeboats Have Been Deployed for Fannie and Freddie…
Friday was a very concerning day. As regular readers may have noticed, I made three posts. This is not regular behavior and we are not living in regular times.
Personally, I was rather distraught about the events Friday disclosed. So far in this crisis, anytime a company had been mentioned, despite the media from said company, the worst has been realized. Countrywide, Bear Stearns, Indymac. I don’t think for a second the rumors surrounding Freddie and Fannie are not unfounded.
Today the Fed reached out to abate/validate those concerns when it announced -
The Treasury Department and Federal Reserve on Sunday outlined a comprehensive government plan to prop up Fannie Mae and Freddie Mac - the two mortgage finance giants that play a crucial role in the U.S. economy.
Here’s the plan…
Increase the amount of money the entities can borrow -
Increase the Federal oversight of the companies -
Increase the sources of funding, including the Fed itself -
At issue are growing concerns the two mortgage institutions are not solvent in the face of growing defaults and declining home prices. Many people don’t quite understand the role these two institutions play. Let’s be real clear here. Fannie and Freddie are the spine of the U.S. mortgage industry. For prime loans, their failure returns us to the 1960s in terms of mortgage programs.
I’ve tried to be an optimist in this downturn. As recently as a few weeks ago I was convinced the downturn was limited to the periphery where downturns are usually constrained. I physically made the pilgrimage to ground zero of the housing bubble in L.A. and saw nothing worthy of comment.
Those damned bubble bloggers have been proved correct time after time! Corporate America has fallen into the trap of hypocrisy. When faced with facts, they have claimed the upper hand. Bear Stearns CEO claimed until the bitter end there were no problems. Countrywide did the same. IndyMac’s CEO confidently went down in history as getting a haircut as the FDIC took over corporate headquarters.
If the bubble bloggers are right, and they have been extremely prophetic to this date, Fannie and Freddie will soon be no more. Or they will be run by good old Uncle Sam. The fallout for consumers will be severe; increased fees and increased rates. Mortgage interest rates increased 1.25% Friday just on the fears this would happen.
Folks, this credit crisis is real.