I’ve had a dozen distractions today (Sunday). Football is on, Colorado’s weather is perfect and I was working on my presentation for REBlogWorld. But throughout the day I tried to get my arms around the Fannie Mae, and Freddie Mac takeover.
You know, there’s a lot of speculation about what will happen and not much fact. The more I read about it, the less it interests me. The government was never going to let these institutions fail. They had already pledged the money to back them. Whatever changes are made will have less effect on the lives of loan originators than with their day to day dealings with closing wholesale shops and ever changing program guidlines. I really don’t think it matters that much.
Todd
I agree, they were never going to allow them to fail… to much of the economy rides on their shoulders. I am a bit nervous about the form in which it is now evolving, however…
In the words of Ronald Reagan:
“The most terrifying words in the English language are: I’m from the government and I’m here to help. ”
Buckle Up, it should be an interesting ride.
Chris Brown
Hi Todd,
From a standpoint of what we do as originators on a day to day basis I think you are right. But this does change the environment that we work in. Fannie and Freddie were too big to fail, but that is different from the Government actually stepping in and taking them over. Mortgage backs are a lot more similar to Treasuries today than they were last week, so the spread should narrow and rates should drop.
I was flying yesterday, but this whole thing has been in the works for a very long time, you just knew it was coming, so the timing is what is in question. They always make things official on Sunday mornings, and waiting until the NFL kicks off likely adds more to it. Yes, I am speculating, but the bad news usually takes place when Americans are most “distracted”.
I have to dig more into the details, but you can bet I will get a post on the subject up later today over at the Florida Mortgage Report and maybe even get something up here adding to the initial Mortgage Market Update report on it.
The problem is that the system as it exists rewards bad behavior and punishes good. And if you’re a publicly traded company you are obligated to take advantage of laws / government policies and make as much money as legally possible for your shareholders. When times are good lenders make rash but profitable loans. Then when their behavior comes home to roost they expect taxpayers to pick up the tab. All upside, no downside. So the ‘loopholes’ have to be closed so that the public can get out of the mortgage business (except as a benefit to society ala FHA). Government takeover means the Fannie and Freddie shareholders will probably lose all their value according to the LA Times, but they got the benefit of good times–they and not taxpayers should take this loss.
FNMA/FHLMC enjoys a competitive advantage over the rest of the market that is unfair in regards to Multi-Family loans. The spreads they charge are significantly lower than what insurance companies or banks are willing to offer and have been for some time now. The reason they have been doing this for years and years is the quasi governmental support (no longer quasi given current events) they enjoy. The last 18 months or so, they have essentially been competing with themselves to offer lower rates to get deals and all the while the rest of us watch and laugh at their stupidity. While all the talk is about residential loan problems, the monopoly that FHLMC/FNMA has on multi-family loans is staggering and must stop now that my tax dollars are actually helping them! Right now they are competing with themselves with the actual help of the government, and the rest of us in the private market can’t compete! Is that unfair or what?
Robert, that is interesting, I am curious… what percentage of transactions are multi-family? I think i have one 1 or 2 over the past 7 years or so. Just never thought about them much…
They hold over 35% of the multifamily debt in the US and it is growing fast. They are the only place to get multi-family done today on a long term fixed rate basis. Having said that, you have to go thru one of their guys to get it done, so if you are not one of their guys, the cost to the borrower is higher if he goes thru you rather than going direct, because, I assume, you wnat to make some money placing the deal. Right? The problem I have is that they are competing against me and the government is helping them beat me, in simple terms. Of course, I could and do, just simply indirectly take deals to them, but that’s not the point! The point is that they are adversely affecting the ability for the market to find a bottom to participate in multi-family loans because their spreads are below what everyone else deems market today and for the last 12+ months.
Consequently, a vast majority of the lending market (banks and insurance companies) is just sitting back shaking their heads as the government takes over the multi-family lending market! Not sure I am explaining it adequately for everyone to understand!
I hate seeing the government step into anything. I feel that they should have just let Fannie Mae and Freddie Mac go and fail. The bailout thing is getting kind of old. It would be nice if banks could only lend what they have in their deposits. I know this is old school thinking and I do not care if it makes interest rates jump up.
If the government is going to regulate, regulate, don’t wait until things fall apart and jump in as the great savior.