Bailout begins for Freddie Mac, Fannie Mae

[Col. Crackpot]

Oh of course not, they're only a year or two late and shutting the door after the horsies are gone and the barn's burning down.

The proverbial barn hasn't quite burned yet though a few of the horses ran off Most banks are now actively managing their HELOC portfolios against tightened underwriting guidelines monthly now. HELOCS are generally the highest risk notes to begin with.

[Alferd Packer]

Well, my wife and I are looking to purchase a house within the next six months, so I'll be able to report back exactly how difficult it now is for a married with excellent credit and very little debt to obtain a normal mortgage.

[Col. Crackpot]

Well, my wife and I are looking to purchase a house within the next six months, so I'll be able to report back exactly how difficult it now is for a married with excellent credit and very little debt to obtain a normal mortgage.

For first time home buyers with good credit it is not that bad... It's actually a buyers market after the recent corrections in home prices. Provided you can show the income to support it, FIRST TIME HOMEBUYERS can still do 5% down Through FHA and get a rate in the low to mid 6's.

[J]

Buying a home gets tricky since it's now a matter of balancing how fast & far home prices are falling with the rate of increase in interest rates. As all the exotic & toxic mortgage packages are outlawed or phased out, and as the recession continues, home prices will have to correct back to historical norms; that is around 3 times annual family income.

The big question is what happens to interest rates and how fast, and that depends on a large part on how many bailouts the Fed and Government plan on handing out and how the bonds & treasuries markets respond to them. If for instance Fannie & Freddie get a $500 billion bailout to get their leverage ratios to acceptable limits, there's a good chance the markets will give a big finger to the Fed, dump all their longer term T-bills and drive up the far end of the yield curve by several percentage points. As mortgage rates are closely tied to the yield of those T-bills, they'll also spike sharply upwards.

[Darth Wong]

Don't worry, I know how we can fix the economy:

[Admiral Valdemar]

Because, of course, those rebates are going to go on luxury goods to keep BAU going, and not on the debts accumulated or sky rocketing prices of living.

I REALLY need to order that Ferrari I've always wanted. The government should pay me to do my duty in stimulating the economy. Then allow me to stimulate some buxom wenches too, for the good of the species.

[J]

Bailout bill passed by House, Senate expected to confirm it and Bush to rubberstamp it.

Link

House OKs rescue for homeowners, Freddie, Fannie

By JULIE HIRSCHFELD DAVIS – 3 hours ago

WASHINGTON (AP) — Rescue legislation sailed through the House on Wednesday aimed at helping 400,000 strapped homeowners avoid foreclosure and preventing the collapse of troubled mortgage companies Fannie Mae and Freddie Mac.

The 272-152 vote reflected a congressional push to send election-year help to struggling borrowers and to reassure jittery financial markets about the health of two pillars of the mortgage market.

Hours before the vote, President Bush dropped his opposition to the measure, which now is on track to pass the Senate and become law within days.

The White House swallowed its distaste for $3.9 billion in grants for devastated neighborhoods. In return, the administration got both the power to throw Fannie Mae and Freddie Mac a lifeline and the legislation Republicans long have advocated to rein in the government-sponsored mortgage companies.

Treasury Secretary Henry M. Paulson and lawmakers in both parties negotiated the final deal. It accomplishes several Democratic priorities, including aid for homeowners, a permanent affordable housing fund financed by the two mortgage companies and the money for hard-hit neighborhoods. The grants are for buying and fixing up foreclosed properties.

"It is the product of a very significant set of compromises," said Rep. Barney Frank, chairman of the House Financial Services Committee. "We are dealing with the consequences of bad decisions and inaction and malfeasance from years before," said Frank, D-Mass.

Paulson said he would push for enactment of the bill by week's end. Despite disappointment with some items rejected, he said "portions of this bill are orders of magnitude more important to turning the corner on the housing correction and supporting our markets and our economy."

Bush had argued the neighborhood grants would benefit bankers and lenders. But the White House said a showdown with Congress over the proposal would be ill-timed.

It was a striking split for Bush and many congressional Republicans. GOP leaders said they would not be stampeded into supporting a bill they called a bailout for irresponsible homeowners and unscrupulous lenders, even as they acknowledged it was probably necessary.

"It's a bill that I wish I could support. It's a bill that the market clearly needs ... but this is not a bill that I can support," said Rep. John A. Boehner, R-Ohio, the minority leader.

Only 45 Republicans — most from districts ravaged by the housing crisis and some facing tough re-election fights — voted for it.

Liz Glenn, a community planning official in Baltimore County, Md., said the grants "would enable us to acquire and rehab more homes and offer them at an affordable price."

The Treasury Department would gain power to extend the government-sponsored mortgage companies an unlimited line of credit and to buy an unspecified amount of their stock, if necessary. The two companies, chartered by Congress, back or own $5 trillion in mortgages — nearly half the nation's total.

Sen. Richard C. Shelby of Alabama, the top Republican on the Senate Banking, Housing and Urban Affairs Committee, said Bush's turnabout reflected political reality.

"They looked at the Hill, they counted some votes and they see there's pretty broad support for this," said Shelby, his party's lead negotiator.

He and Sen. Christopher J. Dodd, the committee chairman, said they would push for swift approval of the measure without any changes.

"We'll be anxious to move this product along," said Dodd, D-Conn.

But conservatives led by Sen. Jim DeMint, R-S.C., were threatening to slow the measure unless Democrats allowed a vote on barring Fannie Mae and Freddie Mac from lobbying and making campaign contributions. Senators' objections could delay enactment of the measure until next week.

Congressional analysts estimate that a government rescue of the mortgage giants could cost $25 billion, but they predict there is a better than even chance it will not be needed.

The bill would let the Federal Housing Administration back $300 billion in new loans so an estimated 400,000 homeowners who cannot afford their house payments could try to escape foreclosure by refinancing into safer, more affordable mortgages. Lenders would have to agree to take a substantial loss on the existing loans, and in return, they would walk away with at least some payoff and avoid the often-costly foreclosure process.

"The industry really has to step up and use it," said Bruce Dorpalen, director of housing counseling for Acorn Housing Corp., a nonprofit housing group based in Philadelphia.

The plan also creates a new regulator with tighter controls for Fannie Mae and Freddie Mac and modernizes the agency. It includes about $15 billion in housing tax breaks, including a credit of up to $7,500 for first-time buyers, and increases the statutory limit on the national debt by $800 billion, to $10.6 trillion.

Lawmakers abandoned efforts to place conditions on any Fannie and Freddie rescue, but the bill hands the new regulator approval power over the pay packages of executives at the companies.

UNLIMITED CREDIT!

Aso, if they're only projecting $25 billion in costs and claiming it'll likely be much less, then why are they raising the debt limit by $800 billion?

[Durandal]

An interesting suggestion ...

Fannie Mae bailout: Taxing America’s poorest citizens to help the richest
philg - July 24, 2008 @ 9:43 pm · Filed under Uncategorized

The federal government is soon to be ladling out tax dollars to bail out Fannie Mae. Who will pay for this? Joe Sixpack, a guy who works hard at two jobs, rents an apartment, and tries to support a couple of kids. Who benefits? Stockholders in Fannie Mae. Holders of bonds issued by Fannie Mae. The 5,000 employees of Fannie Mae, including the CEO who helped himself to $13.4 million in salary this year. What do the stockholders, bondholders, and employees have in common? They are all richer than average Americans and they are all going to be sucking down tax dollars paid by poorer than average Americans (plus some tax dollars from the rich, of course).

Joe Sixpack might have been thinking that he could finally afford to rent a nicer apartment or maybe even buy a place. But now Congress is giving the states $4 billion to buy up property in crummy neighborhoods. Joe won’t be getting any bargains because he will have to compete with the government when he goes home-shopping. Suppose he remains a renter? Higher real estate prices will result in higher rents, which aren’t going to be too affordable for Joe because he is about to be laid off from one of his jobs.

In Roman times the employees of Fannie Mae would be decimated, i.e., they would draw lots and 90 percent of them would beat the unlucky 10 percent to death with clubs. What would be a modern equivalent? At the very least taxpayers should have the satisfaction of seeing the highest paid 100 Fannie Mae employees fired with two weeks of severance pay (it can’t be that hard to find replacements given that the current staff’s primary achievements have been accounting fraud and then insolvency). The newspapers say that it is important for foreigners to have confidence that the U.S. will pay its debt. Let’s pay foreign bond holders in full then, using tax dollars as necessary. After all, a guy in China could not be expected to understand that a bunch of crummy houses in Cleveland were not worth $250,000 each. Let the domestic shareholders get 10 cents on the dollar and let the domestic bondholders get whatever the bonds are actually worth.

Poor Americans already subsidize wealthy homeowners through the home mortgage deduction. Do they need to subsidize incompetent managers who have already been paid $billions? Do they need to subsidize rich guys who bought Fannie Mae bonds? Do they need to subsidize shareholders who didn’t realize that the easy money from Fannie Mae couldn’t last forever?

[SirNitram]

And while everyone watches the carefully made circus of Freddie and Fannie and runs for the fainting couches, Foreclosures are up to one per 171 households, 2.2 million homes are on the inventory and creating glut, National City posted a 1.76B loss, WaMu experiences a run on itself by unsecured depositors(But refuse to call it a run on the bank), and Ford wrote down 5.3B and had a loss of 8.7B.

In short, the circus did it's job. Here's some bread.(Couldn't resist, given Durandal's post.)

[Darth Wong]

These guys know what they're doing. They saw how Japan dealt with a massive real-estate bubble followed by a financial industry meltdown in the 1980s: more than twenty years of financial industry woes as they tried to bail water. Clearly, they felt that this was a model to be emulated.

[Nova Andromeda]

More 'the sky is falling articles' (don't ask me if it is or not thought):

US banking system is insolvent

[quote="Mike "Mish" Shedlock"]
24. There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.[/quote]



Uninsured WaMu deposits a REALLY bad idea


[quote="Mike "Mish" Shedlock"]By the way, I am not just talking about WaMu here. Any bank whose share price is in the single digits is at extreme risk. Any bank whose share price is under $5 is at risk of imploding overnight. Here is a partial list:

Washington Mutual (WM)
Corus Bank (CORS)
Bank United (BKUNA).
National City Corporation (NCC).

If you have money above the FDIC limit at any of those banks, you better do something about it immediately.[/quote]

[aerius]

And while everyone watches the carefully made circus of Freddie and Fannie and runs for the fainting couches, Foreclosures are up to one per 171 households, 2.2 million homes are on the inventory and creating glut, National City posted a 1.76B loss, WaMu experiences a run on itself by unsecured depositors(But refuse to call it a run on the bank), and Ford wrote down 5.3B and had a loss of 8.7B.

The way things are going we could start a nice betting pool on which company's going to go tits up next. I call dibs on WaMu and Chrysler.

[Einhander Sn0m4n]

And while everyone watches the carefully made circus of Freddie and Fannie and runs for the fainting couches, Foreclosures are up to one per 171 households, 2.2 million homes are on the inventory and creating glut, National City posted a 1.76B loss, WaMu experiences a run on itself by unsecured depositors(But refuse to call it a run on the bank), and Ford wrote down 5.3B and had a loss of 8.7B.

The way things are going we could start a nice betting pool on which company's going to go tits up next. I call dibs on WaMu and Chrysler.

Shades of Fucked Company Dot Com?

Oh, and what's the status of Chase?

[Bob the Gunslinger]

So... Should I bother pulling out my $108 (estimated) from WaMu, then? Or should I hope they're the first bank to go so that the FDIC will still have some cash when I come a-knockin'?

[SirNitram]

So... Should I bother pulling out my $108 (estimated) from WaMu, then? Or should I hope they're the first bank to go so that the FDIC will still have some cash when I come a-knockin'?

Unless there's a missing 'k' in after the 8, you're fine. The idea that the FDIC won't be issued the necessary funds to recover insured assets is insane.

[Col. Crackpot]

I'm selling a shit ton of $100,000 (FDIC limit) CD's lately. half a dozen in the last 10 days. SIX HUNDRED GRAND. In a week and a half. Here's your FDIC brochure, you need a checking account to get that interest rate. Have a nice day. I don't even have to try. I have a guy liquidating his entire Fidelity portfolio and rolling it into a variable rate IRA savings account to get the additional $250K in insurance. crazy times. Let the brokers jump out windows, dumbasses should have seen this coming.

[J]

Well, WaMu has around $150 billion in insured deposits (a few billion less now after the bank run they had this week) while the FDIC has ~$50 billion left. If WaMu goes under the FDIC will almost certainly be begging from the Treasury or Congress which means the taxpayers are on the hook, again. Also, the FDIC will have to raise the rates it charges to insure bank deposits which puts more pressure on banks on top of all the other pain they're suffering. In short, if a few big banks like WaMu go down then it's likely it'll domino and make a whole bunch of banks go kablooie in short order.

[Col. Crackpot]

Well, WaMu has around $150 billion in insured deposits (a few billion less now after the bank run they had this week) while the FDIC has ~$50 billion left. If WaMu goes under the FDIC will almost certainly be begging from the Treasury or Congress which means the taxpayers are on the hook, again. Also, the FDIC will have to raise the rates it charges to insure bank deposits which puts more pressure on banks on top of all the other pain they're suffering. In short, if a few big banks like WaMu go down then it's likely it'll domino and make a whole bunch of banks go kablooie in short order.

all they need to do is bump up their overdraft fees. BAM! A billion dollars.

[J]

I'm selling a shit ton of $100,000 (FDIC limit) CD's lately. half a dozen in the last 10 days. SIX HUNDRED GRAND. In a week and a half. Here's your FDIC brochure, you need a checking account to get that interest rate. Have a nice day. I don't even have to try. I have a guy liquidating his entire Fidelity portfolio and rolling it into a variable rate IRA savings account to get the additional $250K in insurance. crazy times.

That's what I'm hearing from one of my friends in BAC, she's seeing huge amounts of money migrating over from IndyMac, WaMu, and National City. Same thing as you're seeing, I want an account, here's $100k, please thanks, bye! People are practically begging her bank to take their money.

[J]

all they need to do is bump up their overdraft fees. BAM! A billion dollars.

Well, yeah, but that's not going to help when they're losing $5-10 billion a quarter. Banks are losing money almost as fast as ExxonMobil is raking it in, that's just nuts.

[Col. Crackpot]

That's what I'm hearing from one of my friends in BAC, she's seeing huge amounts of money migrating over from IndyMac, WaMu, and National City. Same thing as you're seeing, I want an account, here's $100k, please thanks, bye! People are practically begging her bank to take their money.

As much as i hate to gleefully profit from bank collapses and economic insecurity... I have 2 kids and a mortgage to pay. And it damn sure makes me look good. I know Citizens isn't going anywhere, and I'm damn sure RBS isn't going anywhere. Job security is a great thing to have these days.

[Col. Crackpot]

all they need to do is bump up their overdraft fees. BAM! A billion dollars.

Well, yeah, but that's not going to help when they're losing $5-10 billion a quarter. Banks are losing money almost as fast as ExxonMobil is raking it in, that's just nuts.

Banks invented fucking people over. The oil companies just are doing a better job of it right now. Give it time and i guarantee it will cost you $50 to overdraw your account by a dollar and $5 to use an off network ATM.

[J]

As much as i hate to gleefully profit from bank collapses and economic insecurity... I have 2 kids and a mortgage to pay. And it damn sure makes me look good.

Speaking of bank failures, another two banks went kablooie today. Thankfully these are fairly small banks.

[Col. Crackpot]

As much as i hate to gleefully profit from bank collapses and economic insecurity... I have 2 kids and a mortgage to pay. And it damn sure makes me look good.

Speaking of bank failures, another two banks went kablooie today. Thankfully these are fairly small banks.

about 4 or 5 go belly up each year. Though we are quite ahead of the curve this year.

[Darth Wong]

The American banking system is very strange to me. In Canada, we have a small number of large, stable banks. But in America, you have thousands of little dipshit banks scattered all over the country. Why would I want to put my money into some little regional bank?