So where has the fall of housing left us? Here’s the take from Kenneth Rogoff, former chief economist at the International Monetary fund:
The U.S. housing slump has triggered more than $500 billion of credit market losses for banks globally and led to the collapse and sale of Bear Stearns Cos., the fifth-largest U.S. securities firm. Rogoff said the government should nationalize Fannie Mae and Freddie Mac, the nation’s biggest mortgage-finance companies, which have lost more than 80 percent of market value this year.
Freddie Mac and Fannie Mae “should have been closed down 10 years ago,” he said. “They need to be nationalized, the equity holders should lose all their money. Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds.”
Things aren’t looking good for the "Dynamic Duo" this morning:
Fannie shares fell 1 percent to $6.09 in Frankfurt at 11:03 a.m., extending a 22 percent drop in New York trading yesterday. Washington-based Fannie fell as much as 3 percent in earlier trading. Freddie Mac rose 3.4 percent to $4.54 after sliding 25 percent yesterday to the lowest since January 1991.
Barron’s reported Aug. 16 that the Bush administration anticipates the government-chartered companies will fail to raise the capital they need to offset losses, leading Treasury Secretary Henry Paulson to exercise the authority granted to him last month to fund the companies if needed.
The mortgage lenders have been battered by record delinquencies and rising losses amid the worst housing slump since the Great Depression, posting four straight losses totaling $14.9 billion. Fannie has lost about 85 percent of its market value this year, while McLean, Virginia-based Freddie has lost 87 percent.
According to Marketwatch on July 15:
Troubled mortgage-finance giants Fannie Mae and Freddie Mac aren’t planning to use a U.S. government backstop now, Treasury Secretary Henry Paulson told members of a Senate panel Tuesday.
Do you think Paulson is still going to be maintaining that today?
he’ll maintain it until the very second he nationalizes them.
count on it.
the only question is when that’s going to happen. let’s take a poll:
Will Fannie & Freddie be nationalized?
a) No.
b) Yes, by Thanksgiving.
c) Yes, by the end of the year.
d) Yes, early spring.
e) Yes, but it won’t happen anytime soon.
I’ll take b)
I’d be surprised if they last through the end of the week, much less a month.
Did you see how their last offering went?
Those pigs are toast.
BTW, igor says “oversold”. I say “short to zero”
America’s economy is in near free-fall. Congress recently raised the National Debt Ceiling by $800 Billion, 8/10s of a Trillion dollars.
This was done in anticipation of salvaging Fannie and Freddie; it won’t be enough.
Please remember that our total debt in 1980 for the first 204 years as a nation hovered around $850 Billion, scarcely more than the recent raise in the ceiling for one year!
oops, forgot to vote for myself.
I’ve said c before, but with the new report coming out I’m starting to lean towards b, too.
Diana-
I’m leaning toward an early “B” myself.
Oh, and Twist and John and everyone else, watch out for those dodgy, sketchy sales stats:
NEW YORK - As if the housing market wasn’t scary enough, the record-setting surge in foreclosures could be distorting some of the closely watched housing data used to gauge the market’s health.
The foreclosure glut is making listings of homes for sale a less reliable indicator, because much of the distressed inventory might be left out. In addition, fire-sale prices for such properties may also be skewing volume figures.
Some real estate analysts say this may indicate that housing conditions are worse than they now look, dampening hopes that the troubled market could soon be bottoming out.
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The combination of weak housing sales, falling home values, tighter credit conditions and a slowing economy have left financially strapped homeowners in a tough spot — some borrowers have no other choice but to foreclose if they can’t find a buyer for their home or pay or refinance their loans.
Nationwide, more than 272,000 homes received at least one foreclosure-related notice in July, up 55 percent from about 175,000 in the same month last year and up 8 percent from June, RealtyTrac Inc. said.
Irvine, Calif.-based RealtyTrac monitors default notices, auction sale notices and bank repossessions. More than 77,000 properties, or 28 percent, were repossessed by lenders nationwide in July, up from 16 percent a year ago, the company said.
“The wave of foreclosures is unprecedented, making it difficult to analyze, difficult to gauge how large it will get or how bad it will make things,” Deutsche Bank analyst Nishu Sood said in an interview.
Sood, in a recent report, lays out a case for why the surge in foreclosures isn’t being fully reflected in the resale inventory levels, as measured by the real-estate databases known as multiple listing services, or MLS. In nine of the 33 markets Sood examined, distressed inventory is significantly higher than what is found in the MLS listings.
This is most pronounced in what have been deemed “bubble” real estate markets, which saw the biggest gains during the home buying boom and are experiencing the largest declines since the pullback began more than two years ago. For instance, in Sacramento, the foreclosed inventory was 31,219 units, or more than twice the 14,913 units on the MLS listings. San Francisco had foreclosures running at 190 percent of MLS listings, while foreclosures in Phoenix ran at 130 percent of the MLS listings.
Sood attributes that gap largely to bank-owned foreclosed homes that aren’t always captured in the MLS listings. He calls that the “shadow inventory,” and says the behind-the-scenes glut of properties wreaks havoc on housing-related statistics.
Foreclosures also are influencing sales and price data. Transaction volumes are being boosted by the sale of the distressed inventory, which in bubble markets represents 40 percent of sales. But such sales then tend to push market prices down, with banks offering steep discounts to move inventory, according to Sood’s research.
“Since foreclosed properties are reduced in price until they sell, an increase in foreclosure transactions simply means there are more foreclosures rather than more buyers,” Sood said.
What seems key to stabilizing the housing market is finding a way to slow the pace of foreclosures. Industry executives are looking for the Housing and Economic Recovery Act of 2008 to provide some help. Starting Oct. 1, as many as 400,000 borrowers on the brink of losing their homes may be eligible for a more affordable loan backed by the Federal Housing Administration.
“Congress and the White House have offered a lifeline to many homeowners facing foreclosure, which could help keep more people in their homes and fewer distressed properties from coming to the market,” Toll Brothers Inc. CEO Robert Toll said Aug. 13 after the Horsham, Pa.-based company reported that a steep decline in new home contracts and sales would hurt quarterly results for the three months ended July 31.
The government program will allow those who qualify to cancel their old home loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home’s current value. The FHA will insure a total of $300 billion of the loans over a three-year period.
But this won’t necessarily fix the foreclosure problem since refinancing into the new program requires the lender to agree to the loan change. That means the banks would have to be willing to take a loss on the existing loans in exchange for avoiding an often-costly foreclosure.
This new program also is only for primary residences, not investor-owned properties, which have been hard hit by foreclosures.
Until there is clear evidence that the surge in foreclosures has slowed, it will be harder to call the housing collapse a thing of the past.
By the way, you are clearly misunderstanding the historic role of FM/FM. It has always had a political role, NEVER a market or economic role. So its demise is a signal that the Federal Government is backing away from the society.
Which, as far as I am concerned, is fine. HOWEVER, now it is up to you to decide how to house, clothe and feed 300 million people every day. Let’s see what priorities you reveal by how you think about this.
jryskmpr,
Sorry, heard that violin played long ago. Once they started handing out outrageous bonuses to top executives, the “greater good of the american people” got thrown out the window.
Plain and simply, these organizations as private entities have been bloodsucking leaches off of unsuspecting borrowers and now taxpayers alike.
Igor says “deceive” and I agree.
RE: Fannie: $6.09, Freddie: $4.54
And things are getting worse: FNM now ~$3.50, FRE ~$2.50.
Their 52-wk highs are $71 and $66!
Paulson has effectively slayed them, buried them under a $250B “We’ll take that bad debt off your hands and we’ll pay you 100 cents on the dollar” bailout of reckless lenders.