The continual monthly bailout of Freddie Mac and Fannie Mae with unimaginable sums of money from the government is disturbing to taxpayers, but encouraged by Russia and China, the holders of huge portions of their bonds, since those countries do not want to suffer losses on their mortgage-related holdings. If they did, they would consider those losses financial warfare and retaliate.
For the homebuyer and the multiple listing service (MLS) market, support of the government as the lender of last resort must continue until the home prices in California stabilize for at least a two-year period and insolvent homeownership due to negative equities no longer exists. This means loan balance cramdowns or massive strategical defaults, and the sooner the medicine is taken by the lenders, the more quickly the MLS market place will recover for agents and homeowners.
Until then, the mortgage-backed bond market will not be attractive for anyone other than the Federal Reserve investment and treasury guarantees, implicit or actual. [For more information on the future of Fannie Mae, see the February 2010 first tuesday article, The fate of our Fannie and Freddie]
These GSEs will eventually be dismantled and the government guarantees will be differently directed to keep the mortgage market viable until Wall Street gets its collective act together and fully returns to the mortgage-backed bond market. Wall Street was most adept at floating these bonds in the past, and they went way beyond the limits of government guarantees in the risky mortgages they were able to fund, package and resell to bond investors around the world.
This Wall Street Bankers are destined to do again — they only need some time to find their comfort zone. They figured out how to sell government-guaranteed mortgage-backed bonds without a hitch in early 2010 after the Feds quit purchasing all of the mortgage-backed bonds for over a year at the height of the financial liquidity crisis.
Thus both Freddie and Fannie will eventually be unnecessary since the private sector has demonstrated they can supply all the mortgage money homebuyers and apartment buyers need to do deals. Watch for a quiet fade into the past as their disappearance is exploited only by pundits and political types.
Re: “Freddie Mac seeks more aid amid loss” from the Wall Street Journal
Re: “Fannie Mae narrows loss, but asks for more aid” from CNNMoney.com
first tuesday take: By Kelli Galippo
Copyright © 2010 by first tuesday Realty Publications, Inc. Readers are encouraged to reprint or distribute this information with proper credit given to the first tuesday Journal Online
