Looming Problems at Fannie Mae
Maxed Out Mamma tells us that Fannie Mae may already have huge subprime exposure (emphasis added):
Maybe most voters believe
that FNMA and FHA are just in the conservative loan business.
HAHAHAHAHAHAHAHA. Certainly no "trained journalist" is going to ask any
questions about this topic.Both Fannie and FHA will go to DTIs of over 60% in some cases. Especially refis. Try this thread on FHA.
If only I had saved down the 100 odd links or so I've run into over the
last year about how brokers were getting loans that the subprime
companies refused (who have since defaulted) through under FNMA!!! The
reason they did it as a last resort was only because FNMA paid less for
the loan. FNMA is already going to run into huge problems because of
the slopover into their portfolio in the interim between most of the
subprime lenders going down and FNMA's meaningful tightening of lending
standards. So FNMA already faces years of worsening financial trouble
without any new risks. Why does OFHEO oppose this? Hmmmm?You can get information on Fannie's loan types at efanniemae.com. Believe me, they do high LTV, hybrids, 40 year etc. This page will show you information about Fannie's ARM products. Take a look. Take a good look. You want a 100% interest-only? They got it!! In fact, they'll take downpayment assistance, and go up to 105% with special programs. Chortle! Ya want interest-only ARM hybrids with DAP? Sure. BRING IT ON, cries Fannie. Simultaneous seconds? Sure 'nuff!!! (By the way, this is the escape from the refusal of the MI companies to play.)
The
bottom line is that every risk afflicting Alt-A lenders in high-cost
areas can afflict Fannie and really has. It's just that no one is
paying attention.
morganovich:
worth noting as well:
the proposed "stimulus" package currently on the table would allow these agencies to fund much larger loans. currently they are limited to loans of $417,000 and under. the stimulus proposal will raise this to $730,000, roughly what used to be called a "superjumbo".
the spread in loan costs above and below $417,000 has been significant. now they look to make bad loans more affordable by letting freddie and fannie play? good work guys. this is just more terrifying short term thinking. "as long as it doesn't blow up on my watch, who cares..."
January 25, 2008, 11:41 amBrian Brady:
This is my first comment, here, so I'll appear to be just another "loan hack". Let me assure you that is not the case....however...
The author (Maxed Out Momma), and the media, don't really understand what the problems were with the mortgage crisis. It wasn't bad credit borrowers, 100% financing, ARMS, or even neg-am loans. Most of these foreclosures are a direct result of stated income loan guidelines.
The ability to repay the loan supercedes credit and equity positions. Unfortunately, the "boom" neglected that underwriting guideline and we're paying for it today.
GSE's don't buy much (if any) stated-income loans. While the easy, knee-jerk reaction is to say "here we go again", the raised loan limit would actually invite BETTER underwriting decisions.
I think Maxed Out Mama missed this one
January 25, 2008, 12:34 pmmorganovich:
if you don't think freddie and fannie were buying no doc loans in the secondary market and then either holding or securitizing them, particularly before 2007, you may want to pay close attention to their next couple of quarters. wall st has certainly voted on what they think and cut the stocks in half.
they seem to have seen this coming and backed off a bit early last year, but they are by no means clean.
this smells like a nasty way to suck in more governmental funds into a bailout while we let freddie and fannie move up to a higher stakes table and try to earn their way out of past mistakes buying up jumbos.
i must confess, i don't like the odds...
January 25, 2008, 3:25 pmBob Smith:
The superjumbo provision isn't the problem, the 125% of value provision is.
January 25, 2008, 4:38 pmmorganovich:
bob-
it's not 125% of value. it's 125% of median house price in a region. this means that expensive areas (CA, NY etc) will be able to get freddie and fannie loans larger that $730k. this applies to FHA as well.
this can lead to some enormous conforming loans. in SF, over $1million...
January 25, 2008, 4:58 pmBearster:
None of this would bother me, if private individuals and companies made decisions that hurt only themselves and their investors. What bothers me is when the government rewards such bad decision-making by taking my money, by force, and giving it to them!
The idea of a "safety net" is nothing more than a license to make poor decisions, knowing that other people will be taxed to protect you from the consequences.
January 26, 2008, 11:59 am