Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Fannie, Freddie Jump on Grenade


Taxpayers now proud owners of most toxic debt on the market.

For anyone wondering where the billions of dollars in worthless mortgage-backed securities will wind up, look no further: The mirror.

Fannie Mae (FNM) and Freddie Mac (FRE), the formerly quasi-public, now taxpayer-owned mortgage behemoths, are stealthily sopping up the worst of the structured mortgage debt Wall Street churned out during the boom.

In a story that barely made the back pages of the nation's newspapers, Bloomberg reports Fannie and Freddie will start purchasing $40 billion per month of "underperforming mortgage bonds." For its part, the Federal Housing Finance Agency, which oversees the two firms, issued a statement saying it hasn't set a specific dollar target for the initiative.

If this program is indicative of the care with which Washington plans to deploy taxpayer money to clean up the mortgage mess, we're going to need a lot more than $700 billion.

In September, Treasury Secretary Hank Paulson rationalized the seizure of Fannie and Freddie by saying, "It's very possible for not only the taxpayer not to be hurt or to make money, but for the shareholders to have some value restored to them." It's unclear how targeting the worst quality assets on the market will achieve this end.

The initiative -- which is outside the scope of the recently announced bailout plan -- intends to bring liquidity to the frozen mortgage markets. Regulators hope the effect will be lower rates on new mortgages, softening the blow of tumbling home prices.

Policy-makers are desperate to find ways to make buying a house easier, as banks continue to tighten lending requirements to shield themselves from further losses. From big banks like JPMorgan Chase (JPM) and Wells Fargo (WFC) to small, regional players like Gateway Bank in San Francisco, lenders are making it harder to take out mortgages, auto loans, credit cards and just about every other type of consumer debt.

The inevitable regulatory reaction in the coming years is likely to make getting a mortgage even harder.

Coupled with the growing belief in Washington that freezing the foreclosure process is necessary to stem the tide of repossessions decimating communities across the country, mortgage rates aren't likely to fall any time soon.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos