Fannie Mae And Freddie Mac Situation

An article in yesterday's Wall Street Journal presents a thorough summary of the situation at Fannie Mae and Freddie Mac. The article is titled, "No Exit in Sight for U.S. As Fannie, Freddie Flail." Here is the link to the story:

http://online.wsj.com/article/SB10001424052748704362004575001042824028862.html?KEYWORDS=no+exit+in+sight+for+us

I've commented extensively on the U.S. real estate situation, and the national attempts to intervene in this market. Those posts can be found under the "Real Estate" and "Intervention" categories.

With regard to the aforementioned article, there are three items that I feel are especially notable. For now, I will post them without comment; I may comment on them in the future. The first is this:

"On a recent afternoon, employees at Freddie's headquarters here peppered Mr. Haldeman with concerns about the company's future. He responded that they were "fortunate" to have such a clear mission—the government's foreclosure-prevention drive. "We're doing what's best for the country," he told them."

The second is this:

"We're making decisions on [loan modifications] and other issues, without being guided solely by profitability, that no purely private bank ever could," Mr. Haldeman said in late January in a speech to the Detroit Economic Club."

The third is this:

"The government is willing to tolerate such open-ended exposure for two reasons. First, it sees the companies as essential cogs in the fragile housing market. Fannie and Freddie buy mortgages originated by others, holding some as investments and repackaging others for sale to investors as securities. Together with the Federal Housing Administration, they fund nine in 10 American mortgages. Worries about potential insolvency would cripple their ability to fund home loans, which would hamstring the market....By using Fannie and Freddie for such initiatives, the White House doesn't have to go to Congress for funding. The Treasury and White House can simply issue instructions to Fannie and Freddie via their federal regulator, the Federal Housing Finance Agency, or FHFA."

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In December 2008, I wrote an article titled, "Business Planning Principles Applied to the Stimulus / Intervention Efforts."

I wrote the article for many reasons...perhaps chief among them because it was clear that the various interventions lacked a suitable managerial framework. The "exit strategy" bullet point in the article seems particularly germane to the current intervention efforts being orchestrated through Fannie Mae and Freddie Mac.


SPX at 1070.52 as this post is written

More On The Fannie/Freddie Developments Of December 24

Here is a Wall Street Journal editorial on the December 24 developments at Fannie Mae and Freddie Mac. This editorial provides some new perspectives on the matter:

http://online.wsj.com/article/SB10001424052748704152804574628350980043082.html

My original comments on these developments was on December 28.

I feel it is critically important to understand the extent of intervention as it pertains to the housing market. Fannie Mae and Freddie Mac continue to play an very large role in these intervention efforts.

SPX at 1135.43 as this post is written

Fannie Mae And Freddie Mac Developments Of December 24

For those who may have missed it, there was a notable development on December 24 concerning Fannie Mae and Freddie Mac. Here is The Wall Street Journal link and the Treasury Dept link:

http://www.ustreas.gov/press/releases/2009122415345924543.htm

http://online.wsj.com/article/SB126168307200704747.html

Basically the government announced plans to cover an unlimited amount of losses at both companies.

It is yet another testament to the extent of intervention in the real estate markets.

I think this "blank check" approach carries many risks. A while back I wrote an article ("Business Planning Principles Applied to the Stimulus / Intervention Efforts") about how interventions could be effectively managed. The article is not intended to condone or support the concept of interventions. However, there should be a regimented approach to their administration. These interventions carry a tremendous amount of risk, aside from the substantial amounts of money being expended.

SPX at 1126.48 as this post is written