Skip to main content

Fannie and Freddie man up, push worst loans back to banks

I don't typically comment on financials or real estate that much these days but I this weekend I saw an article in the Wall Street Journal and it made me smile.

Fannie Mae (FNM) and Freddie Mac (FRE) have been buying and guaranteeing mortgages in greater and greater numbers during the course of the real estate implosion. Their basic operation is to securitize mortgage loans originated by private lenders in the primary mortgage market into mortgage-backed securities, which are bought and sold in the secondary mortgage market. They have been nearly like a lender of last resort as banks have worked overtime to get mortgages off their balance sheets.

As you may know, when the real estate bubble burst and homeowners began to default, Fannie and Freddie increasingly came under pressure and needed a bailout to the tune of about $100 billion. These government sponsored enterprises are now essentially owned by taxpayers.

As a card-carrying taxpayer, then, I was pleased to read the article in the Journal that discussed how Fannie and Freddie are combing through the billions of dollars of mortgages they have taken on over the last few years and looking for those that exhibit "underwriting flaws." These "flaws," I suspect, mean that the loans are crap, originated without proper documentation and probably little hope of repayment. When they identify loans of this dubious quality, they are forcing the banks to buy them back.

As a percentage of loans outstanding, loans in this category don't amount to a big proportion (a total of only about $7 billion in the first nine months of 2009); nevertheless, as a taxpayer it feels good to see the sleaziest bankers being forced to take back some of their own garbage. The article says that Bank of America (proud owner of Countrywide Financial) and JPMorgan Chase (buyer of Washington Mutual) are likely to be the biggest losers.

If you enjoy seeing the big banks squirm, you may also appreciate the fact that many other holders of mortgage-backed securities are also kicking the junk loans back and demanding the banks repurchase them.

As they say, what comes around, goes around.

(Hat tip to BNSpired for the image)

Comments

Speedmaster said…
Have you seen this? I dismayed that these characters seem to have gotten a pass with respect to the Fannie/Freddie debacle.
http://www.youtube.com/watch?v=_MGT_cSi7Rs
Anonymous said…
Good dispatch and this mail helped me alot in my college assignement. Thanks you as your information.
Anonymous said…
Thanks respecting sharing. Like always, on the money and bang on on quarry!

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.