Days of zero-down mortgages over

[Eugene]

Make no mistakes about it, there will be more sales activity due to this stimulus whether we are talking FHA or the conforming limits

A question …

What would be a typical interest rate on a $300,000 30-year fixed loan with housing-to-income ratio of 40%, or “stated income”? Compared with “conforming” (say, 25% housing-to-income)?

Let’s assume FICO 750 and 80% loan-to-value.

[Daniel]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

However, I’m very concerned about the new FHA limits and the entire down-payment assistance issue. The FHA is an arm of the government, and they could potentially underwrite or guarantee a lot of junk loans. If they take big losses, they’ll just get money allocated in next year’s budget to cover them (like the Post Office, for instance). It wouldn’t be even called a bailout. It would simply be the government (us) paying the bill for some government expense, like the Iraq war. I bet there wouldn’t even be an uproar over it (there would certainly be one if Fannie or Freddie went under and got bailed out).

Truth to be said, the FHA has done a pretty good job historically, as it’s been mostly in the black over the years. But that was partly because they were dealing with small loans. Can they correctly price risk for jumbos? I doubt they can, and I’m sure there will be great political pressure for them to be lax. That’s why it’s the FHA that worries me, not the GSEs.

[Daniel]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

However, I’m very concerned about the new FHA limits and the entire down-payment assistance issue. The FHA is an arm of the government, and they could potentially underwrite or guarantee a lot of junk loans. If they take big losses, they’ll just get money allocated in next year’s budget to cover them (like the Post Office, for instance). It wouldn’t be even called a bailout. It would simply be the government (us) paying the bill for some government expense, like the Iraq war. I bet there wouldn’t even be an uproar over it (there would certainly be one if Fannie or Freddie went under and got bailed out).

Truth to be said, the FHA has done a pretty good job historically, as it’s been mostly in the black over the years. But that was partly because they were dealing with small loans. Can they correctly price risk for jumbos? I doubt they can, and I’m sure there will be great political pressure for them to be lax. That’s why it’s the FHA that worries me, not the GSEs.

[Daniel]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

However, I’m very concerned about the new FHA limits and the entire down-payment assistance issue. The FHA is an arm of the government, and they could potentially underwrite or guarantee a lot of junk loans. If they take big losses, they’ll just get money allocated in next year’s budget to cover them (like the Post Office, for instance). It wouldn’t be even called a bailout. It would simply be the government (us) paying the bill for some government expense, like the Iraq war. I bet there wouldn’t even be an uproar over it (there would certainly be one if Fannie or Freddie went under and got bailed out).

Truth to be said, the FHA has done a pretty good job historically, as it’s been mostly in the black over the years. But that was partly because they were dealing with small loans. Can they correctly price risk for jumbos? I doubt they can, and I’m sure there will be great political pressure for them to be lax. That’s why it’s the FHA that worries me, not the GSEs.

[Daniel]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

However, I’m very concerned about the new FHA limits and the entire down-payment assistance issue. The FHA is an arm of the government, and they could potentially underwrite or guarantee a lot of junk loans. If they take big losses, they’ll just get money allocated in next year’s budget to cover them (like the Post Office, for instance). It wouldn’t be even called a bailout. It would simply be the government (us) paying the bill for some government expense, like the Iraq war. I bet there wouldn’t even be an uproar over it (there would certainly be one if Fannie or Freddie went under and got bailed out).

Truth to be said, the FHA has done a pretty good job historically, as it’s been mostly in the black over the years. But that was partly because they were dealing with small loans. Can they correctly price risk for jumbos? I doubt they can, and I’m sure there will be great political pressure for them to be lax. That’s why it’s the FHA that worries me, not the GSEs.

[Daniel]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

However, I’m very concerned about the new FHA limits and the entire down-payment assistance issue. The FHA is an arm of the government, and they could potentially underwrite or guarantee a lot of junk loans. If they take big losses, they’ll just get money allocated in next year’s budget to cover them (like the Post Office, for instance). It wouldn’t be even called a bailout. It would simply be the government (us) paying the bill for some government expense, like the Iraq war. I bet there wouldn’t even be an uproar over it (there would certainly be one if Fannie or Freddie went under and got bailed out).

Truth to be said, the FHA has done a pretty good job historically, as it’s been mostly in the black over the years. But that was partly because they were dealing with small loans. Can they correctly price risk for jumbos? I doubt they can, and I’m sure there will be great political pressure for them to be lax. That’s why it’s the FHA that worries me, not the GSEs.

[TheBreeze]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

I bet you’re wrong. According to their latest 10-Q (filed last November), Fannie has guaranteed $2 trillion in mortgages and owns $700 billion. All this on $44 billion in capital. Does this look like a sound balance sheet to you?

The only incentive the Fannie and Freddie CEOs have are to make short-term results look good through the fees generated by mortgage originations. They have virtually no incentive to look at the long-term likelihood of payback on these loans as that won’t affect their bonuses for the next quarter.

My guess is that if the Fannie and Freddie mortgage portfolios were marked to market, they would both be insolvent.

Here’s a link to Fannie’s latest 10-Q.

http://www.sec.gov/Archives/edgar/data/310522/000095013307004526/w40673e10vq.htm

Search for “MBS held by third parties” on that page to see how bad it is. In that little section you can see how enormous their mortgage book of business is and how little capital they have. These guys are goners without additional captial infusions.

I’d give you a link to Freddie Mac’s latest quarterly filing, but I can’t find any:

http://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=fre&filenum=&State=&SIC=&owner=include&action=getcompany

Who knows how bad their situation is.

[TheBreeze]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

I bet you’re wrong. According to their latest 10-Q (filed last November), Fannie has guaranteed $2 trillion in mortgages and owns $700 billion. All this on $44 billion in capital. Does this look like a sound balance sheet to you?

The only incentive the Fannie and Freddie CEOs have are to make short-term results look good through the fees generated by mortgage originations. They have virtually no incentive to look at the long-term likelihood of payback on these loans as that won’t affect their bonuses for the next quarter.

My guess is that if the Fannie and Freddie mortgage portfolios were marked to market, they would both be insolvent.

Here’s a link to Fannie’s latest 10-Q.

http://www.sec.gov/Archives/edgar/data/310522/000095013307004526/w40673e10vq.htm

Search for “MBS held by third parties” on that page to see how bad it is. In that little section you can see how enormous their mortgage book of business is and how little capital they have. These guys are goners without additional captial infusions.

I’d give you a link to Freddie Mac’s latest quarterly filing, but I can’t find any:

http://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=fre&filenum=&State=&SIC=&owner=include&action=getcompany

Who knows how bad their situation is.

[TheBreeze]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

I bet you’re wrong. According to their latest 10-Q (filed last November), Fannie has guaranteed $2 trillion in mortgages and owns $700 billion. All this on $44 billion in capital. Does this look like a sound balance sheet to you?

The only incentive the Fannie and Freddie CEOs have are to make short-term results look good through the fees generated by mortgage originations. They have virtually no incentive to look at the long-term likelihood of payback on these loans as that won’t affect their bonuses for the next quarter.

My guess is that if the Fannie and Freddie mortgage portfolios were marked to market, they would both be insolvent.

Here’s a link to Fannie’s latest 10-Q.

http://www.sec.gov/Archives/edgar/data/310522/000095013307004526/w40673e10vq.htm

Search for “MBS held by third parties” on that page to see how bad it is. In that little section you can see how enormous their mortgage book of business is and how little capital they have. These guys are goners without additional captial infusions.

I’d give you a link to Freddie Mac’s latest quarterly filing, but I can’t find any:

http://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=fre&filenum=&State=&SIC=&owner=include&action=getcompany

Who knows how bad their situation is.

[TheBreeze]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

I bet you’re wrong. According to their latest 10-Q (filed last November), Fannie has guaranteed $2 trillion in mortgages and owns $700 billion. All this on $44 billion in capital. Does this look like a sound balance sheet to you?

The only incentive the Fannie and Freddie CEOs have are to make short-term results look good through the fees generated by mortgage originations. They have virtually no incentive to look at the long-term likelihood of payback on these loans as that won’t affect their bonuses for the next quarter.

My guess is that if the Fannie and Freddie mortgage portfolios were marked to market, they would both be insolvent.

Here’s a link to Fannie’s latest 10-Q.

http://www.sec.gov/Archives/edgar/data/310522/000095013307004526/w40673e10vq.htm

Search for “MBS held by third parties” on that page to see how bad it is. In that little section you can see how enormous their mortgage book of business is and how little capital they have. These guys are goners without additional captial infusions.

I’d give you a link to Freddie Mac’s latest quarterly filing, but I can’t find any:

http://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=fre&filenum=&State=&SIC=&owner=include&action=getcompany

Who knows how bad their situation is.

[TheBreeze]

I’m not too concerned about raising the conforming limit for Fannie and Freddie. These are still private enterprises, and they have pretty good incentives not to guarantee junk loans. They’re trying to make a buck first, and appease the politicians second. Sure, if they fail, we’re on the hook for their losses, but I bet they won’t fail.

I bet you’re wrong. According to their latest 10-Q (filed last November), Fannie has guaranteed $2 trillion in mortgages and owns $700 billion. All this on $44 billion in capital. Does this look like a sound balance sheet to you?

The only incentive the Fannie and Freddie CEOs have are to make short-term results look good through the fees generated by mortgage originations. They have virtually no incentive to look at the long-term likelihood of payback on these loans as that won’t affect their bonuses for the next quarter.

My guess is that if the Fannie and Freddie mortgage portfolios were marked to market, they would both be insolvent.

Here’s a link to Fannie’s latest 10-Q.

http://www.sec.gov/Archives/edgar/data/310522/000095013307004526/w40673e10vq.htm

Search for “MBS held by third parties” on that page to see how bad it is. In that little section you can see how enormous their mortgage book of business is and how little capital they have. These guys are goners without additional captial infusions.

I’d give you a link to Freddie Mac’s latest quarterly filing, but I can’t find any:

http://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=fre&filenum=&State=&SIC=&owner=include&action=getcompany

Who knows how bad their situation is.

[patientrenter]

Fannie and Freddie will not fail. They are too big to fail, and everyone knows it.

Their loans may turn out to to be worth hundreds of billions less than what was loaned, but then the govt will step in to save them. Over time, as these two GSEs loaned more and more in overpriced markets, backed by private capital that is a minuscule fraction of the loans, they went from being arguably partly private organizations to almost totally government organizations. Now the private capital they have can absorb only a tiny hiccup in the hyper-inflated bubble market, and the private label is a charade.

Patient renter in OC

[patientrenter]

Fannie and Freddie will not fail. They are too big to fail, and everyone knows it.

Their loans may turn out to to be worth hundreds of billions less than what was loaned, but then the govt will step in to save them. Over time, as these two GSEs loaned more and more in overpriced markets, backed by private capital that is a minuscule fraction of the loans, they went from being arguably partly private organizations to almost totally government organizations. Now the private capital they have can absorb only a tiny hiccup in the hyper-inflated bubble market, and the private label is a charade.

Patient renter in OC

[patientrenter]

Fannie and Freddie will not fail. They are too big to fail, and everyone knows it.

Their loans may turn out to to be worth hundreds of billions less than what was loaned, but then the govt will step in to save them. Over time, as these two GSEs loaned more and more in overpriced markets, backed by private capital that is a minuscule fraction of the loans, they went from being arguably partly private organizations to almost totally government organizations. Now the private capital they have can absorb only a tiny hiccup in the hyper-inflated bubble market, and the private label is a charade.

Patient renter in OC

[patientrenter]

Fannie and Freddie will not fail. They are too big to fail, and everyone knows it.

Their loans may turn out to to be worth hundreds of billions less than what was loaned, but then the govt will step in to save them. Over time, as these two GSEs loaned more and more in overpriced markets, backed by private capital that is a minuscule fraction of the loans, they went from being arguably partly private organizations to almost totally government organizations. Now the private capital they have can absorb only a tiny hiccup in the hyper-inflated bubble market, and the private label is a charade.

Patient renter in OC

[Author]

Posts