[TheBreeze]

That was an eye-opening article. I didn’t realize that Fannie and Freddie own or guarantee $4.8 trillion in mortgages (40% of the total outstanding). I wish the government would get the hell out of the mortgage business. Our own government through Fannie and Freddie is a huge reason we are in this mess.

I almost LOLed when I saw that Freddie had $34 billion in capital. Assuming they own or are guaranteeing half that $4.8 trillion total, then that’s $34 billion in capital backing $2.4 trillion in mortgages. That’s a capital reserve of 1.4% of what they are backing. Ridiculous.

Freddie is also counting on only a 5% decline in housing values from the peak. I would characterize that as willful denial. Freddie and Fannie have to be two of the worst-run organizations in the world.

[TheBreeze]

That was an eye-opening article. I didn’t realize that Fannie and Freddie own or guarantee $4.8 trillion in mortgages (40% of the total outstanding). I wish the government would get the hell out of the mortgage business. Our own government through Fannie and Freddie is a huge reason we are in this mess.

I almost LOLed when I saw that Freddie had $34 billion in capital. Assuming they own or are guaranteeing half that $4.8 trillion total, then that’s $34 billion in capital backing $2.4 trillion in mortgages. That’s a capital reserve of 1.4% of what they are backing. Ridiculous.

Freddie is also counting on only a 5% decline in housing values from the peak. I would characterize that as willful denial. Freddie and Fannie have to be two of the worst-run organizations in the world.

[TheBreeze]

That was an eye-opening article. I didn’t realize that Fannie and Freddie own or guarantee $4.8 trillion in mortgages (40% of the total outstanding). I wish the government would get the hell out of the mortgage business. Our own government through Fannie and Freddie is a huge reason we are in this mess.

I almost LOLed when I saw that Freddie had $34 billion in capital. Assuming they own or are guaranteeing half that $4.8 trillion total, then that’s $34 billion in capital backing $2.4 trillion in mortgages. That’s a capital reserve of 1.4% of what they are backing. Ridiculous.

Freddie is also counting on only a 5% decline in housing values from the peak. I would characterize that as willful denial. Freddie and Fannie have to be two of the worst-run organizations in the world.

[TheBreeze]

That was an eye-opening article. I didn’t realize that Fannie and Freddie own or guarantee $4.8 trillion in mortgages (40% of the total outstanding). I wish the government would get the hell out of the mortgage business. Our own government through Fannie and Freddie is a huge reason we are in this mess.

I almost LOLed when I saw that Freddie had $34 billion in capital. Assuming they own or are guaranteeing half that $4.8 trillion total, then that’s $34 billion in capital backing $2.4 trillion in mortgages. That’s a capital reserve of 1.4% of what they are backing. Ridiculous.

Freddie is also counting on only a 5% decline in housing values from the peak. I would characterize that as willful denial. Freddie and Fannie have to be two of the worst-run organizations in the world.

[TheBreeze]

That was an eye-opening article. I didn’t realize that Fannie and Freddie own or guarantee $4.8 trillion in mortgages (40% of the total outstanding). I wish the government would get the hell out of the mortgage business. Our own government through Fannie and Freddie is a huge reason we are in this mess.

I almost LOLed when I saw that Freddie had $34 billion in capital. Assuming they own or are guaranteeing half that $4.8 trillion total, then that’s $34 billion in capital backing $2.4 trillion in mortgages. That’s a capital reserve of 1.4% of what they are backing. Ridiculous.

Freddie is also counting on only a 5% decline in housing values from the peak. I would characterize that as willful denial. Freddie and Fannie have to be two of the worst-run organizations in the world.

[TheBreeze]

Actually, I believe Freddie crashed down today because they reported a $3+ dollar loss for the quarter. Freddie is trading for less than $30 currently. A few more quarters like that and they will be insolvent. Fannie probably went down because of the Freddie earnings report.

I would love to see both of these POSs fail and then have the government not bail them out. Then we would really see a decline in home prices. With no quasi-governmental entity to guarantee mortgages, we’d start to see home prices gravitate to their true market value. That would be a great day.

Also, I disagree that the decline is due to a fear of future bad loans being stuffed into Fannie and Freddie. Based on Freddie’s huge loss, it looks like the GSEs already have tons of bad loans on their books. I recently got pre-approved for a ~ $300K mortgage from ELoan. Since it could be sold to Fannie, I wouldn’t have had to put any money down — all my closing costs could be folded into the loan. I think Fannie and Freddie are backing the same crappy mortgage loans as every one else — they just have a whole bunch of smaller bad loans instead of a bunch of jumbo bad loans.

BTW, is it OK if this news about Freddie and Fannie makes me giddy? Because it does.

[TheBreeze]

Actually, I believe Freddie crashed down today because they reported a $3+ dollar loss for the quarter. Freddie is trading for less than $30 currently. A few more quarters like that and they will be insolvent. Fannie probably went down because of the Freddie earnings report.

I would love to see both of these POSs fail and then have the government not bail them out. Then we would really see a decline in home prices. With no quasi-governmental entity to guarantee mortgages, we’d start to see home prices gravitate to their true market value. That would be a great day.

Also, I disagree that the decline is due to a fear of future bad loans being stuffed into Fannie and Freddie. Based on Freddie’s huge loss, it looks like the GSEs already have tons of bad loans on their books. I recently got pre-approved for a ~ $300K mortgage from ELoan. Since it could be sold to Fannie, I wouldn’t have had to put any money down — all my closing costs could be folded into the loan. I think Fannie and Freddie are backing the same crappy mortgage loans as every one else — they just have a whole bunch of smaller bad loans instead of a bunch of jumbo bad loans.

BTW, is it OK if this news about Freddie and Fannie makes me giddy? Because it does.

[TheBreeze]

Actually, I believe Freddie crashed down today because they reported a $3+ dollar loss for the quarter. Freddie is trading for less than $30 currently. A few more quarters like that and they will be insolvent. Fannie probably went down because of the Freddie earnings report.

I would love to see both of these POSs fail and then have the government not bail them out. Then we would really see a decline in home prices. With no quasi-governmental entity to guarantee mortgages, we’d start to see home prices gravitate to their true market value. That would be a great day.

Also, I disagree that the decline is due to a fear of future bad loans being stuffed into Fannie and Freddie. Based on Freddie’s huge loss, it looks like the GSEs already have tons of bad loans on their books. I recently got pre-approved for a ~ $300K mortgage from ELoan. Since it could be sold to Fannie, I wouldn’t have had to put any money down — all my closing costs could be folded into the loan. I think Fannie and Freddie are backing the same crappy mortgage loans as every one else — they just have a whole bunch of smaller bad loans instead of a bunch of jumbo bad loans.

BTW, is it OK if this news about Freddie and Fannie makes me giddy? Because it does.

[TheBreeze]

Actually, I believe Freddie crashed down today because they reported a $3+ dollar loss for the quarter. Freddie is trading for less than $30 currently. A few more quarters like that and they will be insolvent. Fannie probably went down because of the Freddie earnings report.

I would love to see both of these POSs fail and then have the government not bail them out. Then we would really see a decline in home prices. With no quasi-governmental entity to guarantee mortgages, we’d start to see home prices gravitate to their true market value. That would be a great day.

Also, I disagree that the decline is due to a fear of future bad loans being stuffed into Fannie and Freddie. Based on Freddie’s huge loss, it looks like the GSEs already have tons of bad loans on their books. I recently got pre-approved for a ~ $300K mortgage from ELoan. Since it could be sold to Fannie, I wouldn’t have had to put any money down — all my closing costs could be folded into the loan. I think Fannie and Freddie are backing the same crappy mortgage loans as every one else — they just have a whole bunch of smaller bad loans instead of a bunch of jumbo bad loans.

BTW, is it OK if this news about Freddie and Fannie makes me giddy? Because it does.

[TheBreeze]

Actually, I believe Freddie crashed down today because they reported a $3+ dollar loss for the quarter. Freddie is trading for less than $30 currently. A few more quarters like that and they will be insolvent. Fannie probably went down because of the Freddie earnings report.

I would love to see both of these POSs fail and then have the government not bail them out. Then we would really see a decline in home prices. With no quasi-governmental entity to guarantee mortgages, we’d start to see home prices gravitate to their true market value. That would be a great day.

Also, I disagree that the decline is due to a fear of future bad loans being stuffed into Fannie and Freddie. Based on Freddie’s huge loss, it looks like the GSEs already have tons of bad loans on their books. I recently got pre-approved for a ~ $300K mortgage from ELoan. Since it could be sold to Fannie, I wouldn’t have had to put any money down — all my closing costs could be folded into the loan. I think Fannie and Freddie are backing the same crappy mortgage loans as every one else — they just have a whole bunch of smaller bad loans instead of a bunch of jumbo bad loans.

BTW, is it OK if this news about Freddie and Fannie makes me giddy? Because it does.

[TheBreeze]

One of the writers over at realmoney.com said that anything you have in a money market account at a broker may not be covered at all. I believe this is the case for banks as well, as the FDIC does not cover money market accounts either.

[TheBreeze]

One of the writers over at realmoney.com said that anything you have in a money market account at a broker may not be covered at all. I believe this is the case for banks as well, as the FDIC does not cover money market accounts either.

[TheBreeze]

One of the writers over at realmoney.com said that anything you have in a money market account at a broker may not be covered at all. I believe this is the case for banks as well, as the FDIC does not cover money market accounts either.

[TheBreeze]

One of the writers over at realmoney.com said that anything you have in a money market account at a broker may not be covered at all. I believe this is the case for banks as well, as the FDIC does not cover money market accounts either.

[TheBreeze]

From previous posts, I believe you said you were using a rent multiplier to decide when to buy, correct? If so, are you using today’s rents?

If I were trying to convince myself not to buy, I would try to determine what happened to rents during the last downturn in housing/recession. If you can’t get your hands on historical rent data, then you could attempt to make your own SWAG guess about rents using some fraction of the current number of expected abandoned houses.

For example, what would happen to rents if 70% of houses bought in Temecula since 2005 went into foreclosure and 25% of those foreclosures became rentals? Let’s say there is 100,000 square feet of rental property currently in Temecula renting for on average $100/square foot (no idea if these numbers are anywhere close to being correct). This gives us a total rental demand of $10 million (something tells me this is way low). In any event, using the theoretical numbers above, if the foreclosures add another 30,000 square feet, assuming that the demand for rentals doesn’t change (it may even go down in a recession), then you get an average rent price of $10 million/130,000 square feet ~ $77 per square foot.

As an alternative to trying to figure out the numbers for the above calculation, maybe you could just use a rental multiplier assuming 2003 rental prices. In any event, my point is that the rent multiplier you are using today may be based on an artificially low supply of rentals due to so many current and future unoccupied houses and a higher demand number for rentals than may exist in the future if we are going into a recession.

For the sake of full disclosure, I’ve never owned real estate in my life and there is a good chance I never will. However, it’s always a good idea to play around with whatever metrics you are using to at least try and get a feel for the worst- and best-case scenarios.

[Author]

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