Tuesday, April 19, 2005

Let Fannie Run Free: NAR

The NAR and the home builders are asking congress to let the GSE's hold mortgage backed securities, but I don't think it's in the cards. "Specific limits on the GSEs' portfolios are overreaching and unnecessary in addressing [Fannie and Freddie's] safety and soundness."

This guys sounds skeptical. "'I think the GSEs are on the way to destroying themselves,' said Sen. Richard Shelby, the Alabama Republican who chairs the banking committee. 'The GSEs as we've known them in the past aren't going to be anymore.'"

Some predict those measure will derail the housing boom. "David Wilson, president of the National Association of Home Builders, said proposals to reduce or limit the portfolios were 'misguided and would have significant adverse effects on the housing finance system.'" Now where is all that happy talk David?

"The chairman of the Mortgage Bankers Association, told the Senate committee that a dollar cap on the Fannie's and Freddie's portfolios could be "disruptive."

11 Comments:

At 2:38 PM, Blogger John Law said...

so the NAR and the homebuilders want the GSEs to be able to hold the mortgages. I wonder why?

 
At 3:31 PM, Blogger Ben Jones said...

john,
It's interesting to hear these guys claim the market is at risk, and then tomorrow claim there is nothing that can stop the boom.

 
At 3:38 PM, Anonymous Anonymous said...

They know its the "easy money" coupled with lax lending standards that's pumped this thing up. The GSE's are probably at least 1 if not 2 legs under the "table". Take those away and guess what, pop pop, fizz fizz!!

 
At 4:12 PM, Anonymous Anonymous said...

You know how the IRS conducts those random compliance audits where they select a small percentage of unlucky taxpayers who have to justify each line on their tax return? This way the IRS has a statistical sample of who is cheating and who to focus on for audits. How about if Fannie and Freddie have to select a random sampling of mortgages in their portfolio and then go over each and every detail of the appraisal and the creditworthiness of the purchaser, look at their bank accounts to validate the income they claim, etc. The results might be very illuminating.

 
At 4:20 PM, Blogger Dave F. said...

This has got to be a first!

Basically the MBA and the NAHB are admitting that this market is based upon very fragile liquidity, and that if it stops, there could be a serious problem.

Either that or they are trying to scare the hell out of congress by implying that any attempt to restructure the GSE's will kick the third leg out of the economy.

Either they are being duplicitous or there is a large liquidity problem. Either way, not good news for the "there is no bubble" crowd.

Great work putting this all together Ben!

 
At 4:29 PM, Anonymous Anonymous said...

I do not think the housing industry would suffer much if there were limits put on Fannie Mae and Freddie Mac because it would open the doors for other financial institutions to step in and offer the same services (ie: bundling and reselling MBS). In fact Countrywide is already doing it.

 
At 4:36 PM, Blogger Ben Jones said...

(it would open the doors for other financial institutions to step in and offer the same services (ie: bundling and reselling MBS). In fact Countrywide is already doing it)

In theory, but the "implied" support from Uncle Sugar is the candy that has made this thing go. Can private firms bundle 1 to 1.5 trillion a year without government backing?

 
At 6:21 PM, Anonymous hellboy said...

(I do not think the housing industry would suffer much if there were limits put on Fannie Mae and Freddie Mac because it would open the doors for other financial institutions to step in and offer the same services (ie: bundling and reselling MBS))

That may or may not be true. It depends on the kind of limits ultimately placed on Fannie and Freddie. If you limit the amount they can hold in their portfolios and the amount they can ultimately guarantee then I don’t think Countrywide and all the gang will be able to duplicate what the GSE’s have done. Who’s going to want paper backed by Countrywide? If it doesn’t have the GSE guarantee why buy at least not at the ridiculous spread to treasuries they sell at these days.

You guys should read this link. It’s kind of long and somewhat crackpotish but there are some great points about the GSE’s and how they got so powerful.

http://www.larouchepub.com/other/2002/2924fannie_mae.html

 
At 6:23 PM, Anonymous Anonymous said...

Ben,

Excellent observation of how the real estate industry is saying that nothing can stop this boom... and yet is nearly pleading with the fed not to limit fannie and freddie... curious, i say...

 
At 7:19 PM, Anonymous Anonymous said...

"Can private firms bundle 1 to 1.5 trillion a year without government backing?"

Not a chance, not at the spread we currently see between FED and mortgage rates. Never. If FNM actually restructures, the RE game is OVER from interest rate shocks alone.

 
At 6:29 AM, Anonymous Anonymous said...

There are a number of ways this house of cards could topple, but the impetus will probably be the mortgage companies. Fannie and Freddie are already reducing their portfolios voluntarily, and GM is in trouble. Without the resale of risk to FNM/FRE mortgage companies are forced to be more conservative in their lending practices. Of course the idiots at Merrill upgraded Countrywide and GoldenWest today. Wasn't this the same firm that said Qualcomm was going from $400 to $1000?

 

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