Fears rise on trillion-dollar trouble for Fannie, Freddie

[UpInArms]

Source: AFP

WASHINGTON (AFP) - A downward spiral for mortgage giants Fannie Mae and Freddie Mac was unabated Thursday despite reassuring comments from Treasury Secretary Henry Paulson, as fears grew about the firms which underpin trillions of dollars in the housing system.

Freddie Mac shares plunged 22 percent to 8.00 dollars, down over 40 percent this week and 75 percent this year.

Fannie Mae sank 14 percent to 13.20 dollars, down 26 percent in the week and 64 percent for the year.

"The twin titans of lending both face pessimism, from the options pits and analysts," said Mark Fightmaster at Schaeffer's Investment Research.

Analysts at Charles Schwab & Co. said the shares were roiled by "sobering comments about the solvency of Fannie Mae and Freddie Mac."

<snip>

"Could anyone reasonably believe that a two percent reserve fund can cover all the losses that are likely to be seen? ... Clearly, Fannie and Freddie would have no ability to survive without a government bailout. This means that taxpayers will be on the hook for hundreds of billions of losses, perhaps even more than one trillion."

Read more: http://news.yahoo.com/s/afp/20080710/bs_afp/useconomypropertyfinancestocks

[Skink]

1. Isn't this just starving the beast?

The thugs want to see the mortgage industry go down right?

[Tandalayo_Scheisskopf]

2. That is essentially it.

Just more rape of the economy.

[biermeister]

3. what's the big deal

isn't a trillion dollars something like $250k euros?

the good news is that a trillion 2008 dollars is only a half a trillion 2000 dollars.

just looking for the silver lining

[LaStrega]

4. "... This means that taxpayers will be on the hook for hundreds of billions of losses ..."

"... perhaps even more than one trillion."

Gawds. :banghead:

[defendandprotect]

6. And what's the story on this . .. this used to be a government program . . .

and they privatized it . . . lost track of the story there . . . ???

And we're still going to have to bail it out ---

I knew someone working there --- at one time lots of $ floating around ---

large bonues for lawyers.

[LaStrega]

7. "at one time lots of $ floating around"

I don't doubt that. And there'll be bonuses when they're bailed out. What a racket(eering).

[Doctor_J]

5. When we all live in tents in the walMart parking lots, can we call

then "Bushville"?

[dysfunctional press]

8. that's a very bad idea-

pitching tents on asphalt- ick.

outside a walmart- triple ick.

[Virginia Dare]

12. Wal-Mart may soon regret letting people camp out in their parking lots..n/t

[bertman]

9. I heard today that Paulson is calling for some types of "reforms" due to all the problems.

After they've sucked every frickin dollar out of the treasury they start asking for "reforms".

Boy, I'm glad these guys are looking out for our interests.

[madville]

10. This all seems like a scam

They aren't "losing" this money, if people quit paying their payments the mortgage company retains ownership of that property. They could go through local real estate firms and rent/lease those properties or even sell them at a slight lose, that would generate revenue. They just want a bailout from the government, they could climb out of this by selling all their foreclosed properties at a reasonable amount and help deflate the housing bubble of a few years ago. Then maybe most people could actually afford a house again.

[skoalyman]

11. were double screwed just don't know what say

I know one thing I'm not surprised:nopity: :nopity:

[Virginia Dare]

13. What a bunch of WHINERS!...n/t

[Pale Blue Dot]

14. U.S. Weighs Takeover of Two Mortgage Giants

Source: NY Times

WASHINGTON — Alarmed by the growing financial stress at the nation’s two largest mortgage finance companies, senior Bush administration officials are considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, people briefed about the plan said on Thursday.

The companies, Fannie Mae and Freddie Mac, have been hit hard by the mortgage foreclosure crisis. Their shares are plummeting and their borrowing costs are rising as investors worry that the companies will suffer losses far larger than the $11 billion they have already lost in recent months. Now, as housing prices decline further and foreclosures grow, the markets are worried that Fannie and Freddie themselves may default on their debt.

Under a conservatorship, the shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

The government officials said that the administration had also considered calling for legislation that would offer an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies. But that is a far less attractive option, they said, because it would effectively double the size of the public debt.

Read more: http://www.nytimes.com/2008/07/11/business/11fannie.html?_r=1&partner=rssnyt&emc=rss&oref=slogin

---

From an article earlier in the day addressing this possibility:

The doomsday scenario could cost taxpayers more than $1 trillion, says the S&P report. The report went so far as to say that a government bailout of Fannie or Freddie could force the agency to lower its rating on the creditworthiness of the United States.

http://money.cnn.com/2008/07/09/news/companies/benner_fanniefreddie.fortune/index.htm?postversion=2008070914

[truthisfreedom]

15. Hey, sounds like a bush... the S&L was heaped on the taxpayers' backs too.

Obama can fix this... put it on the backs of the rich.

[Rebellious Republican]

16. But I thought the reason we are PRIVATIZING our government

is because business can do everything so much better. So are the republicans flip flopping and saying we should Governmentize now? Gee, I am confused!

:shrug:

[bulloney]

17. You beat me to it, RR.

Republicans don't stand for less government, despite what the media gerbils keep telling us. They just have a different constituency to provide government protection for. And it's usually big business or the extremely wealthy.

[Historic NY]

18. Let them fail, the taxpayer should not get stuck with the debt.

[Warren Stupidity]

20. Hmmm... aren't they the glue that has held

the mortgage industry together since 1938? While I understand your sentiment, these are not really private corporations, they were government agencies until the late 60's and are now those weird quasi-public, quasi-private government sponsored enterprises, that nobody really likes to discuss much in our neolib market fundamentalist era.

"Fannie Mae was founded as a government agency in 1938 as part of Franklin Delano Roosevelt's New Deal to provide liquidity to the mortgage market. For the next 30 years, Fannie Mae held a virtual monopoly on the secondary mortgage market in the United States.

In 1968, to remove the activity of Fannie Mae from the federal budget, Fannie Mae was converted into a private corporation.<1> Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae)."
http://en.wikipedia.org/wiki/Fannie_Mae

[Pale Blue Dot]

22. Frankly, we're screwed either way. nt

[CrispyQ]

19. Socialism for corporations; free market capitalism for We the People.

:grr:

[Warren Stupidity]

21. Oddly, these are already quasi-socialist institutions. nt.

[llmart]

23. Now I'm totally confused......

I thought the Repugs were against government interference?

Where's the money coming from?

[Pale Blue Dot]

24. It's coming from us, our children, and the foreign governments that finance our debt.

The latter, if the second article is to be believed, may stop if we do this.

[Yavin4]

25. If They Fail, ALL HOUSING FAILS

The entire housing market for the U.S. collapses over night. Home valuations would plummet to nothing. Everyone will be under water on their mortgages, and foreclosures would skyrocket.

Folks, this is about as bad as it gets.