Does the US government own Fannie and Freddie?

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Does the US government own Fannie and Freddie?

So far, the White House has resisted calls by Republicans to bring Fannie's and Freddie's obligations onto the government's books, a move that could boost the federal deficit by tens of billions of dollars. At a time when the deficit is already at a postwar high, that could create added urgency for Congress and the administration to address the companies' future. The Congressional Budget Office has reiterated its support for bringing the companies onto the federal budget—and onto the government books—which would effectively mean accounting for their operations in the federal budget as if they were federal agencies. "Recent events clearly indicate a strengthening of the federal government's commitment to the obligations of Fannie Mae and Freddie Mac," the CBO said in a report.

The CBO pegged the government's total costs of bailing out the two companies at $291 billion and said the government's takeover could cost an additional $99 billion in the coming decade. White House officials have said it wasn't necessary to bring Fannie and Freddie onto the government books until the administration decided what to do in the long term with them, but some Republicans say the arrangement has become more than temporary. "These are organisms that have now become a direct arm of the U.S. government and I assume that people who are now buying these securities are looking at them that way," said Sen. Bob Corker (R., Tenn.), in an interview. He asked Treasury Secretary Tim Geithner in a letter earlier this month to explain the rationale behind the "effective nationalization" of the companies, a move that he said "should absolutely be reflected on the balance sheet of the U.S. Treasury." While such a move would raise the federal deficit sharply, critics of the companies argue it would reflect Fannie's and Freddie's actual risks to taxpayers. "It should have been done years ago," says David Kotok, chairman of Cumberland Advisors, a Vineland, N.J., money-management firm.

Home prices rebound

National housing prices dropped 32% from the peak in Q206 to trough in Q109 and rebounded 6.3% by the end of 2009, according to a Standard & Poor’s (S&P)/Case-Shiller home price index annual report. S&P chief economist David Wyss projects housing sales and starts to drop over the winter, but to remain well above their early 2009 lows, and to recover in the spring. Wyss projects 750,000 total housing starts in 2010, followed by an additional 1.18 million housing starts in 2011. He also projects national house prices to decline 8% over the winter months. The S&P/Case-Shiller 10-city and 20-city composites peaked in June and July 2006, respectively and both troughed in April 2009.

The 10-city composite fell 33.5% and appreciated 5.6% through the end of 2009, while the 20-city composite fell 32.6% and appreciated 5.3% by year’s end. The composite indices are still reporting year-over-year price declines. The 10-city and 20-city composites reported annual declines of 6.4% and 7.3%, respectively. In January 2009, 10-city composite declined 19.4% and the 20-city declined 19% year-over-year. While the national peak occurred in the summer of 2006, but regionally, the downturn in home prices began in late 2005 when home prices peaked in the Boston, Detroit, and San Diego markets, the report said. By January 2007, national home prices began their current three-year decline and hit a new record low in the indices 22-year history. Home prices are now at their autumn 2003 level.

Populism doesn't mix with Wall Street

President Barack Obama spooked the market yesterday after asking Congress for limits on how large big banks can be and to end some of the risky trading large financial companies have used in recent quarters to boost profits. The blue-chip Dow sank 213 points, or 2%, the broader S&P 500 lost 1.9% and the Nasdaq composite fell 1.1%. They are headed for another decline today, as investors remain jittery about President Obama's new bank plan. U.S. Treasury Secretary Timothy Geithner says that proposed measures to limit bank risk-taking have been in preparation for weeks and were not driven by political considerations.

A White House official said the measures had "a unanimous recommendation" from Geithner and other advisers. Geithner said the reason for unveiling the proposals now was to offer "a little more clarity" about what the administration expects from bankers going forward and reacted sharply when asked if it was considered good politics in view of public anger at bank bailouts and pay levels. "That's not what's behind this," he insisted. "We've provided these recommendations to him two weeks ago. The timing is driven by the fact that we're at this moment in this very important cause we're fighting, which is to get financial reform through this next stage of the process in the Senate." Two weeks huh? Isn't that about the time Obama started railing publicly at the banks and demanding back money that has already been paid? I know - the bonuses - but is attacking American finance in the middle of a massive economic downturn really the best way to get us back on our feet?

Money-wasting to stop?

Given how controversial the first stimulus package remains, passing a new jobs bill, or "second stimulus," was never going to be easy, but the election of Scott Brown in Massachusetts and the Democrats' loss of a filibuster-proof super-majority in the Senate throws hurdles onto an already rocky path toward a new stimulus bill. Republicans have especially targeted the first stimulus package as a prime example of the kind of big government spending they aim to end. "There is a reason the nation was focused on this race," said Senate Minority Leader Mitch McConnell, R-Ky. "The American people have made it abundantly clear that they are more interested in shrinking unemployment than expanding government. They are tired of bailouts." "Small business tax breaks are great," said Brian Darling, director of Senate relations at the conservative Heritage Foundation. "But when they're basically being used just to get some Republican support and the balance of the proposal is just federal spending, this sounds very similar to the first stimulus plan." Douglas Holtz-Eakin, a former Congressional Budget Office director, said that the Massachusetts win should send a signal to Democrats to start from scratch on the jobs bill and start working with Republicans. He said Republicans would prefer a bill that focuses more on bigger and more effective tax cuts, like blanket breaks on payroll taxes and capital dividend taxes.

Olick - real estate a solid investment

Diana Olick makes a good point. In going over the stats from last year, she says: "There are some interesting tallies in the 2009 report: Home prices began bouncing back moderately, up 6.3 percent on the National Index from its trough in Q2 2006. At a cursory glance it seems to just show that, with the exception of Detroit, the cities that saw the biggest boom also saw the biggest bust. We knew that. But if you look closer, you can see that while losses abound across the board, most cities are still ahead of where they were in 2000, despite the epic crash. Overall, over this historic decade in housing, the top twenty markets gained more than they lost in value. According to the National Association of Realtors, in 2005 and 2006 together (peak years), 13.4 million existing homes were purchased. According to the Commerce Department, 2.2 million newly constructed homes were bought in those two years as well, bringing the total to a little over 15.5 million. According to the US Census, in 2007 there were about 128 million total housing units, so a little more than 12 percent of homes changed hands. Now 35 million of those units are rental, which could still be bought and sold, but even taking that away, it's only around 16 percent. I give you that my math and methodology are far from exact, but suffice it to say that an awful lot of people stayed in their homes from 2000 to 2009, and so should still be ahead. So what am I getting at here? Not that you don't already know this, but the overall housing market is still a very solid investment, even in the worst of times. It's just greed that gets us all into trouble.

Fitch: U.S. Retail Credit Card Defaults Hit Near-Record Levels

U.S. consumers defaulted on store-branded credit cards at near-record levels during the holiday shopping season, with 2010 likely to bring more of the same trend, according to Fitch Ratings. Fitch's December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch's expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010. "We do not foresee any meaningful improvement in the retail card credit quality in the coming months," said Managing Director Michael Dean. "U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures." Despite the elevated chargeoff and delinquency measures, Fitch expects retail card ABS ratings to remain stable throughout 2010. Excess spread remains robust, which coupled with loss coverage multiples and other structural protections will shield investors from potential downgrades or early amortization scenarios.

Above Post Written by: Chris Mclaughlin with Short Sale Riches.com

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