Are we having mutton for dinner, Kevin?

Steve, under this plan, the government buyout would allow Fannie and Freddie to trade certain assets for cash at the Federal Reserve's discount window in the event of an emergency. The Treasury secretary would have the absolute authority to increase Fannie Mae and Freddie Mac's $2.25 billion credit lines whenever he wants to and negotiate terms under which the government would purchase their stock up to a controlling interest.

Paulson said, "Use of either the line of credit or the equity investment would carry terms and conditions necessary to protect the taxpayer."

What are those terms, and are they designed to insure the failure of those corporations the same way hybrid and teaser adjustable rate mortgages trapped unsophisticated borrowers? I know that's extreme, but the government has the strings.

The treasury giving money to Freddie and Fannie is like giving a drunk panhandler with cirrhosis of the liver spare change to buy another bottle of booze, and knowing full well that the drunk's condition is terminal, and that the next drink might kill him. A little different from originating a no doc loan at 100% to a stranger.

My suggestion is that Paulson stays out of it. Concerns are realisitic because of the alleged corporate fraud said to have been perpetrated by the Fannie Mae CFO recently, and 53 million dollars in bonuses paid out to their execs.

Click here to read it

Thanks for your comment.

Bad things get worse, Roxanne. The financial market as we know is coming to an end. Investors have lost confidence in the government. Fannie shares plummeted today. Thanks for commenting.

Boooooo~~~~~~~oooooooo.....Barbara :-)

ps....might I be the Edgar Allen Poe of Real Estate blogging ?

Caspar the Friendly Ghost makes me smile too, Barbara.

You might be right, Jerry. Maybe the government is beginning to embrace Marxism and Leninism too, while Russia and China become democratic ? They don't have have McDonalds and Starbucks in Moscow and Beijing for nothing. There are real capitalists at work pouring coffee and flipping Big Macs. What about the Miss Universe Pageant in Ho Chi Minn City ?

Firstly, thanks to all for your comments thus far, and I will certainly attempt to address each one as the day moves forward. They are, indeed, illuminating and thoughtful, take serious issue with the tragic state of the economy (which I believe will improve), and provide greatly needed further, appended insight into the matter.

Additionally, in response to the floating head, thanks to those for the comments who enjoy it, and additionally, to those who don't. The further down the blog you advance, the head will begin to disappear and become less distracting. If you leave your mouse cursor stationary it won't follow you. I created it with a java script that most nearly gave me the effect I intended to convey:

The illusion of a Busby Berkeley chorus line ! :-)

I could replace my head with a Rockette, but Bob, Jon and Brad might not like that. :-) I'm honored to be featured and I say many, many thanks to all for supporting, enjoying and reading my rants, ruminations and musing.

Hope this day finds all of you, my friends, in excellent health and much happiness.

More to come.

Hi Liz. They're publicly and privately owned government sponsored enterprises and corporations that were chartered to purchase mortgages from lenders and resell them to investors in what we refer to as the secondary mortgage market. They also package mortgages backed by the Federal Housing authority, the FHA, but they also sell some non governmentally backed mortgages as well. Shares of these institutions are traded on the New York Stock Exchange.

Their prices usually tend to go up when interest rates go up, and the reverse is true when interest rates fall because making money on mortgages depends on the direction of interest rates.

By selling their loans in the secondary market, the original lenders can raise the cash they need to support additional lending possibilities for borrowers and build their liquidity. The mortgages originated by these lenders are purchased by these agencies in the secondary market who in turn create pools of mortgages repackaged as mortgage backed securities, which they might refer to as participation certificates or pass-through securities, and sell to investors.

The primary market is where it begins, which resides within the sphere of the homebuyer  and the mortgage lender that originates the loan.

Hope I've shed a little more light on the subject for you. Hope your having a great week, too.

ps...thanks, Liz. I'm honored by your compliment.

Thank you, Richard. I apologize for being a bit tongue-in-cheek, perhaps, but I didn't want to take up too much of everybody's valuable time. I also didn't want my blog entry to take up any more time that it would take one to finish a donut and a cup of coffee :-) .

Hope your having a fine day, my friend, as everyday.

Hey Tim, that's my stupid head your tossing around up there :-)

I can't please all of the people some of the time and none of the people all of the time, but my stupid head just goes on floating most of the time :-)

You can call it my head trip ! Don't lose your head over it ! Life's a wonderful thing !

Thanks Jason. If the government believes they can pick up a bargain and infuse the secondary market with more opportunities they'll go for it, and I think it's possible to merge with Ginnie or cover Ginnie's bases. Three heads might be better than one according to the treasury's infinite wisdom. I know it's a bit extreme, but hypothesis, speculation and cataclysm seem to represent the natural chain of progression in this volatile economic climate.

It's always nice to hear from you and I appreciate your comments.

Wendy, bargain basement opportunities are prolific, with the exception of North Sea crude oil. The government's got it's hand out like the scavengers on Scrooge's doorstep while poor Scrooge lie on his death bed. The vultures are circling over Fannie and Freddie's carcases.

It'll get better, but my prediction (much in opposition to the industry cheerleaders with phony enthusiasm) is seven to ten years, 2015 or so, about the same amount of time it takes a debtor to discharge a bankruptcy from their credit record by accumulating a fresh and responsible borrowing history.

Equifax, Experian and Trans Union would probably give the government an average FICO score of 450.

Good to hear from you.

ps...Wendy...Again, the cursor is a head trip.

Restrictive, tighter lending is an industry anomaly, but a good one, Kathy. Gone is the variety. Making lending less profound for the borrower is the motive. My head is spinning :-)

Fannie and Freddie made it clear today, as did Bennie (Bernanke), that the government is persona non grata, Jim. Many thanks for your comment, and I'm very pleased to hear from you.

Correction, Robert Smith, I never made any firm assertion; only an interrogative, along with what I believed my readers would find to be an interesting but highly implausible story, diminutive in scale compared to the reality of the problem, although an excuse to generate lively, thought challenging, provocative discussion, of which, additionally, includes your thoughtful comment.

Your absolutely right, Jim, and I completely agree. The pork barrels are filling up with rinds, skins, peelings, scrapes from bad decisions. Not kosher :-) Hope your having a fine week and it's always great to hear from you.

Comments like yours, characterized by negation, denial, opposition and resistance, having no positive features, are especially challenging and, I might add, hypocritical, Hunter Palmer. How much information do you think my readers could derive from your 30 word entry designed, and inclined, to discredit, especially without positive or helpful suggestions?

First of all, Ginnie Mae, the Government National Mortgage Association, is federalized, is under the control and authority of a federal government, does the same thing as Freddie and Fannie, is a division of the Department of Housing and Urban Development, but is organized as a corporation without capital stock. It has always worked with Fannie Mae in secondary market activities.

When money is tight, Ginnie and Fannie dance together and have a program they administer jointly called The Tandem Plan, of which I may be safe by assuming you know nothing about. The Tandem Plan says that Fannie can purchase high risk, low yield, FHA loans at full market rates. Fannie can purchase other types of loans under the Tandem Plan as well.

And who insures these purchases ?

None other than Ginnie Mae. Sweetheart Ginnie guarantees payment of these loans and absorbs any difference between the low yield and the current market prices.

I wouldn't be so certain that the GSE's are as invulnerable as you perceive them to be.

Come back when you have something informed to say, and have a nice day, whether your losing money or not.

Thank you, Patricia. I agree with you. It's nice to hear from you.

Interesting comment, Christopher. Thanks for your entry. Hope your having a fine week.

Indeed, it does remain to be discovered, Renee'. Nice to hear from you.

I'm honored by your comment, Melina, and thank you for your response.

Rather than try to understand the nature of an event after it's happened, maybe we should focus on preventing it before it actually does happen.

Laura, I consider the prospect of evolution principally at the expenditure of stockholders of a publicly owned, government sponsored, corporation publicly traded on the New York Stock exchange. Would the government be any less restricted from an acquisition and merger of the two publicly traded corporations into Ginnie Mae, or any other secondary market entity, any less than they would from excercising the right of public domain to build a new highway? I think not. To the contrary, residential mortgages and repackaging them for investors also served as a mitigating factor for originating lenders assuring liquidity in the primary lending arena.

Government loans began dying in 1999 because of the national wave of the artificial inflation of property values by property assessors for ad valorem taxation. This thoughtless action led to the crippling of the economy by advancing equities in an economic climate, short of the resources or securities pledged for the repayment of any loan, which was intended to easily inflate the coffers of state and local treasuries without having to put a property tax increase to a vote. It was a smooth con and rippled across America and allowed assessors to tap to the increased values in our homes, and create new and excessively higher values for more tax money for the county and city property tax collectors, all the while foregoing the discussion on the tables of city councils nationwide. It was pandemic and disasterous. I predicted the outcome ten years ago. The blame was passed off in every ridiculous, predictable direction. Like a bad movie script with a predictable outcome.  High property taxes also make it more difficult to stay in step with appreciation and create some unbeknownst condition of equalization. Other factors such as foreclosure, tax liens, divorce, bankruptcy and crime influence price decline. High property taxes seem to keep prices stable, to a degree.

The "American Dream" has never been clearly defined by cheerleaders of our faultering industry as to whether or not that dream would become a good dream or a nightmare until now, and, indeed, the American Dream is now the "American Nightmare" for hundreds of thousands, if not millions, of homeowners in our nation. I deplore the use of the term "American Dream" when referring to homeownership because it attempts to delineate or mask unfairly the lines of qualification needed to benefit and places it in the perspective of the surreal or unrealistic, and is further characterized by fantastic imagery and incongruous juxtapositions. I encourage all realtors and industry professionals to stop using that term when addressing homeownership.

Since Freddie Mac's corporate stock is owned by most savings and loan institutions across the nation, and also under the protection and watchful eye of the Federal Home Loan Bank System, made up of twelve regional banks in it's system, other forms of collateral are in place to support concerns regarding liquidity. The bank system continues to issue bonds and supply credit reserves to cooperating banks and mortgage lenders, so they shouldn't be too quick to fall on the knife, commit Hari Kari or any form of ritual suicide, as you suggest. Let those that believe such speak for themselves, although I hope that my consideration would serve in the interest of suicide prevention and intervention with the inclusion of the hope of restoring a healthy economy for all of us. Additionally, the inadequate performance of some aspect of the existing inventory may hinge upon their concerns regarding market correction. Those concerns are legitimate, affirm their position, and work In accordance with recognized and accepted standards.

If what we do best is stand and move forward in full view of a classification of propositions based on whether they claim necessity, possibility or impossibility I would caution that you do your best not to stub your toe while in motion.

Thank you, Mike. It's always a privilege to hear from you. Hope all are well in beautiful Dyersburg this hot Delta day.

Indeed, a curious factor, Lori. Interesting observation which demands further investigation. I wonder what the time table is for publishing default numbers? Many thanks for your comment. Hope your having a fine day.

Thanks, Jeanean. Many are bewildered and struck dumb with wonder. Hope your having a fine week.

Thank you, Diane. It's an arousing situation.

I'll modify the cursor script at some point when I have time.

Relevant remark, Lane. Thanks for commenting. Nice to hear from you.

Political affinity is not mandatory for agreement in this forum, Kate. Neither am I soliciting dollars for RPAC to be distrubuted amongst a partisan venue.

When I consider liquidity two things come into play.

First, it's the ability of a person or a company to retain the ability to convert their assets, their property, their holdings into cash without the inauspicious characterisitic of having endured any loss. Having this type of liquidity usually equates to a good credit rating.

Second, I believe liquidity may be considered some significant feature of a stock holding, some article of commerce, or some formal declaration that serves as a written account of ownership or obligation and is a fact of relevance to finance and investment. The holder has a right to receive interest or dividends from the possession of that investment. Mortgage backed securities will serve for this purpose. Since Ginnie Mae does not trade publicly, and the government has no liability towards the dispensation of dividends to investors, it's inconceivable that publicly traded secondary mortgage entities which engage in the activity of providing goods and services involving the financial aspects of investment strategy would be assimilated. Therein the distinctions reside and the line is drawn.

With the numbers in mind, stocks and market funds are more liquid than real estate because they're easier to move.

I don't tremble convulsively or say 'never again' like some salespeople and brokers do when I'm confronted with negative media reporting. I take the time to investigate and feel vigilant because such reporting is available. When brokers are telling their salespeople at their salesmeetings to ignore the media they're also telling them to ignore the nation and it's concerns about housing.

I'm not a cheerleader for the industry with phony enthusiasm and I love the truth. Some tragically divert it as though it were a challenging mind game. I smile and say "way to go" when fraud is uncovered after the fraud examiners have done their job and the perp shipped away to the slammer, and the victims compensated for their misery and injury, if possible. Many have lost, and are still losing, everything because of despicable and contemptible greed-driven lowlife in the mortgage business working alongside real estate agents, phony buyers with false documentation, bogus appraisals and seedy investors.

I'm doing everything I can to restore confidence in my community, and elsewhere. I say to all real estate professionals "tell the truth", whether or not it's alarming truth representing some dismaying and horryfying fraud perpetrated by industry professionals, or irrefutable positivistic truth substantiating compatibility in opinion and action. 

More than anything else, trust was lost in our industry, and it's the most important and valuable investment of all.

Thank you, Michael, for your nice comment. Hope your having a fine week, and I wish you much success in the days to come.

Both.

Thanks, Christine. It's getting weird on the hill. Thanks for the compliment on the cursor. It works when you log onto my blog :-)

Thank you, Christine. Nice to hear from you.

Great to hear from you, Matt !

Fannie Mae managers were responsible for a bucketload of fraud over a six year period and doctored earnings so their execs could pirate millions of dollars in bonuses. That was just two years ago.

Most people have already forgotten the 400 million dollars in penalties that were levied by the Securities and Exchange Commission regulators just a few months ago.

They didn't exercise proper control. CEO Franklin Raines and Chief Financial Officer J. Timothy Howard, were busted and kicked out.

Ginnie Mae's been dancing with Fannie for some time now.

Freddie has always considered three areas of underwriting, whether traditional or automated, and that includes collateral, credit reputation and the ability to pay back the loan. The automated program Loan Prospector may not have come under the scrutiny of watchful human eyes like it should have. Credit reputation and credit scores weren't concomitant when the underwriters were reviewing loans in many cases over the last few years. Now the fiddler's playing a mournful tune. I agree with you, Matt. Greed was the motive behind the reprehensible acquisitiveness and insatiable desire for wealth. 
 
It was also alleged that two transactions with Goldman Sachs screwed up 100 million bucks and that the books were cooked to hide it.

The companies earnings were misstated by nearly 11 Billion Bucks between 1998 and 2004, and paid out nearly 53 million bucks in bonuses during the same period according to the OFHEO allegations.

Maybe they've been run more like hedgehog funds, Matt ! :-)

Any strategy used to offset investment risk never eliminated the possibility of future losses for their investors. Although Ginnie's support of the Tandem Plan gave Fannie a lot of confidence with high-risk, low-yield loans. Quite a cushion. One company controlled by HUD and the other issuing common stock as a quasi-government agency. 

They've always been kissing cousins :-)

Hope your having a great week. Wish I could be with you and all the guys in San Francisco next week. I'd have to find someone to feed Max, my piano playing cat. Hope all is well, Matt !

...correction...53 million in bonuses.

Glad you got a nice chuckle from that goofy looking wolf, Andy. Good to hear from you.

...btw...not a gerbil