Daily Roundup: The Condition of Fannie Mae and Mortgages
May 6th, 2008 by Ben Parr | Leave a comment on this post below!
Today’s roundup is unique, because a large chunk of today’s news has been about Fannie Mae. Fannie Mae is one of the giants in the mortgage loan industry, and it posted an abysmal quarterly report today, which is where we’ll begin.
- 24/7 Wall Street reports the $30 Billion+ company lost $2.2 Billion in the first quarter. It’s even worse if you compare it to last year: It earned $961 million during the same time period (Jan-March). There’s no way to spin this: the report is bad for the conditions of mortgages and is a dark indicator for the economy. Shares tumbled 15% before the open of the markets.
- Yet Fannie Mae’s share price jumped 9% today, reports Yahoo! Wait, WHAT? Apparently, the government also loosened restrictions on Fannie Mae (note: Fannie Mae doesn’t loan to home buyers, but buys and sells the mortgages from the banks that give out those loans.) This frees it up to better help stabilize the market, and gives it more leeway.
- Yahoo! also reports that Fannie Mae predicts steep drops in housing prices, of 7-9%.. Previous predictions were in the range of 5-7%. Again, this is a bad indicator for the health of the economy.
- The New York Times reports that there’s fear that Fannie Mae and Freddie Mac, the other big mortgage lender, may need some rescuing by the government. They handle over 80% of the mortgage securities market, and there’s the possibility of nearly $20 Billion in additional losses. The summary is this: Fannie Mae and Freddie Mac can help keep the mortgage market afloat all by themselves. But if they fail, there could very well be an economic meltdown.
“We’ve taken tremendous risks by loosening these companies’ purse strings,” said Senator Mel Martinez, Republican of Florida and a former secretary of housing and urban development. “They could cause an economywide meltdown if they got into real trouble and leave the public on the hook for billions.”
Loosen the regulations, increase the risk, increase the reward (or save the economy).
- Yet despite all of this, Fannie Mae is optimistic that it can capitalize on the instability, reports CNN. The Fed Rate Cuts, loosening restrictions, and a possible increase in market share are all contributing to this optomism.
Yes, I am just as confused as you are right now as I try to digest all of the Fannie Mae talk. The truth is that the indicators for the health of Fannie Mae and the mortgage market are mixed, and nobody really knows what will happen. It’ll probably get worse before it gets better, and Fannie Mae may reap some serious rewards from this mess. But if Fannie Mae or Freddie Mac are unable to pay their debts and turn things around, we could have a meltdown far worse than Bear Stearns.
Filed under News and Analysis