Fannie Mae Creates Housing Mirage With Bum Loans

[girl gone mad]

To borrow a phrase from Tim Gunn, this concerns me.

Fannie Mae Creates Housing Mirage With Bum Loans
http://www.bloomberg.com/apps/news?pid=20601039&sid=aColIYAe.RaU&

April 24 (Bloomberg) -- Give money away. That was a solution to the housing crisis mortgage giant Fannie Mae hit on last year.

Faced with growing numbers of homeowners unable to make mortgage payments, Fannie decided to fund loans to borrowers that were instant losers.

The point was to buy time. Even though those loans resulted in a $453 million loss, they helped keep troubled homeowners from defaulting. That meant Fannie for now didn’t have to make good on loan guarantees that may have cost it as much as $2.4 billion.

The big game of kick the can strikes at a deep-seated fear among many investors -- that banks and others faced with mounting housing losses are finding all manner of dubious ways to push a day of reckoning into the future.

If that’s the case, any improvement in the housing outlook might be a mirage obscuring even greater pressures building in the financial system. That would eventually counter better-than- expected first-quarter results from many banks.

Investor angst was made worse by the knowledge that the government is leaning hard on banks to modify troubled loans any way they can. Prevent foreclosures and worry about the consequences later is the mantra of the day.

(snip)

Still, that’s a big gamble. Markets may not rebound as quickly as some investors expect, meaning time might not heal the wounds of borrowers who can’t meet payments today. That would leave them in even worse shape in the future. And by failing to deal with problems now, financial institutions may cause them to grow even bigger.

That’s sure to lead to nasty surprises down the road at individual banks. It also promises to lengthen the economic slump by preventing markets from finding natural bottoms that allow excess inventory to be sold.

Fannie’s program shows how potentially big losses are still festering within the system, unbeknownst to investors.

Known as the “HomeSaver Advance” plan, Fannie used the program to provide “foreclosure prevention assistance to distressed borrowers,” according to its 2008 securities filing.

The plan entailed Fannie funding loans to help distressed borrowers get current on their mortgage payments. Fannie said there were about 71,000 advances made in 2008 with an average value of $6,500.

Fannie funded $462 million in such loans during 2008. The company tells investors in notes to its financial statements, though, what it thinks the loans are actually worth.

Based on market prices, Fannie said the loans had a value of just $8 million. That’s right, the loans, which are in many cases just months old, were worth 1.7 cents on the dollar.

In a footnote, Fannie said there were several reasons for the huge markdown. Among them: the loans aren’t secured by any collateral; and they are second loans, or liens, that serve as catch-up payments for borrowers who can’t pay their primary debt.

http://www.bloomberg.com/apps/news?pid=20601039&sid=aColIYAe.RaU&">more...

[customerserviceguy]

1. Do you get a bum loan

to cover your ass?

[stanleycup1]

2. The FED and Fannie Mae

They are the reason we has a "housing bubble" which did burst, and it burst because the FED stoped proping up the bubble the created! Tax payer money or printed money was used to lower interest rates which made wall street think they would expand. So dont go blaming wall street. Blame the FED and Fannie and Freddy!

[marketcrazy1]

3. I blame wall street

wall street created these debt securities and then BOUGHT their triple "A" ratings so they could flood the market with this crap! if these things had been properly rated the maket for them would have been MUCH smaller. Fannie and Freddy sure fucked up, they saw a HUGE market and decided to "jump in" chasing yield and with their incredible leverage became positively RECKLESS in their investing strategy... still had these been properly rated we would not be facing as huge a problem as we are. not to mention derivatives THATS another multi trillion dollar ponzi scheme manufactured by wall street.... so YES by all means BLAME wall street!!!!!

[stanleycup1]

4. the reason wall street took "reckless" investments

because the FED lowered interest rates and made it look like now is the time to get loans to further their company! Wall street was just following what they have been doing for years. The way everything looked was artifically created by the FED. If the FED didnt put their fingers into the Free Market none of this would have happened!

[marketcrazy1]

5. yes the FED

poured the gasoline but wall street lit the match...................

[stanleycup1]

6. ok so if you see a chance

to make your business bigger and better would you not? wall street had no idea the FED was artifically making the Market look good. when you have a business you want to expand and make your self bigger and more productive. the FED pured gasoline and gave them the matches!

[marketcrazy1]

7. bankers knew the party had to end

it was not mathematically sustainable but they continued anyway, buying ratings and "hedging" potential losses with swaps but when the music stopped there were not enough chairs left and they found themselves standing neck deep in a pile of debt! no problem they said, we have these swaps!.... PROBLEM. the swaps had no backing, counter parties have no cash and since they were counter parties to their counter parties...... OOPS!!!!

[girl gone mad]

8. Oh, please.

A lot of investors on and off of Wall Street made a lot of money betting that the bubble would collapse. In other words, they did their jobs and correctly analyzed the markets. The idiots who ran off the cliff with the rest of the herd deserve blame for their actions.

[sendero]

9. A lot more the FED than Fannie..

.... who was mainly riding the wave of easy money like the banks were.

It WAS Alan Libertarian Douchebag Greenspan that flooded our economy with easy dollars.

If you had to pick one person responsible, it would be a tossup between Greenspan and Phil "deregulate everything" Gramm.