freddie mac blew it and they ain't even subprime?

I wish i understood what was going on. All I can figure is people aren’t paying their mortgages.

It’s because people live beyond their means. They rack up credit cards bills, and purchase houses when they can’t even afford a down payment. In states like Ohio where forclosure rates are the highest, people can get no money down houses, or get mortages that don’t even pay down the principle, but actually increases the balance, if you were to pay the written amount. They borrow equity lines of credit with their over appraised houses as collateral, and they can’t sell…therefore driving them further into debt. The word sub prime is just a classification for people that don’t have very good credit. Over spending and living beyond means is now the new definition of the American dream regardless of your credit score.

repeat post

Keep in mind that Freddie and Fannie cannot buy subprime mortgages in a whole-loan style. However, they *can* buy tranches of subprime RMBS for their investment portfolios, which, according to the politicians helps “make a market”. Personally, Fannie and Freddie are going to be in trouble, after all of this flows through. They have trillions in guarantees that are extremely difficult to valuate and I think you’ll see another scandal break there as they screw up (or manipulate) the valuation to protect their bottom line.

wonggei79 Wrote: ------------------------------------------------------- > It’s because people live beyond their means. They > rack up credit cards bills, and purchase houses > when they can’t even afford a down payment. In > states like Ohio where forclosure rates are the > highest, people can get no money down houses, or > get mortages that don’t even pay down the > principle, but actually increases the balance, if > you were to pay the written amount. They borrow > equity lines of credit with their over appraised > houses as collateral, and they can’t > sell…therefore driving them further into debt. > > The word sub prime is just a classification for > people that don’t have very good credit. Over > spending and living beyond means is now the new > definition of the American dream regardless of > your credit score. BANG ON!

spierce Wrote: ------------------------------------------------------- > Keep in mind that Freddie and Fannie cannot buy > subprime mortgages in a whole-loan style. > However, they *can* buy tranches of subprime RMBS > for their investment portfolios, which, according > to the politicians helps “make a market”. > > Personally, Fannie and Freddie are going to be in > trouble, after all of this flows through. They > have trillions in guarantees that are extremely > difficult to valuate and I think you’ll see > another scandal break there as they screw up (or > manipulate) the valuation to protect their bottom > line. as of Sept, they have $105 Billion of subprime of a $713 B portfolio… i’d say they have exposure.

is it too late to buy puts?

virginCFAhooker Wrote: ------------------------------------------------------- > is it too late to buy puts? No - but FNMA was one of Peter Lynch’s favorite companies. He’s my hero and I would find it irreverant to short FNMA.

I think Fannie is getting closer to a buy than a sell. If you can get comfortable with their credit exposure (which is not easy at all) there are some real tail winds supporting their model. I think they are trading just below book value now. Pretty tricky to time your entry but I think this is a decent 3+ year investment at these levels. Could be very volatile near term, obviously.

hmmm. i would stay away… i think too late for puts, i would not buy it here. the only trade i would consider is shorting… but i will just avoid. AIG is a name i am considering OTM puts in… maybe if stock moves back to $60 range.

Did you read the last 2 paragraphs of the WSJ article? what a bad thing to have to be doing the last couple of months! and look at the cause?!? “The losses have left the company with core capital of $34.6 billion as of Sept. 30, only $600 million above the minimum amount it is required by regulators to hold. The regulatory agency, the Office of Federal Housing Enterprise Oversight, has imposed minimum capital levels for Fannie and Freddie that are 30% above those required by law. The capital “surcharge” came in the wake of accounting scandals at both companies in recent years. Because it had little margin over its capital requirement, Freddie said it was limited in its ability to take advantage of opportunities to buy mortgages and sold about $20 billion of them in September and another $25 billion in October.” Selling $45 billion into a very crappy mortgage market over the last couple months cuz congress is punishing management for accounting scandals?!?!?

Heads will likely roll over this! Alot of people lost money on what should be a safe stock.

The mortgage market is now officially closed for business. FRE & FNM were the only ones that were buying some of this stuff. With such low capital, thats not going to happen now. CFC moved into making only conforming loans, 'coz thats the only thing that would sell…now thats out the door. Low FICO stuff stopped happening in March/May, High LTV stopped in August, Now low LTV/High FICO is shut out as well, This should speed up the mortgage meltdown. I think Chuck Schumer will introduce a legislation requiring a FRE, FNM bailout within a month or so…

who’s going to get financing to buy all those empty, foreclosed on mcmansions? All they have to do is remove the penalty capital requirements and a Freddie can buyback $45 billion in mortgages… hello liquidity!

my thoughts exactly…probably see some hedge funds buying all those homes for 50 cents on the dollar and then branch out into renting…who knows…

this doesn’t seem to be getting better. How low can housing prices go because of this, 25% correction? any bets?

25% may be a good average but I would say that it coudl be more along the lines of 40% in some regional markets. This over supply seems to be a lot worse than what happend in Vamcouver in the early 90’s where prices dropped 30%+ and did not recover for a decade. Another fun issue to thinkabout from the NYT this weekend: With the number of non-owner occupied homes that are for rent I would also expect to see a large number of people evicted when the home they rent is repo’d b/c the owner cannot make the payments even with the rent helper.

as a renter that article freaked me out… here’s the link: http://www.nytimes.com/2007/11/18/us/18renters.html?_r=1&oref=slogin

so the question is… where’s the bottom? and will CFC get taken out in the process? any thoughts?

who will buy CFC? I don’t think anyone wants this toxic mess right now. If CFC survives and comes back, BAC will probably make the move.