US Govt to take over Freddie & Fannie

You heard it here first, folks:

U.S. to take control of mortgage giants: reports - Yahoo! News

This will dilute, but not dissolve, the stock value.

Hoping none of you have invested too heavily of late.

Could be very good news for REI's, though (might loosen up the purse strings).

We'll have to see.

-Russ H

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just another couple hundred billion for the taxpayer to fork over.... just wonder if the gov't is going to continue to save more of the financial instutions after absorbing this burden?

1st order of business is to fire the schmucks who run the companies saying "everything's OK"

I also wonder if this is just another "band aid" in the grand scheme of things... is the gov't branch going to become just that, another government branch that's going to add layers of red tape and bureaucracy?

I hope you're right, that the money train starts flowing again.... some of the reports were really getting bad. I mean really bad.

randallgg-

From my POV, it seems like lots of lenders are just sitting pat right now. They're making loans, sure, and getting their money on the cheap-- but they're only writing sure things, for MUCH higher interest than they charged a few years ago.

This cherry picking high-profit approach is being done, I think, to offset the money they're losing on the bad and defaulted loans they've made. So the new loans are, in a way, partially covering the losses of the defaulters.

I got to talk to a defaulter first hand this weekend. It's clear that these folks are being advised by realtors and brokers-- the guy seemed to think that in a year or two, he'd be able to buy another house, even though he was being foreclosed. I tried to 'splain that it doesn't really work that way-- that unless he wanted to pay interest rates even *higher* than the subprime he was defaulting on, he was looking at a good 7 years-- or possibly more-- to rebuild his credit. He was respectful, but I could tell that he believed the real estate "professionals" that were advising him, not me.

It's not surprising that the banks are being hyper-conservative right now, in light of the losses they're taking. But some of the stuff I'm seeing is flat out crazy-- people not being able to get loans on a $200K house in a development where all of the other (identical) homes are $350K.

Someone is picking up some amazing deals right now-- the REOs and foreclosures at about 70¢ on the dollar.

Gee, the 70% of FMV we've talking about all these years-- and right now, it's not 1 in a 200 houses at this price, it's the majority of what's actually selling!

If we could only get loans on the dang things . . .

-Russ H.

__________________
"Control everything. Own nothing." -John D. Rockefeller

"Don't confuse motion with action" -Ernest Hemingway

Once or twice a year, we go and hang out with some "old boys" in the real estate game. These are guys that have been around the real estate block a time or two. They lived through - and some lost it all - in the 80's.

Many of them are of the opinion that today's defaulters will be just fine in two years - IF it is the only ding on their credit. They think lenders will say, "Oh, you got caught up on that whole subprime mess" and brush it under the rug.

I have no opinion either way - just relaying what many of the old timers are saying.

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Russ,

Are you finding it hard to "sit on your hands" and watch this happen? I know I am. It is such an amazing opportunity. (focus, focus, focus I tell myself). Ever since I saw this going on in Denver about a year ago - I have been second guessing myself... (focus, focus, focus)

Are you tempted?

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Still happening in Denver. The deals aren't as good as January of this year, but they are not bad.

Without getting political, I just don't see the gov't doing a better job running the lending institutes. Maybe initially, but I agree the red tape will become an issue. I have yet to see a gov't agency run efficiently.

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Oh gawd, are we! We have $800K (cash) at our disposal right now-- and all of these deals are SO CHEAP!

But yes, you got me, my mantra continues to be . . .

FOCUS
FOCUS
FOCUS.

We have that $$ because we need it to finish the other B&B project. As soon as it is done (and cashflow positive), we can start looking.

But by then (15 mos from now), this stuff will be GONE!

Focus. Focus. Focus.

Have I mentioned that the house next to our first B&B is for sale? And that we could convert it to a 5 rm B&B in DAYS? And that we could make it an 8 room B&B in a matter of months-- WHILE IT WAS UP AND RUNNING AS A 5 RM B&B?

So even if we get the big project done and have some extra cash, we'd probably jump on this opportunity, as it's our area of . . . focus!

(that, and if we got it for $900K, we could turn it into an asset worth $3M with about $200K in additions)-- which is MUCH more than making $50-100K ea on cheap houses!!!

Focus. Focus. Focus. . .

-Russ H.

__________________
"Control everything. Own nothing." -John D. Rockefeller

"Don't confuse motion with action" -Ernest Hemingway

Here's an example:

3/2 House on nice lot in good neighborhood.

Sold for $435,000 on 05.01.06
Sold for $323,000 on 10.26.07 (prev owner had watched too many fix n flip shows, house torn apart*)

*Notice the 2 new cars parked in front on the google street view photo!

179 Creekside Cir, American Canyon, CA 94503 | sold for $323,000 on 10/26/2007

House is now for sale for $179,000 or best offer (Bank owned):

Dynamic features include a database property search with full color photographs of listings in Napa County.

Say you get it for $160K.

That's 64% LESS-- ALMOST 2/3 LESS-- than what it sold for 2 years ago!!

(. . . focus, focus, focus . . .)

-Russ H.

__________________
"Control everything. Own nothing." -John D. Rockefeller

"Don't confuse motion with action" -Ernest Hemingway

More Freddie/Fannie news:

Government plan for Fannie, Freddie to hit shareholders - Yahoo! News

-Russ H

__________________
"Control everything. Own nothing." -John D. Rockefeller

"Don't confuse motion with action" -Ernest Hemingway

So Russ, suppose your were going to deviate from your plan to take advantage of these opportunities (I know you aren't going to, but maybe you'd play along with me for fun - and education??)

Would you look to purchase these properties cheap and rent out in the meantime while waiting for the market to come back? (Could be 5-10 yrs...who knows, right?)

Just curious what you'd do in a situation like this...

Thanks,
Sid23

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the 64k question (or actually, 200billion$ question) is what is going to happen to the preferreds. a lot of other banks and IBs invested in preferreds... if they're wiped out then shock waves will be felt throughout the financial arena... the common getting shredded is not a surprise.... hopefully everyone on this board dumped them a while back when the thread started.... a few profitable day trades made it easy for quick money, the gyrations were unbelievable.... but that was about it. Anyone following the mortgage markets and agency debt smelled this coming like a dog in heat

FNM/FRE bonds are likely to be secure, that's one bridge the US doesn't want to burn...



Before seeing this post, I was going to say there is time before pulling the trigger because we will see more meltdowns. The gov't takeover of the GSEs is just a part of the entire financial crisis (a significant part of the mortgage biz, nontheless) and we will have a few more problems of illiquidity among the investment brokers.... as more (if) hedge funds continue to unwind, foreclosures increase and defaults increase, there will be more need for injections and/or bailouts

in my area of central jersey, the prices have not gone down nearly as fast as the example above. We have seen approx 10-20% price deterioration, but after examining the MLS and data reports, these are my observations of data:

1. inventory is high by historical standards, but very stable, but that's because there appears to be an equal amount of new listings up for sale as the ones that are being removed from the market after their listings expire (6month)...

2. rate of sales above the 800k threshold are down HUGE! about 85% (eye ball figure) vs. the last couple of years. The unfavorable mortgage rates have already impeded rate of sales. on a 500k loan, the difference between a 30yr term at 5% interest and 7.5% is almost $1000 per month.... it appears many families can support a $2500 mortgage, but not a $3400 mortgage.

not to mention the stress the FDIC is under.... there have been an accelerating amount of bank closings and this will potentially keep the USA from funding investment brokers if they also get into a seriously distressed situation.

on a personal note, I am disturbed by the USA's reaction to this debacle.... it's probably for the best for the economy, but will the gov't bail me out if I bet the farm on a losing proposition?

if prices continue down trend, then even more people will be upside down on their mortgages in the alt-a, prime and subprime markets and we know what happens when people start going upside down. They leave their houses and then the animals move in!

Cats on a bank-owned roof: Bobcats claim foreclosed house | L.A. Land | Los Angeles Times

anyway, in conclusion - I'll continue to monitor data closely and find (or try to, anyway) the bottom and at least catch the market at the base of the upswing rather than absorb a longer downtrend to protect capital.... but being prepared to buy is the most prudent step you can take at this time.

and using the example that Russ used, I would rather buy the property at 190 on the upswing instead of buying now at 170 only to have it go to 120 and tie up capital and resources (anything's possible, right?)

Randallg-

I've observed something interesting these past few months.

LOTS of inventory, most of it about -20% from the highs.

But a small part of the inventory is REOs and foreclosures-- and these are being offered at MUCH lower prices (say, -35-55% from their highs).

The bargains are selling-- I see them on the market for only about a week before they're tied up, and they close within a week or two.

And your observation about the big ticket homes is spot on-- sales of the super jumbos are way down here, too.

So our median sales price is going down as well as the average, since there are so many low ball houses selling, compared to the "regular" and upper end houses.

This is skewing the numbers out here, bigtime.

-Russ H.

__________________
"Control everything. Own nothing." -John D. Rockefeller

"Don't confuse motion with action" -Ernest Hemingway

I didn't quite follow, what is the skew you are seeing, and what is the cause?

Are you saying that bargains (the homes actually selling) are skewing what you believe to be the true trend? Or are you saying that due to high inventory you are seeing a price skew?

Edge-

There are *hundreds* of homes on the market in our county.

Six months from now, *most* of those same houses will still be on the market.

(because the owners don't have to sell for a loss, and are waiting for the right buyer).

However, in this same amount of time (6 months), LOTS of foreclosures will be listed, and sold.

The foreclosures are priced so low-- and are so difficult to get financing on-- that typically, the only way they sell is to cash buyers (with no wait for financing)-- so the prices get really low, and the time that a foreclosure is on the market is days (not months) before it closes.

So if you look at sales over, say, a 3 month period, what you'll see is a lot of quick close cash sales of cheap foreclosures that banks are dumping to clear them off their books-- while the higher priced listings stay unsold, for the most part.

This skews the numbers-- what you are seeing is lots of quick cheap sales held by banks, and very few sales by homeowners who don't want to lose money by selling too low.

Does that make sense?

I'm probably not explaining it very well!

-Russ H.

__________________
"Control everything. Own nothing." -John D. Rockefeller

"Don't confuse motion with action" -Ernest Hemingway

This just in:

"In addition to the new financing facility, Treasury said it will take an equity stake in the two firms through senior preferred equity shares and warrants.

"Under the terms of the agreement, common and preferred shareholders bear losses ahead of the new government senior preferred shares," Paulson said.

Treasury also set up a program under which it would buy mortgage-backed securities currently held by Fannie Mae and Freddie Mac to pump fresh funds into the mortgage market. It said it would begin buying MBS later this month, and it would have authority to make such purchases through December 31, 2009."

-Russ H.

__________________
"Control everything. Own nothing." -John D. Rockefeller

"Don't confuse motion with action" -Ernest Hemingway

That was a good explination, I just disagree with the interpretation.

I think the anomalies (skew) are the listings that haven't adjusted to the market. In 18 months will those people priced above the market waiting for it to come back still be asking those same prices. What about 30 months after another 15% drop? I don't see any signs of a turnaround and I think these people you are referring to are going to realize that lost equity in a house is dead money and it makes more sense to take the loss. They are going to come to the conclusion that it is easier to take a 200k loss and make it up through better investments in better time than waiting on the housing market.

Like I said here:

House prices might not rebound like some expect

I believe there is a difference between interpreting something as cheap vs something that represents a good value. Houses might look cheap vs a year ago, but I don't see why others are interpreting that as value.

Normal, healthy markets don't require government bailout. This market is experiencing a government bailout, that doesn't point to a bottom, it points to being on the verge of something we haven't ever had to experience in the past. This market could only make a quick recovery if foreigners decide they like our debt again, what can the government do to make that happen?

Edge, I do understand your points.

I guess my points are that, at least in our area (Northern Ca), people have been paying $2000-4000 a month for their mortgages for more than a decade.

And the house I listed above would have a mortgage of $1000 a month, with 20% down.

ANd CURRENT RENTS are $1200-1500 a month for that house!!!

You couldn't even buy this house for that 10 years ago!!

(back then, rents were $800 a month)

So while I do agree that the overall markets will adjust, and that the overall prices will come down, I guess I'm saying that I don't think they'll come down as low as the bargain basement prices I'm seeing on the bank foreclosure cut-and-runs right now.

And that we're not talking about the entire inventory here-- just a few houses (say, 1 out of every 300).

Looking at it this way is just my opinion, of course.

But when you look at th