US Nationalizes Mortgage Lenders

[wildman]

Just so we're clear, was that intended to be a serious statement? Do you have a source for it?

another link:

http://articles.moneycentral.msn.com/Investing/JubaksJournal/feds-bailed-out-china-not-the-us.aspx

 

[Jimmy Snyder]

Yep. But I think you all missed why Bush and the Congress are doing this. They did it because the Chinese ordered us to do it. We have lost our independence due to the large amount of money we owe others.

another link:
http://articles.moneycentral.msn.com/Investing/JubaksJournal/feds-bailed-out-china-not-the-us.aspx

the Treasury may not have had any alternative if it wanted to prevent an immediate meltdown in the U.S. mortgage market and in the U.S. financial system in general.

There is a difference between the statement in the link and your characterization of it.

 

[wildman]

There is a difference between the statement in the link and your characterization of it.

I already mentioned elsewhere that what I said was meant to be sarcastic exaggeration.

 

[russ_watters]

Realistically, Freddie Mac and Fannie Mae own 5 trillion dollars of debt. I guess if every loan they own defaulted (in other words, half the home owners in the US walked out of their homes and their mortgages), their own personal debt might be pretty close to that, but that $5 trillion is almost a number just thrown out there for shock value.

Yes, shock value. It, of course, also assumes that all the homes that the mortgages purchased are utterly worthless.

What the actual exposure is here is tough to gage, but I suspect it is quite small. The real problem isn't the defaults, it's liquidity. Because of the explosion in housing prices over the last 10 years, I suspect (though I am not sure) that the value of the property in those mortgages is larger than the value of the loans themselves. The problem is that it takes perhaps as much as a year from the time a borrower stops paying until the lender can sell the house and get the money back (perhaps even with a profit!). The lag causes a cash-flow crisis. And that causes them to cut back on how many new mortgages they are willing to back. Which deepens the crisis and extends the national economic slowdown.

I suspect that the biggest share of the losses here will not be the general public, but will be the shareholders - who lose everything (something on the order of $50 billion, their market cap at the beginning of the year). And that's the way it should be.

 

[NeoDevin]

The problem is that it takes perhaps as much as a year from the time a borrower stops paying until the lender can sell the house and get the money back (perhaps even with a profit!).

I was under the impression that any profit from such a sale must be returned to the previous owner, n'est pas?