Short Sale, Foreclosure and Strategic Default

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Friday, May 9, 2008

Doubts Raised on Big Backers of Mortgages - New York Times

Doubts Raised on Big Backers of Mortgages - New York Times: "“It’s not irrational to be thinking about a bailout,” said that person, who requested anonymity, fearing dismissal.

Fannie and Freddie do not lend directly to home buyers. Rather, they buy mortgages from banks and other lenders, and thereby provide fresh capital for home loans. The companies keep some of the mortgages they buy, hoping to profit from them, and sell the rest to investors with a guarantee to pay off the loan if the borrower defaults.

Because of the widespread perception that the government would intervene if either company failed, they can borrow money at lower interest rates than their competitors. As a result, they have earned enormous profits that have enriched shareholders and managers alike: from 1990 to 2000, each company’s stock grew more than 500 percent and top executives were paid tens of millions of dollars."


These companies are holding up prices. If these companies were not supporting the market - prices would return to where they should be sooner.

What ever happens I suspect the government will get it wrong.

The question is should the bubble burst or should you let the air out slowly and burden the tax payers.

I suspect Real estate prices in the bubble markets like san diego and sarasota and bradenton florida are far from the bottom

The Associated Press: Fannie Mae loses $2.2B in 1Q, warns of severe weakness

The Associated Press: Fannie Mae loses $2.2B in 1Q, warns of severe weakness: "Fannie Mae reported losses of $2.2 billion in the first quarter and the nation's largest buyer of home loans said Tuesday it would cut its dividend and raise $6 billion in new capital, with expectations that the housing slump will persist into next year.

Home prices fell faster in the first quarter than Fannie Mae had expected, the government-sponsored company said, and it will open a $4 billion share offering immediately, with the remainder being offered in the 'very near future.'

Following the stock sale, Fannie Mae's federal regulator, the Office of Federal Housing Enterprise Oversight, will cut the capital surplus cushion the company has to maintain by 5 percentage points to 15 percent, with another five-point cut in September, provided there is 'no material adverse change' in the company's regulatory compliance."

Right now fannie mae and perhaps freddie are breathing a little life into San Diego Real estate. What happens when they keep losing billions of dollars a quarter.