Fannie Mae – Freddie’s big brother now in trouble?

ONmoney.NET's recent investigative report on Fannie Mae.

Detractors from all over are starting to question Fannie and the almost 1 trillion on mortgage securitization it overseas. Fannie's stability is paramount because if issues are raised, investors may not be so apt in buying up those warehouse lines, and could lead to major shifts in less prized Alt-A and Sub prime secondary markets.

A few quick interesting facts about these GSE's (Government Sponsored Enterprises).
Both GSE's rates average .7% lower then conventional rates, a very small change in actual mortgage payment. They only provide 25% of first time home buyer funding. Fannie is the second largest issuer of debt, next to Uncle Sam; A very lucrative client for fee earning wall street banks. Fannie only holds 2% of assets to debt, compared to 8% for comparable banks. 6 out of 10 banks nation-wide hold their assets in GSE Debt (part of that 8% is actually invested in MORE debt) Fannie is the primary source of automated underwriting software used across the mortgage lending industry (could be used to help earnings growth by negating some of the risk for example). LTV as a whole has gone from 33% in 1979 to 58.7% in 2003 (industry wide), GSE specifically. A seemingly positive notion is that GSE mortgages run defaults of about .6% vs. FHA - at over 11%. Both of these end up being taxpayer bailout scenario's if the risk gets out of line.

A red flag SUDDENLY appears when Ofheo's small staff, headed by Armando Falcon is trying to get information out of Fannie, reluctantly. And that seems to be the effort of Mr. Howard of Fannie Mae. A recent report on findings from Ofheo was scathing, citing Mr. Howard of wearing too many hats, and neutering any checks and balances. Fannie was also criticized for creating an accounting cookie jar reserve, where debits and credits could be created to massage quarter ends. The industry also had to take not in the fact that lush compensation is created for executives at this company. But it seems as though the industry is brushing all this aside, and some say that Falcon is just fighting for his job. Let us not consider the breadth and debt of derivatives used by these lenders. CFO's everywhere are having to contend with this issue, and pricing these issues anyone's guess (black scholes).

If you have these issues cropping up at Fannie, Lets consider the rest of the marketplace for A paper. Lenders in this arena have shown a 400% increase in year over year offerings of interest-only products, which usually are Adjustable rates. "The industry has no recent experience with granting them to a broad range of borrowers and so no deep pools of data on default rates are available" says Doug Duncan, chief economist of the Mortgage Bankers Association. "We are flying Blind"

"My concern is that they're being used to sell people houses they can't afford, adds Sheila C. Bair, a former senior U.S. Treasury official who is now a finance professor at the University of Massachusetts, Amherst.

So what does all this mean; who really cares? Well for the average person with 2.1 kids, it doesn'tt mean too much RIGHT NOW. My belief is that these issues are pointing to a system problem in the future. Perhaps 10 years from today, when baby-boomers will be retiring and the entitlements and costs of healthcare cannot be ignored. For now, this carousel will continue unabated. Future indications will always be foretold from the stock price. Carefully monitor the stock charts for further insight into the future of this company.

Medical Costs and Presidential Election 04 USA

I picked up the Local Paper here at a Starbucks and read a story about a gentleman who had worked many years in his company; retiring and expecting to draw over $100,000.00 a year in a pension. BUT, His Company declared bankruptcy after his retirement. The government has taken over what is left and now he can only obtain a maximum of 22K a year. The worst part is at 62, his health coverage premium is running at 9K a year. This is requiring him to sell off real estate assets. There are 500,000 cases like his in this country currently.
This week I had an office visit with a wonderful lady of 51 who works for the County of Riverside. For whatever reasons, her county has opted out of the state Cal-Pers program and gone alone as a purchasing pool of 5,000 employees to a major provider. This provider has watered down the policy and offered coverage to her at $470 / month, not including family members.
The American Diet is also contributing to this issue, and I can forsee the day when litigation will be coming from people with heart issues attributing the problems to a major fast food companies menu.
We are at a pandemic level of risk and rising costs for healthcare in this country. Add to that the continuing rise of corporate unethical behavior and massive failures and things don’t seem too positive. The airlines are in a financial tailspin. The average American is starting to utilize interest only mortgages (at the rate of 10% total dollar volume, up from 2% last year) and we seem to keep putting off for tomorrow the issues of the day.
Today I also had the pleasure of finally watching M Moore’s F9-11. This documentary has a lot of information, correct or not. I have to admit this man has guts. And he has put something into the political process incumbents are always weary of, DEBATE.
As we enter the homestretch of what is proving to be a very divisive debate and election, a few things come to mind. I can’t recall an election where both candidates had such similar platforms yet differing opinions. It is clear to recognize that when voting in this country for these elected officials, health care costs NEED to be addressed by lawmakers. The idea that HMO’s, PPO’s, and drug manufactures running the show has been a complete failure for those who need these things the most. And the total litigation costs are clearly out of control, accounting for over 4% of GDP, by some estimates.
I reflect on these things with you only so that you may begin to realize that somewhere, somehow, someone is lying to you. It is YOUR responsibility to get this information and ACT on it. Yeah I know it’s the playoffs, MLS and football are more important– BUT HOW IMPORTANT is it to YOU. WHAT difference does it make whether the Dodgers or Angels win? Quite living through another mans jersey. Wake up to the economic terrorists that are threatening your very way of life! Please post comments here or in our forum. Have a great weekend!

Greenspan Says Economy Regaining Some Traction

Fed Chair Greenspan came before congress today in testinomy that seems to center around where he believes the economy to be, reasons why it is not better and where the future is headed in terms of entitlements. I am sure that Mr. Greenspan has better telemetry on the economy than I do, and I completely agree on measures that he is proposing before congress to help cut forthcoming baby-boomer costs associated with social security and healthcare (medi-care)

Economists viewed Greenspan's comments and the latest Fed survey as signs of a third rise this year in short-term interest rates when Fed policy-makers next meet, on Sept. 21.
Economists expect the Fed to increase a key rate to 1.75 percent from the current 1.50 percent.

What is confusing most economists is whether or not we are in a traditional "sustained economic recovery". The problem is that we are in a new era. Budget deficits, trade deficits, soaring public and private debt; these are anchors that will put a roof on how high rates can go and how fast the economy can grow. We will be experiencing growth in different spots of the country, but the contigous regional growth will begin to subside. Monetary and fiscal policy has allowed these traits to make up the new landscape in the US, and created a land where the value of our currency will continue to slowly erode in an internation decathlon of currency supremecy. Money growth has outpaced the growth of the TRUE economy, and this has in tern caused millions of jobs to leave our shores and even our continent. Our infectious appetite for cheap goods bought on tommorrows dollars are what will eventual cause flat economic growth. Homeland security and military movements throughout the world are costing the taxpayer alot of future dollars. It is the hope and wish of the sitting President that things improve for his reelection bid. They are ok for the present but is a sustainable and decreasing unemployment rate possible with these conditions?

Personal Economist

I want to welcome new and future readers to a vortex of personal financial ideas, views, opinions, and best practices. If you practice financial services, or seek the advice therein; please feel free to post the our main forum under BLOG. I am excited to begin this as a self repository of ideas and information of pertinent information that all the world can benefit from. oscarNOW ~ HealthyProsperity.NET