FALL OF FANNIE MAE-FREDDIE MAC: Fed rescue may provide relief - Business

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Sep. 09, 2008
Copyright © Las Vegas Review-Journal

FALL OF FANNIE MAE-FREDDIE MAC: Fed rescue may provide relief

Experts say bailout could stabilize market, improve loan access

By JENNIFER ROBISON
REVIEW-JOURNAL

Housing in Southern Nevada

The nation's continuing credit crunch makes it tougher these days to qualify for home loans in Nevada, but the federal government's Sunday seizure of the country's two biggest mortgage companies could eventually mean better access to home loans here, experts said.

But how and when will the rescue of Fannie Mae and Freddie Mac, which hold or back roughly half of all American mortgages, affect the Silver State's borrowing climate?

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Observers say it's too early to tell.

Bill Uffelman, president and chief executive officer of the Nevada Bankers Association, said consumers should eventually feel the results of the federal rescue, but he wouldn't predict when they might see relief.

"(Fannie Mae and Freddie Mac) have suffered some substantial losses, but in effect, this will inject liquidity back into them so they are in a position to continue to buy mortgages," Uffelman said. "In the end, we should be better off, or at least, we should be no worse off. We don't know how long it will take (to see changes)."

The bailout could affect access to mortgages because the two quasigovernmental entities buy or guarantee billions of dollars' worth of mortgages each month, providing lenders with assurances that the home loans they make will be covered if consumers default. That means banks can charge lower interest rates on loans to middle- and low-income home buyers in particular.

Uffelman didn't forecast noticeable changes in mortgage interest rates following the bailout. Markets could see a "small amount" of an effect -- perhaps an eighth to quarter of a percent -- but he said he expects no "big swings" in interest rates, just a more stable lending environment.

Uffelman did note that his trade group is eyeing one potential unintended consequence of the bailout.

Banks holding stock in the two companies could see the value of their shares drop to nothing, Uffelman said, and banks maintaining specific investment or capital ratios in their portfolios will need to raise funds to replace their Fannie Mae-Freddie Mac losses. While they grapple with that portfolio crunch, banks could have less capital available to businesses and consumers looking to borrow.

Uffelman said he's not sure if any Nevada-based banks have substantial exposure to Fannie Mae and Freddie Mac stock. He said his organization sent e-mails to its members Monday asking them to inform the association of any serious holdings in Fannie Mae and Freddie Mac.

Natalie Brown, a Reno-based spokeswoman with Wells Fargo, said it would be premature to comment extensively on the bailout and its effect on mortgage markets in the Silver State.

A companywide statement from the San Francisco-based banking giant noted that company executives spoke with officials of Fannie Mae, Freddie Mac and the U.S. Department of the Treasury over the weekend, and they "expect business as usual" with respect to their lending.

They added that they're optimistic the rescue will help stabilize the market and boost liquidity among mortgage lenders.

"The Treasury's plan is an important step in ensuring the (government-sponsored enterprises) meet their obligations, so we can make homeownership achievable and sustainable for customers with reasonable, competitive rates and within appropriate credit parameters," the statement said.

Several other local community banks and national mortgage insurers didn't return calls seeking comment before press time.

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.

STOCKS RALLY ON DEAL

NEW YORK — Stocks rallied Monday as investors placed bets that a recovery in the financial and housing sectors is more likely to occur following the U.S. government's move to bail out mortgage giants Fannie Mae and Freddie Mac. The Dow Jones industrials gained nearly 300 points.
The announcement Sunday that the Treasury Department was seizing control of the companies brushed aside investors' long-simmering worries that the pair would be felled by a spike in bad mortgage debt.
The Dow Jones industrial average rose 289.78, or 2.58 percent, to 11,510.74 after being up nearly 350 points in the early going.
Broader stock indicators were also higher. The Standard & Poor's 500 index advanced 25.48, or 2.05 percent, to 1,267.79, and the Nasdaq composite index added 13.88, or 0.62 percent, to 2,269.76.

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Please enter your name Name: Please enter your email Email: Please enter a comment COMMENTS : (word count limit is 300) You have reached the maximum number of words allowed Current Word Count: Note: Comments made by reporters and editors of the Las Vegas Review-Journal are presented with a yellow background. HousingDoom wrote on September 09, 2008 10:49 PM: Now listen up all you sleepy schmucks out there in radio land! This Govt takeover was the biggest national socialist takeover in US history! Why because if Bush Admin didnt do this, the whole financial house would have come collapsing down around all our heads and we would be plunged into the newest great depression. As it is, this merely masked the real collapse of the economy which occured about a year ago and has been unraveling in slow motion ever since. Your home is now worth less that 50% what you paid for it as little as 7 yrs ago, based upon inflation and the bubble bursting in the hosuing speculative market similir to the Dot Com NASDAQ bust! It will be over a decade or more before any recovery begins. Meantime, the dollar has been devalued by 1/2 also, thus a double whammy to your buying or purchasing power and retirement nest egg! Welcome to the new reality! We are screwed, blued and tatooed! Doesnt matter if it Barak or Mccain, the next Admin is going to be dealing with financial armeggedon! Marc D wrote on September 09, 2008 06:47 PM: this whole mess is only good for the banks and investors that bought up sub prime loans as investment vehicles. I saw an estimate today by the CBO that this deal will tack on 5,400 billion dollars to the US debt. this is the answer of the new party of change,funny thing is all I see is more of the same corporate welfare of the last 8 years at the cost of the average tax payer. meh wrote on September 09, 2008 01:55 PM: How is this any different than Hugo Chavez taking over Venezuela's oil fields...other than that our full government consent was given without so much as a peep from the Rubes out here in the 'burbs??? Hello, communism, good to see ya! We really missed you! When is the storming of the gates, again????? roger wrote on September 09, 2008 01:47 PM: All I want to know is what is going to be done to restore the trillion dollars in equity lost by millions of people? I mean homeowners who have negative equity, bcus those are the next round of foreclosures people. I am not talking about bailing our investors or speculators, I mean primary residences of middle class Americans who are now being strangled by their mortgages. Mac wrote on September 09, 2008 08:20 AM: A little math: Let's be ULTRA conservative and say this will cost the taxpayers $100B. It's probably going to be 10X that much. Let's say there's 100 million households in the U.S. That's $1,000 per household/family to take on the debt of otheres. Thanks a lot federal gov't. I'm glad you're looking out for us! DT wrote on September 09, 2008 07:04 AM: It is incredible that the highlight of this story is how good this deal is for us non politician and banker people. Hello?!?! Things have to be really bad to make their common stock WORTHLESS. We have a LONG WAY TO GO on this. During the 'subprime' problem I was just counting the days until they started talking about Alt A and payoption ARM loans. That segment will get worse, and then commercial lending will get thumped, and then the credit cards. This will be a great divide of the have and the have-nots. Jerry Mac wrote on September 09, 2008 05:32 AM: If this is such a great deal, why didn’t the government intervene years before this mess occurred? In fact, why were these entities set up in the first place? They say it was for cheaper and more accessible mortgages but obviously there was a better solution via government control (or so they say). What a bunch of crooks… The government can’t run a post office. How can we expect them to run the mortgage securitization market?