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Sushihorn Posts: 5632 Incept: 2007-10-22 
Arlington, TX 
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It would appear the Fannie and Freddie have virtually stopped growing their mortgage portfolios. When the buyer of last resort disappears, there will be no greater fools left in this market. Looks to me like another deflationary event and catalyst for further collapse in asset prices. Once again from my blog: http://jengafinance.blogspot.com/2008/08.... ------------------------------- According to various sources, the GSEs Fannie Mae and Freddie Mac have been buying somewhere between eighty and ninety percent of all mortgages recently. This has led to very rapid growth of their mortgage portfolios. Just a few weeks ago, this report appeared in Newsday: Fannie Mae, the largest provider of funding for U.S. residential mortgages, on Wednesday said it grew its investment portfolio in June at the fastest annualized rate in nearly five years. Fannie Mae's mortgage portfolio increased at a 22.8 percent annualized rate to $749.6 billion in June, from $736.9 billion in May, the Washington-based company said in a statement. The government-sponsored enterprise (GSE) has been boosting growth in its investments since its regulator earlier this year began easing requirements on capital it must hold against the assets. Lawmakers consider such purchases by Fannie Mae and rival Freddie Mac as playing a key role in supporting the U.S. housing market that is going through a wrenching downturn. What a difference a month makes. Buried deep inside a Bloomberg article today, we find this: Freddie's portfolio expanded at a 9.8 percent annualized rate to $798.2 billion in July, the slowest since March. The holdings may shrink this month based on forward commitments, according to the company's monthly volume summary today. Fannie expanded to $758 billion, an annual rate of 14.4 percent, the smallest increase since April. The declining demand from the federally chartered companies, the biggest buyers of home loan securities, is sending mortgage prices lower and causing home loan rates to increase. ``It's become pretty obvious that they're not going to be able to grow going forward,'' said Walt Schmidt, a mortgage-bond strategist at FTN Financial Capital Markets in Chicago. ``Without a capital raise, you're not going to see a major recovery in'' mortgage securities. Growth went from north of 20%, to low double or high single digits, then possibly to NEGATIVE in just a few months. It is a tribute to the speed with which leveraged pyramid schemes fail once the confidence is gone. Since the massive growth of the GSE portfolios was unable to arrest the rapid fall in bloated housing prices, the removal of this prop and sidelining the buyer of last resort is likely to result in another down leg in prices and unit sales. Although Treasury Secretary Paulson pushed the GSE bailout bill through Congress by saying he needed a bazooka so he wouldn't have to use it, the market appears to have called his bluff. The problem is that many commercial banks hold Fannie and Freddie preferred stock as part of their capital. Simply guaranteeing the debt does nothing for the preferred it would be wiped out in the re-organization - adding another hit to capital and more failed banks. Government purchases of preferred stock would be less bad for the banks but they would still be diluted and have less capital. Only purchasing common stock would leave the preferred (and bank capital) intact. But that would bail out the management and prevent a much, needed re-organization of the companies. More to the point, it would also be seen as a pure bailout and politically very damaging heading into a national election. There has been very little reason for the credit inflation crowd to cheer lately and the rapid growth of the GSE portfolios was one of the few bright spots for them. This growth appears to be done as well. The Shadow Banks are now shattered banks as off balance sheet vehicles are unwound and hedge funds shut their doors. We should expect to see even more of the later in the near future. The WSJ reports that July was the worst month ever for the Morningstar 1000 hedge fund index at negative 3.07%. ---------- http://jengafinance.blogspot.com/ You can't fix stupid ... but you can kill it. 2008-08-26 21:05:40
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Aac123 Posts: 1514 Incept: 2007-09-23 
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Thanks Sushi - much appreciated
---------- Any one of us who doesn't have a healthy fear of the unknown isn't paying attention - Bank of America's Ken Lewis 2008-08-26 21:31:12
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Gtt Posts: 2684 Incept: 2007-12-10
Sydney
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Hear hear! 
---------- "Our society gives its economy priority over health, love, truth, beauty, sex and salvation; over life itself. Whatever is given precedence over life will take precedence over life, and will end in eliminating life." - L. Westminster Purcell III 2008-08-26 21:37:37
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Passivesf Posts: 4178 Incept: 2008-02-01
Online
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Is it just me or is this some scary ****. If F&F are now up to 90% of the market up from 40% (i believe around 40% is the market share they had before). If they can't expand their portfolio or in fact stop buying mtg's altogether then the home loan market in the US virtually freezes altogether and since something is only worth what someone is able to or willing to pay well then all home values are going to drop like a ton of bricks. Am I way out there in my thinking? I don't pretend to be an expert. thanks
---------- "We have to go spend money to keep from going bankrupt" - Joe Biden, 47th US Vice President "You should invest for the long term, we'll invest in high frequency trading" WS Last modified:
2008-08-26 21:48:13 by passivesf
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Canadaman Posts: 1375 Incept: 2007-08-10
Charlotte, NC
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great post sushi
---------- "Every mania in financial history has been liquidity driven. You can go back to the South Sea Bubble or tulips in Holland. As long as the money is coming in, everything is fine." - Raymond DeVoe, Dec. 11, 1995 2008-08-26 21:46:24
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Financeguy Posts: 4720 Incept: 2007-08-10
Charlotte
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Great post Sushi as usual and passive this is scary but also why the government will intervene sooner rather than later IMO. The real scary part is what unintended consequences we get from their intervention and the fact that you and I will ultimately end up holding the bag.
---------- "Granted, if you are not into Barbara Streisand and creme brulee, South Beach could be a tad lonely." Eleua 2008-08-26 21:54:06
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Pika-steph Posts: 37242 Incept: 2007-09-11
^Why I keep^ fighting; so he is not fighting for nothing.
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Sushi - You have PM.
---------- Stop the Looting; Start Prosecuting - http://www.FedUpUSA.org  "America is at that awkward stage. It's too late to work within the system, but too early to shoot the bastards." 2008-08-26 21:57:33
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Pikachu Posts: 4861 Incept: 2007-08-24 
Down under
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thanks sushi - luv ur blog ;)
2008-08-26 22:09:37
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Bozonian Posts: 13051 Incept: 2007-09-01
PFT - Pure F'n Tin
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I think the real problem is, the majority are homeowners and they'll get their way. The renters will be left holding the bag.
---------- If deficits don't matter, then the Federal Government can borrow the money it needs and stop taxing the citizens. Everything I write is my opinion and not to be considered proven fact. Nothing I write should be considered financial advice. 2008-08-26 22:20:27
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Scalper Posts: 1325 Incept: 2007-10-12 Green Party
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yeah, cogent stuff man. I like that point you make about the destruction of marginal lenders too from another thread. but you have yet to answer my question regarding the "starvation" for the dollar. you cite facts about auctions which are irrefutable, but again, why on earth do these banks have such dollar FX exposure when they had a huge headstart in terms of insulating themselves from it? they basically had 6-7 months of very tight and stable range for themselves to build up their dollar reserves... 2008-08-26 22:23:37
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Shondven Posts: 592 Incept: 2007-08-06
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I believe FNM's book has increased roughly six fold since the mid-1990's. Would provide a citation but don't recall the link. 2008-08-26 23:27:21
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Realistic Posts: 2673 Incept: 2008-02-15
California
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Quote:I think the real problem is, the majority are homeowners and they'll get their way. The renters will be left holding the bag. Doubt it, mortgage rates are already up. Hopefully, rates go higher when the government intervenes and crushes equity shares. Housing is based off of monthly payment, so the asset price will decrease as rates go higher and we can get homes for "cheaper". ---------- "Insolvent Banks refusing to accept IOUs from an Insolvent State would be laughable if it weren't so damn pitiful." - LOL Damn... 9 percent plus unemployment, and ma bell being investigated... help I'm in the 80s! - Jeffrey_thomason 2008-08-27 00:24:24
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