Results tagged “housing market” from Economic Alert

Banks are sooo yesterday. Now  you want to saddle up to the Senate or House for that easy credit and low-interest loan.

Business Editor Kevin Smith chronicles this week's economic turbulence in a story today - Lehman Brothers declares bankruptcy, Bank of America to buy Merrill Lynch, American International Group fights for life and the Dow drops 500 points.

Rep. Adam Schiff, D-Pasadena, is quoted high with a sentiment shared by many:

"I never saw anything like this in my lifetime," he said. "During a more typical financial crisis you might lose one major institution and maybe one smaller bank, but to see several financial giants who have been around for so long start to fold up their tents ..."

"I'm hoping that the earthquake has hit and this is not a pre-shock for bigger things to come," Schiff said.

In that vein, a smattering of good (or at least better) news today:

• The Dow rallied, gaining 141 points to close above 11,000.
• The Labor Department reports consumer prices went down for the first time in two years in July (sure, it's only by .01 percent, but down is better than up, right), leading experts to anticipate further "price moderation" in coming months, especially if energy prices continue to decline.
• Shares of WaMu and Wachovia bounced as AIG secured enough funding to keep fighting.

And, perhaps taking a hint from the Labor Department, Home Depot announced it will cut prices on more than 1,200 items by 5 percent to 50 percent over the next three weeks. The price cuts will remain in effect at least through the next quarter, according to an AP story.

Federal officials announced today a takeover of Fannie Mae and Freddie Mac. In a statement this morning, Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director Jim Lockhart outlined a four-pronged plan to stabilize the two struggling mortgage giants.

"We examined all options available, and determined that this comprehensive and complementary set of actions best meets our three objectives of market stability, mortgage availability and taxpayer protection," Paulson said.

The plan:

1. FHFA will take over Fannie and Freddie via conservatorship. The CEOs of both companies will be dismissed, and federal officials will assume control..
2. Treasury and FHFA have established contract agreements under which the Treasury Department will ensure both companies remain solvent while protecting taxpayers as much as possible. Under these "Preferred Stock Purchase Agreements," Treasury will receive senior preferred equity shares. Common and preferred shareholders will suffer losses before the government.
3. Treasury has established a secured lending credit facility for Fannie Mae, Freddie Mac, and other federally backed banks in order to lend money to agencies in need.
   
4. Treasury is initiating a temporary program to buy mortgage-backed securities in order to stabilize rates and ease the market. The program will end in December 2009, when Treasury's expanded power over government-sponsored enterprises such as Fannie Mae and Freddie Mac expires.
   

Federal officials said the takeover was necessary to safeguard the U.S. economy and to protect taxpayers.

"Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe," Lockhart said. "This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement."

Treasury Department press release and fact sheets here.

Fed Chairman Ben Bernanke approves: "These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets. I also welcome the introduction of the Treasury's new purchase facility for mortgage-backed securities, which will provide critical support for mortgage markets in this period of unusual credit-market uncertainty."

From today's Associated Press story:

The Bush administration's seizure of troubled mortgage giants Fannie Mae and Freddie Mac is potentially a $200 billion bet that it will help reverse a prolonged housing and credit crisis.

The historic move announced Sunday won support from both presidential campaigns, but private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

(snip)

Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie -- and at lower rates -- since the federal government is now explicitly standing behind that debt.

"Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table."

A record number of homeowners are behind schedule in mortgage payments or have already entered foreclosure proceedings, according to the Mortgage Bankers Association.

More than 9 percent of U.S. mortgages were delinquent or in foreclosure at the end of June, according to the MBA's National Delinquency Survey. In a statement released today, the MBA reported 6.41 percent of home loans were behind by at least one payment with an additional 2.75 percent already in foreclosure.

"The seasonally adjusted total delinquency rate continues to be the highest recorded in the MBA survey," according to the MBA statement. "The increase in the overall delinquency rate was driven by increases in the number of loans 90 or more days past due, primarily in California and Florida."

The Wall Street Journal reports today that a Treasury Department bailout of Fannie Mae and Freddie Mac could come as soon as this weekend. While spare on the details, WSJ reports the plan will likely include "a capital injection" and "changes to senior management."