Good Monday Morning

While there was never any doubt that the Federal Government would stand behind the obligations of both entities and assure availability of mortgage financing, the fact that they jumped in this weekend was somewhat unusual considering both have recently reported acceptable equity positions.

The sooner than later approach is very likely due to two equally compelling reasons.

First, both have a history of overstating value and under estimating immediate contingent liabilities. Our guess is that the Feds who have a lot of experience doing the same thing, looked past the rose colored glasses and discovered the additional pot holes.

Second, and most compelling reason, is both are stock companies that have experienced a 90% drop in stock price in the last year. They were having problems attracting new capital for new lending at A+ quality rates.  Both continued tightening underwriting guidelines and charging higher fees for new loans.  This of course would lead to a reduction in qualified buyers and higher costs to buy a home.  Just as consumer confidence jumps purchases of products, this move is still deemed to be an investor confidence issue to attract the hesitant investors back to the MBS market.

So what is the likely results of this move?

Mortgage money will continue to be available and good for the housing market.
Rates may jump a bit to begin with but we should see an overall drop in the coming months.
Depending on how the government handles it, investors in both stocks, just lost a lot of money.
The overall stock market will view this as very positive.
Because the Federal Government does not like Mortgage Brokers, Mortgage Bankers like FM Lending and Banks will probably be given additional lending advantages.
While the takeover is being treated like a bankruptcy reorganization, the Feds and Congress could convert both to a government agency rather than a restructured stock company.

This move is good for housing and the economy and as we begin to rebound new higher quality mortgages will begin to offset the non performing part of FNMA/FHLMC portfolio and return them to a self sustaining entity.