“Freddie Mac, the second-largest mortgage-finance company, posted a record $2.45 billion loss for the fourth quarter as rising defaults sent credit costs soaring….Government-chartered Freddie Mac and Fannie Mae, which account for 45 percent of the $11.5 trillion home loan market, are posting their biggest-ever losses as foreclosures and tumbling home prices increase costs. Freddie Mac Chief Executive Officer Richard Syron said today the company remains ‘extremely cautious’ for 2008.”
Freddie Mac Posts Record Loss, Remains `Cautious’ [Bloomberg]

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Comments from “Plugged-In” Readers

  1. Posted by badlydrawnbear

    again, why are we raising conforming loan limits for these guys???

  2. Posted by resp

    both stocks are up about 7% so far today. the market has already discounted this bad news and it is not new information to investors. not to say we’ve seen the bottom, but the stocks of the GSEs and mortgage insurers will lead any recovery in real estate. watch them.

  3. Posted by tipster

    “again, why are we raising conforming loan limits for these guys???”
    Because it’s an election year. Which 2009 isn’t.
    And if the congress is doing what I think they are doing, they are going to pass everything in sight NOW so that they don’t have to campaign based on this issue. That’s so they won’t get called on to meet campaign promises that are unsustainable.
    After the election, they’ll be motivated to let the market find its true equilibrium point, so as to put the issue behind them before the next election. That way, they can use it as a basis for a need to redistribute wealth.
    But for now, they need to get reelected, and if that’s what it takes so be it.

  4. Posted by Trip

    Freddie and Fannie are now down. I don’t think you can draw too many conclusions from hourly swings in stock prices. I agree that FNM, FRE, and mortgage insurers should indicate which way real estate is going, but there are lots of other factors affecting stock prices, particularly in the short term. With mortgage rates rising and the economy tanking, I wouldn’t bet on these stocks right now, and I certainly wouldn’t bet on any reversal of current housing price declines, which still have a long way to go before they even approach historical norms.

  5. Posted by ex SF-er

    still think you’re going to get cheaper mortgages?
    with fannie/freddie having record losses?
    If Fannie/Freddie are going to survive, they’re going to have to
    1) lend only to people who can repay the loan (this would mean tighter loan restrictions, higher FICO’s, lower loan to value limits)
    2) charge more for it.
    thus, even with Fannie/Freddie we’re going to have pain.
    just yesterday Fannie sent out letters to its lenders that in-house appraisers are no longer allowed.
    (source: Bloomberg.com
    “Fannie Proposes Ban on Lenders’ In-House Appraisers”

  6. Posted by FSBO

    Agree ex SF-er – how can mortgages (on average) get cheaper? Risk has been mis-priced – so, to correct this, rates need to continue to go up and lending standards need to be further tightened. Paulson’s recent comments seem to indicate that he is standing strong against real action or intervention – which I think is good (although I wouldn’t take anything that comes out of Paulson’s mouth at face value – I think his primary mission is still to maximize GS’s share price).
    Hey where is Satchel with all of this stuff going on?

  7. Posted by ex SF-er

    FSBO:
    there IS a possibility for mortgage rates to go lower, just not a big one IMO. I don’t want to give the impression that lower mortgage rates are an impossibility, because that’s not true.
    Mortgages can get cheaper if there is more governmental manipulation.
    for instance, if the Fed drops it’s Fed Funds rate to 1% again and holds it there for a long time, and also starts intervening in the 10 year treasury market artificially bringing that down too, this may allow mortgage rates to come down.
    also, lower mortgages is possible if the govt sets up a truly governmental lending agency that gives below-market mortgages… (by decreasing the risk premium)
    of course, both of these would cause severe inflation, and our dollar would be toast (think $5 gas and $150/barrel oil and skyrocketing food prices, etc).
    also, if housing suddenly started improving and mortgage losses lessened, more investors would buy mortgages making them cheaper for mortgagees, but this is extremely unlikely.
    Put it this way: would YOU invest in mortgage securities right now! yeah, me neither! :)

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