It's always darkest before dawn, right? On Friday, with Fannie and Freddie's share prices plunging, it felt as though no matter what Treasury secretary Henry Paulson said about the situation the markets didn't believe him. All week long as the "negatives" mounted against the two, their stocks kept going down. There's one simple solution to the mess: Federal Reserve chairman Ben Bernanke opens the borrowing window to Fannie and Freddie, which would end this "crisis of confidence" immediately. The common shareholders would be left intact with the hope that one day their investment might come back. It's no secret that short sellers are targeting the GSEs big time and it's making commercial paper lenders nervous. Why hasn't Bernanke stepped forward to do this? I have no idea. It did it for Bear Stearns. Maybe Ben will step forward over the weekend. Are Fannie and Freddie insolvent? Answer: not that I know of. But keep in mind this one thought: we are no longer living in "normal times." A company that appears "solvent" one day can find itself on the ropes within hours. It's all about cash flow, folks. If a line of credit gets pulled, a "solvent" company can go bust within a few days. We're in unchartered waters here
The book is out. It's called "Chain of Blame, How Wall Street Caused the Mortgage and Credit Crisis." (
The Federal Deposit Insurance Corp. recently issued guidance for lenders and servicers contemplating reducing credit limits on HELOCs or suspending a borrowers' ability to draw on their lines. According to K&L Gates, the agency believes freezing or suspending HELOCs may be a prudent and appropriate way to manage credit risk. However, the agency also is reminding the banks it regulates that they must follow the law including adhering to the Truth in Lending Act and other pieces of legislation
Lew Ranieri, the co-inventor of the MBS, believes the mortgage industry can cut through its portfolio of troubled loans by aggressively reducing the principal amount owed on delinquent loans. Speaking at an FDIC meeting on Tuesday, Mr. Ranieri noted that "cutting the principal is better than putting the loan in foreclosure," adding that in a foreclosure "the costs can eat up the principal in a hurry." Because of his long history and expertise in the mortgage industry Mr. Ranieri has the ear of several regulators
According to Clayton Group president Keith Johnson the entire non-agency MBS market is "gone." Speaking at a FDIC summit on mortgage lending Tuesday, Mr. Johnson blamed the "mass production" of payment option ARMs for sparking the mortgage crisis. He also said reports that his company (a contract underwriter) had compiled on loan "exceptions" were not "being made available" to the rating agencies that analyzed nonprime MBS. Mr. Johnson did not identify who was withholding those reports but the inference was that it was Wall Street
BOOKS BY OTHER MORTGAGE EDITORS: NMN editor Mark Fogarty has collected all his rock and roll essays from brokeruniverse.com into a new book called "Went to See the Gypsy." Mark's been a big rock fan since the Beatles came ashore. The book is his reflections and memories of all the greatest rock bands — not to mention the ones he saw live at mortgage industry events. For info:
