View Full Version : Mortgage Giants Avert Potential Disaster

07-10-06, 08:00 PM
Mortgage Giants Avert Potential Disaster (http://biz.yahoo.com/ap/060710/mortgage_giants.html?.v=2)
U.S. Agency Head Says Potential Financial Disaster Averted by Fannie Mae, Freddie Mac Regulators
July 10, 2006 (AP)

A potential financial disaster that could have shaken the housing market was averted because regulators discovered accounting failures at Fannie Mae and Freddie Mac, the new head of the agency that oversees the mortgage giants said Monday.

The government-sponsored organizations appear to have gotten the message that they need to reform, but it still will take years to repair their internal problems, James B. Lockhart said in an interview with The Associated Press.

"The housing market is so important to this country," said Lockhart, who has headed the Office of Federal Housing Enterprise Oversight for about two months. "And to have it built on what turned out to be a shaky foundation could have caused significant financial problems."

Problems were averted, he said, because the regulators acted to identify and order corrections at Fannie Mae and Freddie Mac, which together stand behind some 40 percent of the $8 trillion U.S. home-mortgage market.

"The good news is that it was caught in time and the remedies are starting to be in place, so that there was no major problem for the average American," Lockhart said.

Lockhart, a friend of Bush from prep school and college, became director of an agency whose previous leader had for years waged a quixotic battle against the two politically powerful companies. After serious accounting problems at Fannie Mae and Freddie Mac became known, a push by the administration to tighten the government reins on them gained ground in Congress.

AntiSpin: Thank God for our Great Leader! Without him, just in the past few weeks, the tunnels leading into Manhattan would have been attacked by terrorists and a disaster at Fannie and Freddie would have destroyed the US housing market! If not for our Great Leader's college chum, who caught the problems at Fannie and Freddie "in time" to prevent disaster in the "housing market" that "is so important to this country."

As this has been going on for many years, it's hard to believe that anything has been "saved" by timing.

Shame on AP for printing this press release.

07-10-06, 10:15 PM
Fannie and Freddie are a mess,
They have provided Democratic and Republican administrations a place to send friends for "good Jobs " for "Obscene Wages".
Frankllin Raines - lived the poor life while working in the Clinton Administration cabinet - then Pay Day. Raines was made CEO of Fannie Mae and the order of business was making money for the executives. Mr Raines qualified for a $100,000 pension - thats per month! "Good Job" for "Obscene Wages"!
I think Newt G did some consulting work at Fannie - boy, he must have done a great job.

Should be interesting to see how Mr. Lockhart handles the Portfolio of Mortgages that Fannie is sitting on. What do one do when you are sitting on a pile of fixed rate mortgages and interest are trending towards the sky!
I hope they had a special class at the Prep School.
Keep the mortgages and Fannies Balance sheet gets smoked - Unload the mortgages and Fannie floods the secondary mortgage market. Bad news for home sellers and Banks......it should be an interesting ride.
Remember , the original mission of Fannie and Freddie were to ensure mortgages would be available to all Americans.
So, for those of you who want to turn over the Healthcare system to the Politicians - perhaps this will enlighten you on what Pols do!

07-10-06, 10:38 PM
i believe the gse's attempt to hedge their interest rate exposure in the treasuries market. as rates go up mortgages' durations extend as well, so it gets a little complicated. you also get a positive feedback loop - treasuries decline so rates go up, so the gses hedge by shorting treasuries, pushing their prices down further, etc. but in any event, they don't do it by selling the mortgage portfolio. my recollection of all this is a bit hazy, perhaps someone else can fill in more info.