Finance Institutional Investment
July 14, 2008
By: Eugene Gilligan, Senior Editor
The Bush Administration unveiled plans on Sunday to aid Fannie Mae and Freddie Mac, the U.S.’s two largest mortgage finance companies, as concerns continue to mount about these government-sponsored entities.
Shares of the two companies plummeted 50 percent last week on those worries.
Together, Fannie Mae and Freddie Mac own or guarantee about half of the nation’s $12 trillion mortgage market. A temporary rescue plan has already been put into place, as the Federal Reserve said it would make a short-term lending program available to the two giants. A more comprehensive plan would be attached to a housing bill that could be completed and sent to President Bush to be approved as early as this week, according to a report in today’s New York Times.
This morning, Freddie Mac sold $3 billion of short-term notes, finding higher-than-average demand for the paper, according to Bloomberg.com.
The White House said today that the two mortgage giants have not yet taken advantage of the new lending program, according to Reuters.
The Fannie Mae-Freddie Mac rescue plan would be attached to a housing rescue bill that would spare hundreds of thousands of American homeowners from foreclosure. The Senate completed its work on the bill Friday, and sent it to the House of Representatives. The bill contains some differences from an earlier measure approved by the House, and these must be resolved before the bill can be sent to the White House.
Late Friday, the White House issued a statement that Bush would veto any proposal that offered block grants to states to buy foreclosed homes, according to Reuters .
The troubles with both Fannie and Freddie will mean that the two GSE’s will not be as aggressive in the multi-family lending arena, said Dan Gorczycki, managing director of Savills L.L.C. “Their costs of funds are higher, and they will have the government looking over their shoulder,” he said.
While many may look to insurance companies to fill the lending gap, Gorczycki said many of these companies may be close to using up their real estate funding allocation for the year, since they have been busy filling the vacuum left by the moribund conduit lending market. Many insurance companies may not be able to become active again until the beginning of 2009, he said.
A stable Fannie and Freddie are essential if the economy is to recover from the housing crisis, said Norman Radow (pictured), CEO of Radco Cos. Fluctuating mortgage rates, such as those that were witnessed last Friday, means that many potential home and condominium buyers will not make a purchase due to lack of clarity concerning cost of funds. “The worst thing a market can experience is uncertainty,” Radow said.
The two government-sponsored equities are “linchpins” of the U.S. housing market, said Stuart Saft, partner in the law firm of Dewey & LeBoeuf. “If something were to happen to them, the consequences are too bleak to even consider,” Saft said.
He said he worries that increased regulation may hamper their ability to lend. “Real estate, by nature, is an illiquid asset,” Saft said. “It’s lending that keeps things moving.” He said criticism by some in Congress that the agencies have gotten too big is unfair, saying the agencies are doing what they are supposed to do.
Increasing home ownership in the U.S. was an objective of both the Bill Clinton and George W. Bush administrations, he said.
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By: Eugene Gilligan, Senior Editor
The Bush Administration unveiled plans on Sunday to aid Fannie Mae and Freddie Mac, the U.S.’s two largest mortgage finance companies, as concerns continue to mount about these government-sponsored entities. Shares of the two companies plummeted 50 percent last week on those worries.
Together, Fannie Mae and Freddie Mac own or guarantee about half of the nation’s $12 trillion mortgage market. A temporary rescue plan has already been put into place, as the Federal Reserve said it would make a short-term lending program available to the two giants. A more comprehensive plan would be attached to a housing bill that could be completed and sent to President Bush to be approved as early as this week, according to a report in today’s New York Times.
This morning, Freddie Mac sold $3 billion of short-term notes, finding higher-than-average demand for the paper, according to Bloomberg.com.
The White House said today that the two mortgage giants have not yet taken advantage of the new lending program, according to Reuters.
The Fannie Mae-Freddie Mac rescue plan would be attached to a housing rescue bill that would spare hundreds of thousands of American homeowners from foreclosure. The Senate completed its work on the bill Friday, and sent it to the House of Representatives. The bill contains some differences from an earlier measure approved by the House, and these must be resolved before the bill can be sent to the White House.
Late Friday, the White House issued a statement that Bush would veto any proposal that offered block grants to states to buy foreclosed homes, according to Reuters .
The troubles with both Fannie and Freddie will mean that the two GSE’s will not be as aggressive in the multi-family lending arena, said Dan Gorczycki, managing director of Savills L.L.C. “Their costs of funds are higher, and they will have the government looking over their shoulder,” he said.
While many may look to insurance companies to fill the lending gap, Gorczycki said many of these companies may be close to using up their real estate funding allocation for the year, since they have been busy filling the vacuum left by the moribund conduit lending market. Many insurance companies may not be able to become active again until the beginning of 2009, he said.
A stable Fannie and Freddie are essential if the economy is to recover from the housing crisis, said Norman Radow (pictured), CEO of Radco Cos. Fluctuating mortgage rates, such as those that were witnessed last Friday, means that many potential home and condominium buyers will not make a purchase due to lack of clarity concerning cost of funds. “The worst thing a market can experience is uncertainty,” Radow said.
The two government-sponsored equities are “linchpins” of the U.S. housing market, said Stuart Saft, partner in the law firm of Dewey & LeBoeuf. “If something were to happen to them, the consequences are too bleak to even consider,” Saft said.
He said he worries that increased regulation may hamper their ability to lend. “Real estate, by nature, is an illiquid asset,” Saft said. “It’s lending that keeps things moving.” He said criticism by some in Congress that the agencies have gotten too big is unfair, saying the agencies are doing what they are supposed to do.
Increasing home ownership in the U.S. was an objective of both the Bill Clinton and George W. Bush administrations, he said.
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