Fannie and Freddie takeover: The Truth

Here's what you need to know about the US government takeover of Freddie and Fannie.

I have a personal interest in this, because…

…in 2004 and 2005, I sold the stocks of Fannie Mae and Freddie Mac short.

(When you sell short, that means you are making money if the stock price falls. You lose money if it rises.)

Their stock prices were in the 60s and 70s and I was convinced they would become worthless.

I lost money.

I was right about their stock price falling, but my timing was quite off. It took a few years for the worthless part!

(That's the trick to investing. You have to be both right on the direction of the trade and the
timing.)

Now, the US government has taken over both companies and the shareholders will probably be wiped out. The share price is near zero.

Just FYI, Freddie and Fannie buy mortgages and then either hold onto them, or repackage and sell them, or borrow against them.

The US has $12 trillion in home mortgages and Freddie and Fannie hold about $5 trillion.

What does a trillion mean to you? When you think of a trillion, think of say four people in your household. Each one owes about $3300. That is what a trillion means: each person, every man woman and child in the US, owes $3300, roughly. So for my family of four, Fannie and Freddie owe $3300 X 5 (for 5 trillion) X 4 people = (wait, let me get my calculator…) $66,000!

More importantly, the mortgage market fell apart over the last year and really, only the FHA, Freddie and Fannie are doing mortgages to speak of.

How mortgages are financed by foreign interests

It is very likely that if you got a mortgage in recent years, the loan was financed by foreign interests.

This chart shows the trend:

 

The Japanese, Chinese and Middle Eastern types bought hundreds of billions of dollars worth of Freddie and Fannie bonds.

These foreign financiers told the high-ups in the US government in no uncertain terms "you better guarantee these bonds or we are selling and not buying any more."

If the Asians and Middle Eastern types bail on buying US bonds, then the US government and the US dollar are in very, very serious trouble.

That's because the war in Iraq and all the huge expenditure of the US military (70% of all worldwide military spending is by the US) is funded by foreigners.

And the US mortgage market is and has been funded by foreigners.

So the US government did what it had to do to keep the Chinese and the Dubai and Saudi interests satisfied.

So now all Fannie and Freddie bonds are backed by the US government's guarantee, as of yesterday, Sunday.

The Treasury Department has said they will purchase bonds from Freddie and Fannie directly.

Does this change anything? Does it affect you or me in any way?

As I pointed out the other day, housing prices are mostly determined by the monthly payments that buyers can afford and are willing to pay.

Why real estate prices are still headed down

The runup in prices we had from 2000 to 2005 was the result of incredibly easy financing terms and low interest rates. These led to a buying and flipping frenzy. They trapped good people into loans that they could never pay back.

So what does the takeover mean for interest rates and terms of home loans going forward?

In my mind, it means rates are headed higher, not lower.

The reason is that the US government will be forced to finance huge losses in the US mortgage market.

They will have to issue many hundreds of billions worth of treasury bonds, to finance the mortgages.

The greater the supply of bonds, the higher interest rates.

So rather than keep rates low, I think this will have the reverse effect and continue the trend towards higher mortgage rates.

There is about to be another round of huge inflation in the US. This would normally be good for real estate prices. But this time, the inflation will be accompanied by higher interest rates and tight financing terms.

It would be okay if incomes were going up, but they are not. Incomes in the US are actually falling if you take buying power into account.

I don't want to sound pessimistic here so I won't. I am simply saying that the takeover of Fannie and Freddie will not stop the trend towards a falling real estate market.

That is great news if you are doing 9 Day House Sales, or are doing loan mods for income. Because you can be sure there will be a lot of business over the next few years.

It is great news if you are looking to make money in real estate. Because the falling market means a lot of folks need help. And that spells o-p-p-o-r-t-u-n-i-t-y.

So now, please

Click here to get your 365 day trial of Mortgage Relief Formula

warmly, 

 

 

P.S.  My Mortgage Relief Formula course has information in it about how to sell a house, any house, in 9 days, and also about credit card debt settlement and short sale negotiation. It is an essential toolkit for you if you are either in the business of real estate, or if you are an investor, or if you are a homeowner in trouble.

You can get it on a 365 day home trial. Simply try it out and decide later if it is right for you. Don't buy it. Just try it out. You have zero risk. I will buy it back from you for every penny you have paid for the course any time in 365 days.

Help yourself and help others. Hundreds of Realtors, real estate investors and homeowners use my info to help themselves, their families and others.

And if you want to get some important information on short sales and 9 day house sales and saving your credit and buying with no money and no credit…even settling credit card debts for a dime on the dollar…

Please watch this video on short sales and foreclosures. This is a screen shot — just type in your email and I'll get you to the real video. It's geared to homeowners and Realtors who want to know everything they can about short sales. And it is the tip the iceberg…

 

 

 

Charts courtesy of ContraryInvestor.com

Disclaimer: I make no claims as to how much you can make or legalities. You need to do your own homework and you are fully responsible for any outcome. I try to be accurate but I cannot assure you that everything I say is correct or legal.