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Fed split over rate impact of mortgage purchases

 
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news



Joined: 14 Jul 2007
Posts: 0
Location: Greater Boston

PostPosted: Tue Jan 12, 2010 2:23 pm GMT    Post subject: Fed split over rate impact of mortgage purchases Reply with quote

Use this forum thread to discuss the following link.

Description: Fed split over rate impact of mortgage purchases
URL: http://www.ft.com/cms/s/0/684e894c-ff1b-11de-a677-00144feab49a.html
Info/Broken?: http://www.bostonbubble.com/link_info.php?id=2776

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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Tue Jan 12, 2010 5:56 pm GMT    Post subject: The answer to CL's question Reply with quote

Will the Fed act simply to ensure that housing prices don't decline? It doesn't seem so:

Quote:
Mainstream Fed officials are likely to apply a tougher three-part test. How large is the rise in mortgage rates? How vulnerable is the housing market to this? Is the rest of the economy strong enough to tolerate some further weakness in housing or not?
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CL
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PostPosted: Wed Jan 13, 2010 1:02 pm GMT    Post subject: Reply with quote

I have a feeling the focus of government help will shift from Fed purchasing MBS securities directly to Fannie and Freddie/FHA and HARP. Fed is not designed to be a housing policy machine and what they did is to save the market from complete collapse, but not really ideal solution.

So instead of supporting the mortgage market by being the biggest securities buyer (mainly to provide liquidity to MBS market), support the market more directly via Fannie and Freddie to give equity directly to targeted homeowners. The 12/24 cap removal is one step towards that. I expect HARP to be expanded. A lot of mortgages will be asked/forced to be mortified, reducing foreclosure and give some home equity to those bought-at-the-peak homeowners. Fan and Fred will make huge losses along the way in order to finance it but it seems they have no issue doing so (have been in loss making mode for a while now). Since 12/24, Treasury can now unlimitedly support Fan and Fred, without Congress approval. So in short, money will transfer from taxpayer (I am one of them) to Treasury to Fan/Fred/FHA to underwater homeowner (I am not one of them, if you wonder). If you want to see how much government is helping the market, just look at how much losses Fan/Fred is making.
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Wed Jan 13, 2010 5:06 pm GMT    Post subject: Reply with quote

Is there an upper limit to the amount that Fannie/Freddie/FHA can lose? If so, what defines that limit? I'm thinking that the only limit is the inflationary pressures generated by printing the dollars to do it.
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CL
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PostPosted: Wed Jan 13, 2010 5:34 pm GMT    Post subject: Reply with quote

There is no limit on how much Freddie and Fannie can lose. It used to be 100 mil from Hank Paulson days when Fred&Fan went to conservatorship, then increased to 200mil, then 400mil, then unlimited.
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Thu Jan 14, 2010 2:07 pm GMT    Post subject: Reply with quote

Estimated GSE Losses = $448 Billion

http://www.ritholtz.com/blog/2010/01/gse-losses-448-billion/
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CL
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PostPosted: Thu Jan 14, 2010 4:11 pm GMT    Post subject: Reply with quote

I briefly looked at it and it really depends on whether how the housing market goes. But the underlying idea is the same - Fannie and Fred is now a policy machine and will have huge losses going forward (part of it deliberately via HARP).
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Thu Jan 14, 2010 8:11 pm GMT    Post subject: Reply with quote

Yeah, it's just an estimate based on the performance of loans so far. It just demonstrates that we're talking about some really big losses.

That number doesn't even include potential losses at the FHA...
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