Could reforming Fannie and Freddie wreck the Fed?
And now, fresh off passing the 2300-page Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress promises to address the “problem” of Fannie Mae and Freddie Mac.
Be afraid. Be very afraid.
Oh, not because Fannie Mae and Freddie Mac don’t need to be reformed. They sure do. They were at the heart of the U.S. housing bubble and the mortgage debacle that mutated into the global financial crisis.
And not because Congress can be counted on to compromise its way into a hash that combines the worst of private market gestures with the worst of bureaucratic rule-splitting.
No, the real danger is that a mistake in fixing Fannie and Freddie could take down the U.S. Federal Reserve. Or at least take down the Fed to the degree that any central bank, with a central bank’s ability to create money, can be taken down.
All hyperbole aside, a mistake in fixing Fannie Mae and Freddie Mac could throw the U.S. financial system into crisis again by destroying the balance sheet of the Federal Reserve. Read more
More cheery numbers from the mortgage front
And now its credit-worthy home owners with prime mortgages that are jumping ship.
Foreclosure rates for loans that conform to the guidelines of now government owned Fannie Mae and Freddie Mac have jumped 425% since January 2008. And the monthly rate of foreclosures has accelerated in the last two months, according to Lender Processing Services.
Unlike the subprime mortgages that set off the global financial crisis, conforming agency prime mortgages are held by borrowers regarded as the best credit risks.
There’s bad news and good news in these numbers.
The bad news should be pretty obvious: The last thing that Freddie Mac and Fannie Mae need is more bad mortgages. Read more
Subsidies end and housing starts plunge even more than expected
Hard to find a silver lining in this data.
Housing starts in May fell to a 593,000 annual rate, according to numbers released this morning, June 16, by the Department of Commerce. That was a 10% drop from April’s annual rate of 659,000. The April rate itself was revised downward from 672,000. The drop was the biggest since March 2009.
Building permits, an indicator of future housing starts, fell to an annual rate of 574,000. That’s a one-year low.
Economists had been expecting that housing starts and building permits would both fall because government subsidies to home buyers expired at the end of April. Under the program home buyers had to sign a contract by the end of that month to qualify for a credit of up to $8,000.
But they hadn’t expected starts and permits to fall quite this sharply. Read more
Sell Rayonier (RYN)
I’ve already sold Rayonier (RYN) out of the Jubak Dividend Income Portfolio today, May 28. And now I’m selling it out of Jubak Picks as well. Nothing wrong with the stock—when the real estate market does finally turn, this timber and real estate REIT will do quite well. But I think that turn is still a long way away and that investors will see better places to put their money to work—most likely in the world’s emerging stock markets—before then.
I’m looking at a 2% drop in the price of a Rayonier share since I added it to the portfolio on November 9, 2007. On a total return basis—that’s capital gain (or in this case loss) plus dividend payments—I’ve got an 8.4% profit. Read more
Is the slowing in the rate of home price increases, a forecast that the economic recovery will slow at the end of 2010?
This is exactly what I’m afraid of for the 12 months ahead.
Yesterday’s numbers on home prices suggest that as the economic stimulus money gradually dries up over the next 12 months, the economic recovery will lose some steam. Not enough to send us back into recession mind you. But enough to slow economic growth below the rate that higher stock prices now reflect.
The Standard & Poor’s Case Shiller Home Price Index, according to data released yesterday, April 27, shows that home prices rose 0.6% from February 2009. This marks the first time since December 2006 that the index has shown a year-to-year increase in home prices.
That’s the good news. The recovery in the housing market continues.
But there was bad news in the February numbers too. Read more
