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Wednesday, March 12, 2008

Housing/Subprime Roundup — March 12, 2008

Items of interest:

A Palliative, Not a Cure From the Fed -- DR. BERNANKE'S NEWEST MEDICINE for the ailing credit markets seems to be working, at least as far as the stock market is concerned. But apart from that encouraging improvement in symptoms, the prognosis of the patient remains unclear.

Tuesday's announcement of another new $200 billion plan from the Federal Reserve to pump liquidity into parched credit markets sent stocks soaring with the Dow Jones Industrial Average posting a 416.66-point gain, or 3.55%, its biggest one-day percentage increase since 2003. The blue-chip indicator ended at 12,156.81 Tuesday after having set a 12-month low Monday. . .

Notwithstanding the stock market's applause, the new Fed facility won't cure the credit crunch. "Today's action is not nearly a large enough step to make a big difference," writes Merrill Lynch North American economist David Rosenberg. "Just compare the size of the operation, $200 billion versus the total MBS market of $6 trillion, comprised [sic] of $4.1 trillion agency MBS and $1.9 billion in non-agency MBS."

Indeed, only time will cure the problem, as house prices decline to levels that are affordable. But steps that the Fed is taking helps buy some time for the credit system and the economy.

Housing Wire:
Freddie Mac Projects G-Fees Nearly Doubling - In an investor presentation delivered Wednesday, Freddie Mac executives predicted that so-called single family flow all-in guarantee fees at the mortgage finance giant could reach as high as 35 basis points come the fourth quarter of this year.

Guarantee fees are the percentage of the loan amount that Fannie Mae and Freddie Mac charge to provide their guarantee on principal and interest payments to agency MBS investors.

Freddie Mac’s “g-fee” currently stands around 20 basis points, it said. Fannie Mae hiked its g-fees to nearly 30 basis points last November as part of a plan to compensate for increased portfolio risk. [...]
Federal Rules Let Too Many Poor People Buy Houses, Syron Says - Freddie Mac Chief Executive Office Richard Syron said he's urging changes in federal rules that enabled too many low- and moderate-income Americans to buy houses they can't afford.

It's ``perverse'' that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged ``to put people into homes that they end up losing,'' Syron said at a meeting with analysts and investors in New York. [...]

Calculated Risk

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Safe Haven

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