Crunch time for Fannie and Freddie?
Report: Treasury finalizing bailout plan
By Inman News, Friday, September 5, 2008.Editor's note: This article was published on Friday, Sept. 5. Watch Inman News today for updates to this article.
Fannie Mae and Freddie Mac will reportedly get an injection of taxpayer capital and see a shakeout of senior management under a plan being finalized by the Treasury Department, the Wall Street Journal reported, citing unnamed sources.
Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson were meeting today with top executives of Fannie Mae and Freddie Mac and the companies' new regulator, the Federal Housing Finance Agency, the Journal said.
An official announcement on the plan, which the Journal said is expected to involve a "creative use" of the Treasury Department's newly expanded authority to take a stake in the companies, could come over the weekend. A Treasury spokeswoman said officials were "making progress" but would not comment further.
Shares of the companies plummeted in after-hours trading over fears that if the Treasury Department exercises its authority to lend the companies money or buy their stock, shares owned by current investors would become diluted or worthless.
Paulson has said the government does not want to nationalize Fannie and Freddie and is looking for a way to prop the companies up without wiping out investors.
But pressure to finalize a plan is said to be building as the companies must refinance $225 billion of mostly short-term debt in coming weeks. Although Fannie and Freddie would have to agree to any bailout plan, they may have little choice if they can't raise money from the private sector.
Analysts at several investment banks have said the companies have enough cash to continue operating in the near term, but overseas central banks have been paring their holdings of federal agency debt in recent weeks, Reuters reported.
Armando Falcon Jr., who oversaw the government's oversight of Fannie and Freddie from 1999 to 2005, told the Washington Post's Washbiz Blog that the government should put the companies in receivership now to prevent a costlier bailout down the line.
In an interview conducted before the Wall Street Journal story broke after the close of trading today, Falcon said that while all of Fannie and Freddie's shareholders would be wiped out, the companies could reopen Monday under government ownership, borrow money at lower interest rates, and pass savings to consumers.
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Submitted by Bill Kukla on September 8, 2008 - 5:19am.
Why are you talking about stuff from 9/5 on 9/8? The Feds announced their takeover over the weekend. The reporting and timing needs tobe more crisp.
Bill Kukla
Submitted by Christine Moscinski, Chicago South Loop & West Suburban Realtor on September 8, 2008 - 6:12am.
I agree! Someone is sleeping on the job!!
Submitted by Glenn Roberts Jr. on September 8, 2008 - 6:52am.
Thank you for your comments. This article was published on Friday and Inman News will be updating the article today based on events that occurred over the weekend.
Submitted by Wenceslao Fernandez Jr, BS, Realtor, CDPE on September 8, 2008 - 7:20am.
Timing is of the essence, now more than ever. The question now is, what does it all mean?
According to Jim Cramer of CNBCs Mad Money, having the government take over these institutions should help envigorate or restore investor and consumer confidence in the mortgage market. Today's stock markets around the world have reflected this today (Monday, Sept. 8, 2008)
In turn, this should help precipitate the much needed bottom. According to his prediction made about 14 days ago in his Mad Money show, if the fed did take over these giants (and now they have), the U.S. real estate market (in all markets, including California and Florida), should hit bottom by the end of June/July, 2009.
We've all been waiting for a sign of a bottom in real estate, and if Jim's rationale and assessment depicted in that show is correct, now we have a date.
Since most people freeze long-term decisions during an election year, which is quickly followed by holidays (Thanksgiving and religious holidays and new years), it stands to reason that most of our market will stay soft until after the new president is sworn into office in January, 2009.
Then, comes the provervial "let's see what the new president does in the first 90 days in office" syndrome which means the first quarter of 2009 will also likely be soft, although I expect to see folk's attitude begin to change as we approach the end of the first quarter.
By the end of the second quarter or beginning of the third, 2009, we should then hopefully see most (or all markets) begin that long recovery period, which will hopefully also help strengthen our economy once again and signal that we have finally hit bottom.
This means that sellers who can hang in there for another year or two should see their property values increase after the 2nd or 3rd quarter of 2009.
However, if you are planning to sell at a certain price level which may be high by today's standards, it may take even longer for your home value to get to that magical price you want.
For buyers, this means that the bottom is in sight and that you should no longer be in the sidelines trying to time it just right.
You should be looking for financing and talking with active, professional Realtors who are also Certified Distressed Property Experts (CDPE), and who can help you navigate through all the REO and pre-foreclosure deals available and negotiating offers on these (which typically take weeks to approve).
www.MiamiRealEstateKing.com
Certified Distressed Property Expert
Miami-Dade County, Florida.